Advice to a Bank Director

Article excerpt

MANILA, Philippines - My friend, being offered a position as a director of a government-owned bank, asked me as a former member of the Monetary Board to give him some advice.

I began by asking him to consider whether he has the qualifications of a bank director. In Circular No. 296, the Bangko Sentral in addition to those required under Section 16 of the General Banking Law, the Corporation Code and other existing laws and regulations sets these minimum qualifications - at least 25 years of age at time of election or appointment; at least a college graduate or have at least five years experience in business; attended a special seminar for board of directors conducted or accredited by the Bangko Sentral; and fit and proper for the position of director based on his integrity/probity, competence, education, diligence, and experience/training.

My former colleague in the Monetary Board, Atty. Fe Barin in her article, Strengthening Corporate Governance of Banks in the Philippines, in the book, The Bangko Sentral & the Philippine Economy wrote that the "fit and proper" rule for bank directors should be interpreted more stringently than for other corporate directors. Since banking is vested with public interest, the degree of diligence required of bank directors is more than that of a good father of a family but with the highest degree of care and she cited a number of decisions of the Supreme Court and the Court of Appeals that upheld this view.

Assuming he has the qualifications, I asked him whether he was prepared to undertake the general and specific responsibilities of the board of directors. Generally, as enumerated by BSP Circular No. 283, the board of directors "is primarily responsible for the corporate governance of the bank.

To ensure good governance of the bank, the board of directors should establish strategic objectives, policies, and procedures that will guide and direct the activities of the bank and the means to attain the same as well as the mechanism for monitoring management's performance. However, while the management of the day-to-day affairs of the institution is the responsibility of the management team, the board of directors is responsible for monitoring and overseeing management action."

The specific duties and responsibilities of the board of directors of a bank are also listed in the circular as follows - to select and appoint officers who are qualified to administer the bank affairs effectively and soundly and to establish adequate selection process for all personnel; to establish objectives and draw up a business strategy for achieving them; to conduct the affairs of the institution with a high degree of integrity; to establish and ensure compliance with sound written policies; to prescribe a clear assignment of responsibilities and decision making authorities, incorporating a hierarchy of required approvals from individuals to the board of directors; to effectively supervise the bank's affairs; to monitor, assess, and control the performance of management; to adopt and maintain adequate risk management policy; to constitute mandated committees (audit, nomination); to meet regularly; to keep the individual members of the board and shareholders informed; to ensure that the bank has beneficial influence on the economy; to assess at least annually its performance and effectiveness as a body, as well as its various committees, the chief executive officer and the bank itself; and to keep their authority within the powers of the institution as prescribed in the articles of incorporation, charter, bylaws, and in existing laws, rules and regulations. …