Key Components of Ayala’s Governance System

Compliance with the Corporate Governance Code

Ayala is compliant with the Code of Corporate Governance for Publicly-Listed Companies set forth by the Securities and Exchange Commission (SEC), except for the following deviations:

Roles and Responsibilities
The Board and management work hand in hand in fostering a culture of good corporate governance throughout the organization. They have equal responsibility of guaranteeing that adequate mechanisms and structures for good governance are established and implemented effectively.

Board of Directors
The Board has the overall responsibility for overseeing all the affairs of the corporation and for adhering to the best practices of corporate governance to foster the long-term success of the corporation. It acts on behalf of the company and are held accountable by the shareholders. A more thorough discussion on the board of directors can be found here.

Management
Management is responsible and accountable to the Board of Directors for the operations of the company and its performance. They define the company’s business objectives and goals in concrete term and execute board-approved strategies for achieving these targets. In addition, they provide the Board with updates on the implementation of the company’s strategy and regularly and timely report on the affairs of the company and on any issues concerning the company’s strategy, risk management, and regulatory compliance.

Chief Executive Officer and President/Chief Operating Officer
The CEO and the President/COO work together in synergy. Each has clearly defined responsibilities and accountabilities that ensure a strategic division of leadership functions:

• The CEO takes the lead on company strategy, visioning, and developing business partnerships.
• The President/COO is responsible for daily operations, new business initiatives, corporate policies, and resource allocation.

The CEO and President/COO coordinate closely with each other in all functions and critical issues. They are supported by management committees composed of key executives who meet regularly to discuss business performance and issues critical to the operations and growth of the company, and to facilitate the flow of strategic and operational information among the company’s decision-makers.

Corporate Secretary, Chief Compliance Officer and Chief Legal Officer
The company’s Corporate Secretary, Chief Compliance Officer and Chief Legal Officer is Atty. Solomon M. Hermosura. He is legally trained and knowledgeable on legal and regulatory requirements. To ensure that he keeps abreast on recent and relevant developments, he attends executive development programs, participates as resource speaker in various public fora and is a part-time professor of graduating law students. He has also attended various corporate governance fora, including Ayala’s Integrated Corporate Governance, Risk Management and Sustainability Summit and the Securities Investors Association Singapore (SIAS) Corporate Governance Digital Symposium 2020.

As Corporate Secretary, included in his functions are: assisting the Chairman in preparing the Board meeting agenda, maintaining Board minutes and records, facilitating the training of directors, and providing directors with updates on relevant statutory and regulatory changes. The appointment and removal of the Corporate Secretary is subject to the approval of the Board.

As Chief Compliance Officer, his functions include: identification and management of compliance risks; ensuring the company’s adherence to sound corporate governance best practices; monitoring, reviewing, evaluating and ensuring compliance by the corporation, its officers and directors with the Code of Corporate Governance for Publicly-Listed Companies, and relevant laws, rules and regulations, as well as governance issuances of regulatory agencies; reporting to the Board any violation and recommending the imposition of appropriate disciplinary action; ensuring the integrity and accuracy of all documentary submissions to regulators; and facilitating the yearly performance assessment of the Board, Board Committees and individual members of the Board.

As Chief Legal Officer, he supports the Board, CEO and senior leadership team, acting as advisor on a range of issues and strategies to minimize legal risks, and on legal matters and protocols that relate to their roles and the company’s operations.

Accountability and Audit

External Auditors
The Audit Committee has the primary responsibility to recommend the appointment and removal of the external auditor. The external auditors are directly accountable to the Audit Committee in helping ensure the integrity of the company’s financial statements and financial reporting process. Their responsibility is to assess and provide an opinion on the conformity of the audited financial statements with Philippine Financial Reporting Standards and the overall quality of the financial reporting process. The Audit Committee oversees the work of the external auditors and ensures that they have unrestricted access to records, properties, and personnel to enable performance of the required audit.

During the Annual Stockholders’ Meeting last April 24, 2020, the shareholders re-appointed Sycip Gorres Velayo & Co. (SGV & Co.) as the company’s external auditor for the year 2020, with Lucy L. Chan as the lead engagement partner.

The Committee met with the external auditors without the presence of the management team to discuss any issues or concern. To ensure that the external auditor maintains the highest level of independence from the company, both in fact and appearance, the Audit Committee approved all audit, audit-related, and permitted non-audit services rendered by the external auditor. Non-audit services expressly prohibited by regulations of the SEC were awarded to other audit firms to ensure that the company’s external auditor carries out its work in an objective manner.

Total fees billed by SGV & Co. for the years ended December 31, 2020 and 2019 amounted to ₱14.02 million and ₱13.17 million, respectively, inclusive of VAT. The Audit Committee reviewed the nature of non-audit services rendered by SGV & Co. and the corresponding fees and concluded that these are not in conflict with their function as the company’s external auditor. The breakdown of the fees for 2020 and 2019 are shown below:

Audit and Audit-Related Fees include the audit of Ayala’s annual financial statements and the mid-year review of financial statements in connection with the statutory and regulatory filings or engagements for the years ended 2020 and 2019. These also include assurance services that are reasonably related to the performance of the audit or review of Ayala’s financial statements pursuant to the regulatory requirements. Non-Audit Fees include special projects / consulting services. There were no disagreements with the company’s external auditor on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures.

Internal Auditors
Internal Audit supports the Audit Committee in the effective discharge of its oversight role and responsibility. The Chief Audit Executive, Catherine H. Ang, reports functionally to the Audit Committee of the Board of Directors, and administratively to the President and Chief Operating Officer or his designate. The activities of Internal Audit are governed by a separate Internal Audit Charter approved by the Audit Committee and the Board.

Internal Audit adopts a risk-based audit approach in developing its annual work plan, which is reassessed quarterly to consider emerging risks. The Audit Committee reviews and approves the annual work plan and all deviations therefrom and ensures that internal audit examinations cover the evaluation of adequacy and effectiveness of controls encompassing the company’s governance, operations, and information systems; reliability and integrity of financial and operational information; safeguarding of assets; and compliance with laws, rules, and regulations. The Committee also ensures that audit resources are adequate and reasonably allocated to the areas of highest risk, including the effectiveness of the internal audit function. During the year, the Committee regularly met with the Chief Audit Executive without the presence of management to discuss any issues or concern.

To strengthen corporate governance, Ayala’s Internal Audit adopted portfolio-based subsidiary oversight to standardize the implementation of good practices and ensure that critical issues are monitored and addressed across the Ayala group.

As of 2020, the audit team has an average of 14.4 years audit experience and an average of 5.3 years tenure in the Ayala group. The audit team has the following certifications and professional affiliations: certified public accountants, certified internal auditors, certified fraud examiner, certified information systems auditor, certified foreign exchange professional, crisis communication planner; certified in ISO 9001, ISO 22301, ISO 27001, IT Infrastructure Library, COBIT 5 (F), Internal Control (CICA), and Global Innovation Management Institute Level 1; a member of the Financial Executives of the Philippines; and a Fellow of the Institute of Corporate Directors. All the internal auditors are also members of The Institute of Internal Auditors Philippines and adopt the International Professional Practices Framework promulgated by The Institute of Internal Auditors, Inc.

The internal audit activities conform with the International Standards for the Professional Practice of Internal Auditing and are continuously evaluated through an independent Quality Assessment Review

Ayala’s Internal Audit also collaborates with the internal audit functions of the subsidiaries and affiliates to promote sharing of resources, knowledge, tools, and best practices through the Ayala Group Internal Auditors’ Network (AGIAN). Established in 1999, the AGIAN continues to perform activities that strengthen synergy within the group resulting to an effective teamwork environment, exchanges of good practices and ideas, and improved skills of internal auditors.

Despite the work-from-home set-up, the group successfully conducted in November 26 and 27, 2020 the first virtual AGIAN Conference, with the theme “Evolving in the New Normal” focusing on learning sessions about remote auditing, cybersecurity, fraud in the digital landscape, personal resilience and Audit Committee expectations in response to COVID-19 crisis and the evolving ways to doing business.

Technical sessions were also held to provide the members with the knowledge, tools and required auditing skills to enable them to perform their responsibilities. Since 2018, AGIAN has partnered with The Institute of Internal Auditors Philippines to accredit the quarterly AGIAN trainings for Continuing Professional Development (CPD) for renewal of licenses and certifications. In 2020, two AGIAN trainings were provided to the group internal auditors which were accredited by the Board of Accountancy (BOA) for CPD credits. This is in addition to the continuing training and development programs, from specific job skills to long-term professional development provided by the respective companies of the group to their employees.

DISCLOSURE AND TRANSPARENCY

Accurate and Timely Disclosures
Full disclosure and transparency are tenets highly valued by Ayala. Focus is given on providing quality, accurate, and timely disclosures to regulators, the investing public and other stakeholders. Ayala strives to promptly disclose all material and market sensitive information that may affect the public’s investment decisions, including information on the results of its operations and financial performance. Procedures for internal reporting are established to ensure consistency and accuracy in the information disclosed. Policies and procedures are also in place to ensure the company’s compliance with disclosure requirements under the rules and regulations of the SEC, Philippine Stock Exchange (PSE), and Philippine Dealing and Exchange Corporation (PDEx).

For better dissemination of information, Ayala engages with investors, analysts, and media through meetings and quarterly briefings, where the senior management discusses the results of the company’s operations with investment and financial analysts. More details on management’s discussion and analysis of financial condition and results of operations are available here.

All relevant disclosures were filed in a timely manner with the SEC, PSE, and PDEx. All the 2020 filings and relevant information were provided ahead of time, with details as follows:

• On April 8, 2020, the Annual Report (SEC Form 17-A), together with the consolidated audited financial statements for 2018, was submitted to the SEC, within 120 days after year-end.
• On February 24, 2020, the Notice of the Annual Stockholders’ Meeting with a detailed explanation of the Agenda items was released to the SEC and PSE, 60 days ahead of the scheduled annual meeting on April 24, 2020. The Notice was amended on March 27, 2020 to inform stockholders of the conduct of a virtual meeting due to the government imposed enhanced community quarantine, 28 days before the scheduled annual meeting.
• On March 24, 2020, the audited financial statements as contained in the Definitive Information Statement were submitted to the SEC and PSE, 31 days before the Annual Stockholders’ Meeting.
• Interim or quarterly financial statements and results of operations were submitted to the regulators within 45 days from the end of the financial period.

This information, past annual and integrated reports, and this integrated report and the consolidated audited financial statements are disseminated to shareholders through the company’s website at www.ayala.com and through media and analysts’ briefings.

Ownership Structure
As of December 31, 2020, Ayala’s outstanding common shares were held as follows:

Code of Conduct and Ethics

The Code of Conduct and Ethics serves as a guide to all directors, officers, and employees on the right conduct and set standards expected of them in executing their roles and responsibilities. The Board acts as the overall governing body and ensures the adherence of all directors, officers, and employees of the company to the Code.

It is expected that all of the company’s directors, officers and employees avoid conflicts of interest situations or impropriety. Full disclosure of all relevant facts are required from those who have personal or pecuniary interest on any related party transaction to ensure that actual or potential conflicts of interest are reported and brought to the attention of management. Enforcement and monitoring of compliance with the Code as well as imposition of sanctions for violations thereof fall under the responsibility of management.

It is the policy of Ayala that all directors, officers, and employees shall conduct business in accordance with Philippine Laws and regulations, including Anti-Money Laundering Law. In case of doubt concerning the legality of any matter, employees shall consult with the Corporate Governance Officer and Chief Legal Officer. Any suspected criminal violations will be reported to the appropriate authorities and non-criminal violations will be investigated and addressed as appropriate.

Anti-Corruption Policy
Ayala is steadfast in abiding by the highest ethical standards in doing its business. A zero- tolerance policy is adopted towards fraud, corruption, bribery in any form, and all unethical practices, coupled with a firm commitment to full compliance with all relevant laws and standards. The anti-corruption policy contained in the Code of Conduct and Ethics guides all directors, officers, and employees on how to conduct business in a fair, ethical, and legal manner. Strict observance of the policy is mandated in all their transactions and dealings with customers, suppliers and business partners of the company as well as with the government.

In the interest of protecting the integrity of its employees and business interests, the company has also established guidelines for dealing with gifts and gratuities. Seeking undue financial and material advantage from any transaction is strictly prohibited. Any offer or gift of value given to directors, officers, and employees, or their immediate family, with a view to get favors or to influence business recommendations are immediately reported to the appropriate reporting level. Likewise, directors, officers, and employees are prohibited from accepting gifts or invitations of any form, except when it meets the criteria set by the company. The policy also applies for an indirect offer or bribe that is made through another person.

Insider Trading Policy

Ayala has a well-defined policy against insider trading of company securities and non-disclosure of material non-public information to any person until the information is disseminated to the public and two full trading days had lapsed from the disclosure thereof to give the market time to absorb the information. The policy encompasses compliance with disclosure rules and prevention of the unlawful practice of using confidential information to one’s own benefit.

Trading Blackout
All company directors, officers, consultants, and employees, including their immediate family members living in the same household, who may have knowledge of material non-public information about the company are strictly prohibited from trading in Ayala’s shares during the trading blackout period. A certification on compliance with the prohibition against trading is required to be submitted annually.

The blackout period commences from five trading days before and two trading days after the disclosure of quarterly and annual financial results for structured disclosures. While for non-structured disclosures, the blackout period is two trading days after the disclosure of any material information other than quarterly and financial results.

Notices of trading blackouts were regularly disseminated and issued to all personnel via e-mail. Compliance was strictly enforced during these trading blackout periods.

There have been no violations of the company’s insider trading and trading blackout policies in the past three years.

Reporting of Transactions
In accordance with Ayala’s established and implemented guidelines on reporting trades, all directors and officers from Managing Directors and above, Comptroller, Chief Audit Executive, Chief Risk Officer, Treasurer, Chief Compliance Officer, Corporate Secretary, and Assistant Corporate Secretary must report to the company all acquisitions or disposals, or any changes in their shareholdings in the company within three business days from the transaction date. All other officers and employees must submit to the Chief Compliance Officer a quarterly report on their trades of company securities.

The trades of directors and officers in 2020 is shown in the table on Changes in Shareholdings.

Changes in Shareholdings

Reported trades in Ayala Securities of the directors and officers in 2020:

Whistleblower Policy

Ayala adopted a whistleblower policy as a tool to advocate and enhance transparency and integrity in its business. Directors, officers, employees, and all suppliers, business partners, contractors and subcontractors, and other third parties are encouraged to report any perceived wrongdoing or malpractice involving the company or its personnel. The reporting must be in good faith and in return, the whistleblower will have utmost confidence on fair treatment and protection from reprisal, harassment, disciplinary action, or victimization for whistleblowing.

In the interest of safeguarding the whistleblower and guaranteeing the integrity and confidentiality of the report, Ayala has implemented an outsourced receipt and processing of whistleblower reports to Punongbayan and Araullo through the reporting channel. The website allows anonymous reporting and is accessible anytime and anywhere via internet. Status of all reports are trackable with available monthly reports.

Other reporting channels available to the whistleblower are by submitting a written report directly to the Office of the Chief Compliance Officer, or by e-mail to whistleblower@ayala.com, or through a face-to-face meeting with any member of the established Disclosure Committee composed of one representative each from the Office of the Chief Legal Officer, Strategic Human Resources, Internal Audit, and Group Risk Management.

There is a set investigation process for reported violations of company policies, rules and regulations and all reports are given confidential treatment and discussed with the Audit Committee, which monitors the resolution and closure of all reports.

In 2020, Ayala did not receive any whistleblower report through its reporting channels.

Data Privacy Policy

As part of its continuing commitment to uphold the data privacy of all stakeholders, Ayala’s Data Privacy Office headed by the Data Protection Officer, Atty. Solomon M. Hermosura, works closely with all the business units to regularly review the physical, technical and organizational measures adopted by the company for the protection of personal data. This is to ensure the integrity, confidentiality and availability of the personal data that the company collects and processes, and protect these against natural and human dangers, such as accidental loss or destruction, unauthorized access, fraudulent misuse, and unlawful alteration.

In 2020, the company: (1) adopted its Data Privacy Manual to establish policies and guidelines to ensure the proper processing of personal data, (2) executed data protection agreements with relevant third parties, (3) crafted the appropriate privacy terms and conditions for various initiatives and programs of the company and the Ayala Group involving processing of personal data, (4) completed self-assessment of compliance with APEC Cross-border Privacy Rules, (5) conducted capacity building activities for employees, and (6) initiated new projects to increase the organization’s awareness of and improve compliance with the requirements of the Data Privacy Act of 2012, its Implementing Rules and Regulations, and other relevant issuances of the National Privacy Commission.

Ayala had one data breach during the year which involved contact details provided by employees, and was duly reported to the National Privacy Commission. Due process was followed in notifying affected data subjects and in implementing remedial measures.

Inquiries or concerns regarding data privacy and/or data subjects’ rights may be submitted to the Data Protection Office through acdataprivacy@ayala.com.

Stakeholder Relations

Stockholder Meeting and Voting Procedures
In spite of the unprecedent circumstances brought about by the COVID-19 pandemic, the company was able to distribute the notice of meeting at least 28 days before the Annual Stockholders’ Meeting (ASM) by adopting SEC- allowed alternative modes of distributing the notice and other meeting materials. The notice contains the agenda and a detailed explanation on the same, the allowed means of participation and voting, and sets the date, time, and place for validating proxies, which must be done at least five business days prior to the ASM.

Each outstanding common and voting preferred shares of stock entitles the registered holder to one vote. Non-controlling or minority stockholders were given the right to nominate candidates for the board of directors and to propose items for inclusion in the meeting agenda.

Rising to the challenge of the pandemic, the company held its first virtual ASM. The company endeavored to make the shareholder experience as similar as possible to an in-person meeting, encouraging active shareholder participation through attendance by remote communication, voting in absentia using the enhanced electronic Voting in Absentia & Shareholder (VIASH) System, voting though proxy forms assigning the Chairman as proxy, and sending their questions and comments through the company’s established communication channels. Shareholders who notified the corporation of their participation in the meeting by remote communication were included in the determination of quorum as well as those who voted in absentia, either electronically or through proxy.