Corporate Governance Report

Risk Management System Internal Audit and Control Role of Stakeholder Disclosure and Transparency Rights and Equitable Treatment of Stockholders Internal Breaches and Sanctions

Risk Management System

Corporate Governance Report > Risk Management System

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OVERALL RISK MANAGEMENT PHILOSOPHY OF THE COMPANY

Risk Management at Ayala: From Avoidance and Mitigation to Value Creation

Risk Management has become an increasingly important business driver and part of successful corporate governance. By treating risk as intrinsic to the conduct of business, risk management is elevated from an exercise in risk avoidance to an essential consideration in every decision, initiative and activity. At Ayala, we ensure that our risk management system has the right architecture, strategy, and protocols to support the risk management process. We revisit these three key factors yearly to ensure that we have the right approach in mitigating risks and maximizing opportunities.

Institutionalized in 2002, the Company has adopted an enterprise risk management (ERM) framework that is continuously being enhanced and improved. The oversight for the operationalization of Ayala’s risk management program rest with the Risk Management and Related Party Transactions Committee, a Board-level Committee that provided transparency and visibility into the corporate’s risk management practices. The Chief Risk Officer (CRO), being a risk management advocate, reports to the Committee any improvement in the design, implementation and maintenance of the enterprise risk management roadmap. The Group Risk Management & Sustainability Unit supports the CRO in the execution of its responsibilities and continues to align Ayala’s risk governance with Deloitte’s concept of risk intelligent enterprise, espousing the best practice that goes beyond risk avoidance and mitigation to utilize risk-calculated decision-making as a means to create value. It also convenes the ERM Council, a group comprising the risk officers of Ayala business units, for risk framework alignment, continuous risk process improvement, and other group projects. On a semi-annual basis, the ERM Council provides the top risks of their respective organization to the Group Management & Sustainability Unit for reporting to both the CRO and the Risk Management and Related Party Transactions Committee.

Management committees also provide support to the CRO by ensuring the existence of a structure at the operating level that will communicate and monitor key principal and emerging risks. They also ensure that risks are discussed during project and investment meetings. As risk owners, the business unit leaders are responsible for managing the risks they face in the day-to-day operations within the established risk framework. They have the responsibility to identify, measure, monitor, control and report on risks to the management. Finally, the Internal Audit Unit provides an independent assurance on the adequacy, effectiveness, and efficiency of the risk management process.

Every year, the corporate conducts an enterprise-wide risk assessment workshop to identify emerging risks, evaluates its impact to the corporate and the business units, and prioritize risks according to both impact and likelihood. The Company has assessed that key risk exposures include brand and reputation, political and regulatory and business resiliency. The company and the group have laid down the mitigation plans to address these exposures.

Board Review of the effectiveness of the risk management system

As set forth in its Charter approved by the Board of Directors, the Risk Management and Related Party Transactions Committee has reviewed and assessed the adequacy and the effectiveness of the Corporation’s enterprise risk management process:

The Committee has reviewed the following policies: enterprise risk management policy, related party transactions policy and the business continuity management policy.
Thru the Chief Risk Officer, as supported by the Group Risk Management and Sustainability Unit, the Committee has ascertained that an effective risk management process was in place and that the risk management practices of the Company transcend mere compliance. The shift was driven by the mindset that understands the interconnectedness and interdependency of risks that require collaborative risk mitigation strategies. Silos were broken down through risk assessment methodologies, such as the black swan approach, risk interaction mapping, bow tie analysis and risk sensing.
With a deeper understanding of the sustainability megatrends, participants in the annual risk assessment exercise identified emerging risks presumably caused by these trends, such as climate change, which could interrupt business operations. In addition, the impact scale for risk scoring was expanded to include the potential environmental impact of risk events to the business operations and the communities where our businesses operate in.
The Committee has also noted management support as the Managing Directors made themselves available to discuss their risk strategies and respond to queries raised by the Committee.

Risk Maturity Assessment

In addition to the regular reports of the CRO thru the Group Risk Management and Sustainability Unit, the Corporation has engaged Aon Risk Solutions to execute a group-wide risk management maturity assessment, the first round of which was completed in 2015. According to best practice, the assessment of the maturity of the risk management process should be performed every two to three years.

The Aon Risk Maturity Index (RMI) is designed to capture and assess an organization’s risk management practices and provide participants with immediate feedback in the form of a Risk Maturity Rating and actionable steps for improvement. Aon has partnered with the Wharton School of the University of Pennsylvania to develop the Index and conduct joint research on the relationships between risk management practices and actual performance. The Aon Risk Maturity Index contains questions on risk management processes, corporate governance and risk understanding. The questions are based upon the ten characteristics of an advanced risk management maturity:

Board-level understanding of and commitment to risk management as a critical factor for decision-making and for driving value;
A senior-level executive who drives and facilitates key risk management processes and development;
Transparency of risk communication;
A risk culture that encourages full engagement and accountability at all levels of the organization;
Identification of existing and emerging risks using internal and external data and information;
Participation of key stakeholders in risk management strategy development and policy setting;
Formal collection and incorporation of operational and financial risk information into decision-making and governance processes;
Integration of risk management insights into human capital processes to drive sustainable business performance;
Use of sophisticated quantification methods to understand risk and demonstrate added value through risk management; and,
A move from focusing on risk avoidance and mitigation to leveraging risk and risk management options that extract value.

Through this study, the Corporation and the Group evaluated the effectiveness of the improvements implemented since 2015. Similarly, the Corporation’s ERM roadmap was revised to address other potential areas for improvement.

RISK POLICY

For the Company

Risk Exposure	Risk Definition	Objective
Brand and reputation	The inability to maintain our stature as a company of choice may result in significant difficulty in creating and/or maximizing value for all stakeholders.	To maintain and improve one of its core values, the strong Ayala brand,
Political and regulatory	The inability to anticipate changes in the political and regulatory landscapes may result in the Group being unable to shield our profitability and brand value.	To ensure that the Corporation van adapt to changes in the political and regulatory landscapes to continue its long-term value creation process for all its stakeholders.
Business resiliency	Being unable to restore normal operations following natural/man-made disaster and/or failure of business contingency processes and systems may cause significant revenue loss and customer trust.	To put measures in place that will allow the continuity of business operations and swift recovery following a natural or man-made disaster.

For the Group

Risk Exposure	Risk Management Policy	Objective
Political and regulatory	The inability to anticipate changes in the political and regulatory landscapes may result in the Group being unable to shield our profitability and our brand value.	To improve the Group’s ability to anticipate and adapt to political and regulatory changes, which may impact each business unit’s business models and other value creation activities.
Portfolio management	The inability to align portfolio management strategy with business objectives may result in the failure to provide the right balance of risk and return.	To ensure that the products and services mix of each business unit will provide the right balance of risk and return to the organization.
Operational	Failure and/or inefficient operational processes, people and systems may result in inability to meet business objectives.	To ensure that all business units have efficient and effective processes, right talent and appropriate systems to support the achievement of business objectives.

For Minority Shareholders

Risk to Minority Shareholders

The Company’s Related Party Transactions policy that took effect last December 2014 ensures that the rights of the minority shareholders are protected. The Corporation established a mechanism to ensure that related party transactions are at arms-length, the terms are fair, and that they inure to the best interest of the Corporation and all of its shareholders. The Corporation strictly monitored, reported, and disclosed related party transactions as well as inter-company transactions.

CONTROL SYSTEM SET UP

For the Company

Risk Exposure	Risk Assessment (Monitoring and Measurement Process)	Risk Management and Control (Structures, Procedures, Actions Taken)
Brand and reputation	Scanning of local, regional and international news Inclusion of social media in the monitoring of trends	The Corporate Communications Unit set up a social media plan that includes a quarterly analysis of social trends/sentiment and continuous monitoring of social media pages. The same unit is also developing a Stakeholder Plan, including a stakeholder mapping and engagement initiatives to address stakeholder issues. The Sustainability Team collaborates with community partners on areas of sustainable livelihood, environmental protection, children and women’s health, among others.
Political and regulatory	Continuous scanning of political and regulatory landscapes Evaluation of new laws and regulations on how they could impact the companies’ business operations	The Ayala Regulatory Council regularly identifies and monitors new policy issues across sectors and industries and makes recommendation to the Ayala Group Management Committee on how to address regulatory issues. The Corporate Services Compliance Unit of Ayala Group Legal handles regulatory compliance. Set aside political connections of key employees in formulating business strategy.
Business resiliency	Hazard monitoring Annual review of crisis management, business continuity and IT disaster recovery plans	Test the adequacy and effectivity of crisis management and IT disaster recovery plans on a regular basis. Assess the effectiveness of business continuity plans through tabletop testing or simulation exercise every two years. Distribute go-bags, CPR kits and other paraphernalia that will help all employees to recover from any disaster. Invest in a comprehensive insurance program and periodically review the adequacy of insurance coverage.

For the Group

Risk Exposure	Risk Assessment (Monitoring and Measurement Process)	Risk Management and Control (Structures, Procedures, Actions Taken)
Political and regulatory	Continuous scanning of political and regulatory landscapes Evaluation of new laws and regulations on how they could impact the companies’ business operations	The Ayala Regulatory Council ensures legal and regulatory compliance of the Group, and periodically discusses new regulations that may affect the companies’ business operations.
Portfolio management	Monthly monitoring of segment performance and how far they are from set targets End-of-year performance review per business unit Annual monitoring of Key Result Area (KRA) scorecard of the business units	Regularly monitor business units’ performance on a periodic basis. The Business Development Unit of all business units conducts early spotting of opportunities both within existing and emerging businesses. Maintain relationship with existing partners and proactively identify and build network with potential business partners and investors.
Operational	The monitoring and measurement processes vary across industries and business segments.	The Internal Audit Unit of business units provides assurance on the soundness and effectivity of operational policies and processes in place.

Internal Audit and Control

Corporate Governance Report > Internal Audit and Control

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I. INTERNAL CONTROL SYSTEM

Internal Control System is the framework under which internal controls are developed and implemented (alone or in concert with other policies or procedures) to manage and control a particular risk or business activity, or combination of risks or business activities, to which the corporation is exposed. To be effective, the internal control system needs to adapt to changing business and operating environments, mitigate risks to acceptable levels, and support sound decision-making and governance of the organization. Internal control effected by the company’s board of directors, management, and all employees, is designed to provide reasonable assurance regarding the achievement of the company’s objectives.

Everyone in the organization has responsibility for internal control. Management owns the internal control system and is responsible for establishing sound internal control policies and procedures. Management is accountable to the Board of Directors who provides governance, guidance, and oversight. Internal auditors play an important role in evaluating the effectiveness of control systems, and contribute to ongoing effectiveness by providing recommendations.

Directors review of the effectiveness of the internal control system

The Board of Directors, through the Audit Committee and the Risk Management and Related Party Transactions Committee, has reviewed the internal control system of the Company based on the assessments completed and reported by the internal and external auditors. The Board found the internal control system to be effective.

The statement of the directors on the effectiveness of the company’s internal control system is embodied in the Report of the Audit Committee to the Board of Directors which is part of the Company’s 2021 Integrated Annual Report, which is available on the website.

Period covered by the review: For the year ended December 31, 2021

Management reviews the adequacy and effectiveness of internal controls continuously throughout the year as part of its day-to-day function. Internal Audit assists management to attain company goals through independent risk-based planned reviews and evaluation of the effectiveness of controls.

The directors’ criteria for assessing the effectiveness of the internal control system include:

- Control Environment-the tone of the top and ethical behavior culture in the company

Risk Assessment-the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed and provide reasonable assurance that risks are reduced to an acceptable level.
Information and Communication-systems or processes that support the identification, capture, and exchange of accurate and complete information.
Control Activities- policies and procedures, international standards and industry best practices to ensure compliance with laws, regulations, supervisory requirements, and relevant internal policies.
Monitoring-processes used to regularly assess the continuing quality of internal control and risk management activities.

II. INTERNAL AUDIT

Vision, Mission and Strategy

Vision:

To become a leading internal audit organization recognized as a valuable business partner, trusted advisor and enabler by all stakeholders.

Mission:

Deliver an independent assessment of financial, regulatory and operational risks, and control effectiveness through assurance and advisory services that supports the achievement of the organization’s objectives and enhances shareholder value.

Strategy:

Deliver a high performing and business relevant internal audit organization with increased subsidiary oversight.

Role, Scope and Internal Audit Function

The Internal Audit Group governs its work in adherence to The Institute of Internal Auditors’ “Code of Ethics” and the Company’s Code of Conduct. The Internal Audit also conducts its activities in conformance with the International Standards for the Professional Practice of Internal Auditing (ISPPIA) of The Institute of Internal Auditors and guided by the COSO framework on internal control. Internal Audit Charter

Role

Scope

Indicate whether In-house or Outsource Internal Aiudit Function

Name of Chief Internal Auditor/Auditing Firm

Reporting Process

Assist the Board and the Audit Committee in discharging its governance responsibility.
Evaluates and provides reasonable assurance that risk management, control, and governance systems are functioning as intended and will enable the company’s strategy, objectives and goals to be met.

The scope of work of the internal audit function is to determine whether Ayala Corporation’s risk management, control, and governance processes is adequate and functioning effectively to ensure:

Risks are appropriately identified and managed;
Financial information is accurate, reliable, and timely;

In-house

Catherine H. Ang

To maintain its independence, Internal Audit reports functionally to the Board of Directors, through the Audit Committee, and administratively to the President and Chief Operating Officer or his designate.

Adopts a risk-based audit approach in developing its annual plan, reassessed quarterly or more frequently, as needed, to consider the changing risk landscape and emerging risks.
Reports risk management issues and internal controls deficiencies identified directly to the Audit Committee and provides recommendation s to improve the company’s operations, in terms of both efficient and effective performance.
Evaluates information security and associated risk exposures.
Conducts annual audit reviews of the company’s ethics-related programs, objectives, and activities to assess its design, implementation, and effectiveness. Any identified non-compliance and the recommended improvements are reported to the Audit Committee of the Board, the Compliance Officer, and Strategic Human Resources Head.
Evaluates regulatory compliance program with consultation from legal counsel and other relevant units or external advisors, as necessary.
Evaluates the company’s readiness in case of business interruption.
Provides support to the company’s anti-fraud and whistleblower programs. Conducts investigations into allegations of unethical practices, including financial or administrative misconduct and other irregular activities, the results of which are reported to the Audit Committee of the Board, the Compliance Officer, and Strategic Human Resources.
Maintains open communication with management and the Audit Committee.
Teams with other internal and external resources as appropriate for assurance and advisory work.
Engages in continuous education and staff development.

Compliance with policies, standards, procedures and applicable laws and regulations is achieved;
Resources are safeguarded; and
Achievement of programs, plans and objectives are reasonably assured. In carrying out their duties and responsibilities, members of the internal audit function have full, free, and unrestricted access to all organizational activities, records, property and personnel of Ayala Corporation.

Reports are issued to management and the Audit Committee upon completion of the audit reviews. Significant findings and issues are taken up in the quarterly meetings of the Audit Committee

As provided in the Audit Committee Charter and the Internal Audit Charter, the Audit Committee is responsible for the setting up of the Internal Audit Department, including the qualification criteria and appointment of the Chief Audit Executive. The Committee evaluates the performance of the Chief Audit Executive and the Internal Auditors taken as a whole. Moreover, the Committee having appointed the Chief Audit Executive, also approves his/her replacement, re-assignment, or dismissal. The Committee also reviews and approves any outsourcing of the internal audit function.

The Chief Audit Executive reports directly to the Board of Directors through the Audit Committee and has direct access to all members of the Audit Committee. The internal audit function as empowered by the Audit Committee Charter and the Internal Audit Charter has free access to all records, properties and personnel.

Internal audit’s progress against plans, significant issues, significant findings and examination trends

Progress Against Plans	The activities of Internal Audit are guided by the Audit Committee approved, risk-based audit plan. Internal Audit submit periodic reports to the Committee on the status of its activity, accomplishments, key findings and recommendations, as well as management’s responses thereto.
Issues	There are no significant issues noted based on the results of the audit reviews conducted. Noted issues are on enhancements of and compliance to existing policies and procedures.
Finding	There are no significant findings noted based on the results of the audit reviews conducted. Reported findings are primarily on the enhancements and documentation of corporate governance policies and guidelines, and consistent implementation of procedural controls. Report on the results of the audit review is provided to the responsible personnel, department heads, senior management, and the Audit Committee based on the Committee approved Risk Reporting Framework.
Examination Trends	High risk areas are reviewed at least annually. Based on follow-up of audit recommendations, management are addressing reported risk issues, control weaknesses and opportunities for improvement within the audit period and committed timeline.

The relationship among progress, plans, issues and findings should be viewed as an internal control review cycle which involves the following step-by-step activities:

Preparation of an audit plan inclusive of a timeline and milestones;
Conduct of examination based on the plan;
Evaluation of the progress in the implementation of the plan;
Documentation of issues and findings as a result of the examination;
Determination of the pervasive issues and findings (“examination trends”) based on single year result and/or year-to-year resuts; and
Conduct of the foregoing procedures on a regular basis.

Audit Control Policies and Procedures

Internal audit controls, policies and procedures that have been established by the company and the result of an assessment as to whether the established controls, policies and procedures have been implemented under the column “Implementation.”

Policies & Procedures	Implementation
Finance Manual	Implemented
Treasury Manual	Implemented
Information Technology Manual	Implemented
Human Resources Manual	Implemented
Related Party Transactions Policy	Implemented in 2016
Electronic Disbursement Policy	Implemented in 2016
Social Media Policy	Implemented in 2016
Business Continuity Policy	Implemented in 2016
Crisis Management Policy	Implemented in 2016
Code of Conduct and Ethics	Implemented
Insider Trading Policy	Implemented
Whistleblower Policy	Implemented
Data Privacy Policy and Manuals	Implemented

Mechanism and Safeguards

Mechanism established by the company to safeguard the independence of the auditors, financial analysts, investment banks and rating agencies:

Auditors (Internal and External)	Financial Analysts	Investment Banks	Rating Agencies
Rotation of partner-in charge every five years for external auditors	Equitable access to company representatives by analysts, regardless of their prior research, opinions, recommendations, earnings estimates or research conclusions on the company.	Approval of the Investment Committee and/or the Finance Committee and the Board of Directors prior to any engagement with Investment Banks.	Approval of the Investment Committee and/or the Finance Committee and the Board of Directors prior to engagement of rating agency.
Functional reporting to the Audit Committee by the internal auditors	Equitable release of disclosure/information (i.e. no analyst gets more information than the other) in terms of content and timing (i.e. no one gets ahead of information over another).	Use of different Investment Banks for each deal.	Periodic submission of reports and data to the Rating Agency
Abide by the company’s Code of Ethics	Independence and impartiality in the opinions, estimates or forecasts made by analysts on Ayala’s performance.	Use of multiple Investment Banks instead of just one or two for bond deals.	Management interview sessions prior to ratings.
Abide by the company’s policy on Conflict of interest, Insider Trading Policy	Open flow of communication with analysts without compromising material non-public information

Attestations to Company’s full compliance with the SEC Code of Corporate Governance:

On January 9, 2015, the Company submitted to the SEC the Consolidated Changes in the Annual Corporate Governance Report for 2014 that was reviewed and approved by the Board of Directors of the Company at their meeting on December 4, 2014.

On January 7, 2016, the Company submitted to the SEC the Consolidated Changes in the Annual Corporate Governance Report for 2015 that was reviewed and approved by the Board of Directors of the Company at their meeting on December 3, 2015.

On May 12, 2017 , the Company submitted to the SEC the Annual Corporate Governance Report for 2016 that was reviewed and approved by the Board of Directors of the Company at their meeting on April 21, 2017.

Since 2018, the Company has been submitting to the SEC the Integrated Annual Corporate Governance Report (I-ACGR).

The Chairman of the Board, Compliance Officer and Chief Audit Executive attest to the adequacy of the Corporation’s systems for internal control and risk management and processes for compliance and governance. Please click the link below:

2017 Attestation of Internal Controls

2018 Attestation of Internal Controls

2019 Attestation of Internal Controls

2020 Attestation of Internal Controls

2021 Attestation of Internal Controls

Role of Stakeholder

Corporate Governance Report > Role of Stakeholder

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COMPANY POLICIES AND ACTIVITIES

Policy

Activities

Customers’ welfare

We take innovative approaches to increase customer value and enhance customer experience; empower more customers including those with limited access to essential goods and services.

Our product and services are designed in such a way that customers and the general public’s health and safety are improved and safeguarded.

Our businesses put customers first, providing superior end-to-end customer experience within a corporate culture of genuine service and care. Feedback are regularly analyzed and addressed to continually raise the bar of customer service and engagement.

For Water: Our water and wastewater business ensures that water quality always complies with the Philippine National Standard for Drinking Water.Our stakeholder engagements are designed and implemented to understand our customers well. We offer our customers sustainable lifestyle as we design our products and services. We also provide customer touch points to ensure that their feedback and concerns are monitored and acted upon. We do an annual customer satisfaction survey so we can improve the overall customer experience.

For Water: Our water and wastewater business implements a Water Safety Plan developed in 2009 to minimize and/or eliminate contamination at each stage-from source to production, storage and conveyance to customers. It reports no major water contamination since beginning operations in 1997, at testament to its commitment to secure safe and potable water supply for its customers.

For Real Estate: Our real estate business ensures that its products and services do not pose a risk to health and safety. Moreover, by advancing sustainable design, it restores the environment and improves quality of life.

Supplier/contractor selection practice

We shall establish social and environmental parameters in accrediting suppliers, and shall prefer suppliers that observe sustainability practices. We shall support community development by providing opportunities to community-based entrepreneurs and cooperatives with the use of our buying volume.

Whenever possible, subsidiaries of the Ayala group choose and accredit suppliers that observe sustainability practices. We actively include locally based community enterprises and small businesses in our supply chains to boost inclusive economic growth.

We make sure that environmental impacts are always considered when procuring supplies, especially for environmentally sensitive projects. All our suppliers undergo a screening or accreditation process, which includes assessments of their safety, health, and environmental policies.

Moreover, our companies ensure that their suppliers are always legally compliant and adhere to stringent quality standards.

The Ayala group maintains an updated list of both reliable and delinquent suppliers through Ayala ProcurementNet. This platform, together with the various procurement measures of our subsidiaries, addresses the negative performance of vendors and reports repeatedly erring suppliers. To minimize engaging potentially delinquent suppliers, regular vendor evaluations are conducted across our group.

Environmentally friendly valuechain

Moreover, our companies ensure that their suppliers are always legally compliant and adhere to stringent quality standards.

Community interaction

We promote quality education, gainful micro enterprise, a healthy environment, and cultural development in our communities.

Through Ayala Corporation’s social commitment arm, Ayala Foundation Inc. (AFI), the Group actively consults with communities to understand their dreams, needs, aspirations, and even their capacities. AFI’s interventions in education, youth leadership, sustainable livelihood, and arts and culture ensure great participation from the members of the communities. Each community member is an active partner, not just a beneficiary or recipient. AFI conducts community insighting and other forms of intensive on-the-ground work and research prior to starting projects. AFI conducts program reviews on a periodic basis to ensure the effectiveness of the programs.

AFI is a strong believer in public-private partnerships. Every sector in its program communities has a role to play to ensure the effectiveness and sustainability of its programs. In addition, the Foundation is consistently in consultation with its stakeholders (donors, project partners, LGUs/government representatives, etc.) before, during, and after any intervention.

Other subsidiaries of Ayala Corporation have programs that engage community and develop activities and programs that will improve the Filipinos quality of life. The Group ensure that we include the broader community in our creation of shared value process.

Anti-corruption programmes and procedures?

Ayala adopts a zero tolerance policy towards bribery and corruption. Thus, all directors, officers and employees of the Corporation are obliged to strictly observe the following guidelines:

Directors, officers and employees shall not offer, promise or give bribes to obtain, retain or “facilitate” business or any transactions of the Corporation;
Directors, officers and employees shall not request, agree to accept of take bribes from any person or organization.

The foregoing applies even if made through another person.

The Anti-Bribery and Anti-Corruption Policy must be strictly observed in all transactions and dealings of the directors, officers and employees of Ayala with the customers, suppliers and business partners of the Corporation as well as with the government,

The Offices of the Internal Audit, Controller, SHR, the Finance Group, Compliance Officer and General Counsel, subject to the approval of the President and CEO, shall provide for the Implementing Rules of this Policy.

Among the other guidelines on anti-corruption, the Company sets guidelines for dealing with business gifts and gratuities to protect the integrity of its employees and its business interests.

Safeguarding creditors’ rights

The Company shall protect the rights of all creditors as an integral stakeholder.

The Company shall comply with all positive, affirmative and negative debt covenants for so long as the obligations are outstanding.

In the event of a default, the Company will abide with the relevant provisions of the agreement pertaining to defaults, remedies, and penalties for all outstanding obligations.

The Company shall regularly furnish all creditors information that will enable the lenders to evaluate the Company.

The Company shall embed Creditor’s protection in its internal Treasury Performance Management Systems.

The Company shall ensure that all covenants for all obligations are identified, monitored and complied with. The Company regularly tracks and complies with deadlines of reports related to covenants that need to be submitted.

The Company shall endeavor that no event of default will occur. All events that are considered events of default are identified, monitored and complied with to prevent any event from occurring. In the unlikely event of a default, the Company will immediately notify all creditors, abide with the provisions pertaining to default, including remedies and pay the penalties if needed.

The Company shall identify all information and frequency of submission that lenders are to be provided for in accordance with the loan agreements. The company endeavors to submit these information, including audited annual financial statements, unaudited semiannual reports, and verification of no-default on or before due date.

Internally, the Company has a specific section in Treasury tasked with Debt Management. The objectives of the Debt Management Section are:

To maintain a healthy debt mix at a level aligned with strategic and operational requirements at a minimum borrowing/interest costs possible.
To ensure timely and accurate payments of interest and principal as they become due.
To ensure compliance to covenants as stipulated in loan agreements.

For more information on Ayala’s Sustainability initiatives, you may refer to the company’s Integrated Annual Reports, which it has been releasing since 2017 (www.ayala.com.ph/investors/annual-reports). A section on Sustainability is also available at the company website (www.ayala.com.ph/sustainability-at-ayala).

PERFORMANCE ENHANCING MECHANISMS FOR EMPLOYEE PARTICIPATION

Company’s policy for its employees’ safety, health, and welfare

The well-being of Ayala employees is important to us. In this regard, the organization remains responsible in ensuring the employees’ occupational health and safety. The organization remains committed to being compliant to related regulations on industrial health and safety, both locally and globally.

A fundamental part of this commitment is informing and training the employees on disaster preparedness, and in conducting their activities in a safe, healthy, and responsible manner. The organization realizes that an assessment of the risks related to business and employees is critical and to this end, the organization ensures a continuous and updated review and assessment of the related processes. It is important that hazards to the organization are identified clearly to ensure quick and proper response in mitigating these elements. This include identifying activities that minimize the risks, and establishing control measures benchmarked with industries’ best practices.

The Company maintains a comprehensive medical and wellness program which provides for in-patient and outpatient benefits for employees, dependents and retirees. It is designed to provide payments of the actual, reasonable and customary expenses incurred by an employee and eligible dependents and retirees, subject to a maximum amount limit.

We also encourage employees to undergo annual executive check-up or physical examinations for health maintenance. The company pays for memberships in gym, sports club and interest clubs. We maintain a chapel in the office vicinity for daily masses and spiritual growth.

Data relating to health, safety and welfare of its employees

Health programs for periodic medical and dental care and annual medical check-up are available to our employees and their dependents. We also established an annual vaccination program to combat diseases such as flu, hepatitis B, cervical cancer, and pneumonia.

The company maintains on-site medical clinic managed by doctors and nurses supervised by one of the leading hospitals in the country. First-aid and over-the-counter medicines are available when needed. There were no accident-related absences recorded in 2019.

To keep our employees energized and engaged, we organized activities such as annual foundation and summer outing, Halloween Party, and Ayala Olympics are designed to increase and strengthen camaraderie. We have enrolled our employees to a gym membership and also supported our employees’ sport and other interests through our annual JZA Cup comprising of golf, badminton, volleyball, bowling, and street dance, among others.

Below are the data relating to employee-related activities for the year 2019:

Items	Employees	Dependents
Annual Executive Check-up	45	–
Annual Check-up (Staff)	108	53
Dental Check-up	157	199
Annual Vaccination Program	58	81
Anti-Cervical Cancer	8	11
Flu Vaccine	45	76
Pneumonia	15	21
Hepa A and B	13	13
Recorded absence due to accident	0	0
Fundaytion (Family Day)	55	110
Halloween Party	31	44
Movie Night	58	77
Gym Members	12	2

Training and development programmes for its employees.

All regular employees are given opportunities for advancement through institutionalized training and career growth programs. Strategically targeting areas for improvement and advancement, these programs ensure that our employees are constantly updated with knowledge and skills needed to deliver quality results. Training programs are either held in-house, online, or thru public courses. In 2019, a total of 3,878.29 training hours were recorded or an average of 24.86 training hours per employee; 2,121.63 hours and 1,756.66 hours for staff and managerial positions, respectively.

Ayala’s groupwide Leadership Excellence Acceleration Program (LEAP), developed in collaboration with the Harvard Business School, is offered to its senior leaders and officers. The program covers strategic visioning and execution, customer centricity, innovation and growth, and leading for transformation and engagement. After Ayala LEAP, leadership development focus shifted to the next line of leaders. For the middle managers, Ayala developed the Emerging Ayala Group Leaders Program (EAGLE) which focuses on strategy, innovation, customer centricity, and transformational leadership.

We have further broadened our relationship with professors and institutions like Harvard, INSEAD and the Center for Innovation, Excellence and Leadership (IXL) to offer programs on Strategic Negotiations, Leadership Communications, and Integrated Learning Program on Innovation. These programs aim to institutionalize a culture of innovation.

Company’s reward/compensation policy that accounts for the performance of the company beyond short-term financial measures

The company rewards qualified employees with long-term stock options or stock ownership. The company promotes an ownership culture within the company which aligns the interests of the stock plan participants with those of the shareholders.

Employees’ Performance Management Framework

The company has established an effective performance management framework that ensures that Management, Managers and Staffs’ performance is at par with the standards set by the Board and Senior Management.

Process

Criteria

CEO/President/Senior Management Group

The performance of the Senior Management Group, including the Chairman and the President, are regularly evaluated. The Company uses an Evaluation System which includes self-assessment and discussions.

The company’s Performance Evaluation System includes metrics, deliverables, accomplishments and development plan.

Managers & Staff

1. The performance review of all managers are regularly evaluated and is supported by an online evaluation system.

2. Deliverables are set at the start of every performance year, discussed and agreed upon as a collaborative effort between Immediate Supervisors and employees.

3. Regular Feedback and mid-year review is set and observed.

4. Evaluations are done based on defined and agreed upon metrics.

5. Performance Dialogue is an important part of the evaluation system.

The company’s Performance Evaluation System includes metrics, deliverables, accomplishments and development plan

Disclosure and Transparency

Corporate Governance Report > Disclosure and Transparency

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Emphasis is given on providing quality, accurate, and timely disclosures to regulators and the investing public, including information on the results of its operations and financial performance. Ayala created procedures for internal reporting to ensure consistency in providing the investing public with prompt disclosures on significant and market sensitive information that may affect their investment decisions. Policies and procedures are also in place to ensure the company’s compliance with disclosure requirements under the listing rules of the SEC, Philippine Stock Exchange (PSE), and Philippine Dealing and Exchange Corporation (PDEx).

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

For 2020

On April 8, 2020, the Annual Report (SEC Form 17-A) together with the consolidated audited financial statements for 2018 were submitted to the SEC, within 120 days after year-end.
On March 27, 2020, the Notice of the Annual Stockholders’ Meeting with a detailed explanation of the Agenda items was released to the SEC and PSE, 28 days ahead of the scheduled annual meeting on April 24, 2020.
On March 27, 2020, the audited financial statements as contained in the Definitive Information Statement were submitted to the SEC and PSE, 28 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.

For 2021

On April 14, 2021, the Annual Report (SEC Form 17-A) together with the consolidated audited financial statements for 2019 were submitted to the SEC, within 120 days after year-end.
On February 22, 2021, the Notice of the Annual Stockholders’ Meeting with a detailed explanation of the Agenda items was released to the SEC and PSE, more than 28 days ahead of the scheduled annual meeting on April 23, 2021.
On March 26, 2021, the audited financial statements as contained in the Definitive Information Statement was approved by the SEC and was submitted to PSE, 28 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.

For 2022

On April 13, 2022, the Annual Report (SEC Form 17-A) together with the consolidated audited financial statements for 2021 were submitted to the SEC, within 120 days after year-end.
On March 1, 2022, the Notice of the Annual Stockholders’ Meeting with a detailed explanation of the Agenda items was released to the SEC and PSE, more than 28 days ahead of the scheduled annual meeting on April 29, 2022.
On April 1, 2022, the electronic copy of the Definitive Information Statement was released to the stockholders.
On March 25, 2022, the audited financial statements as contained in the Definitive Information Statement was approved by the SEC and was submitted to PSE, more than 28 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.

I . OWNERSHIP STRUCTURE

Holding 5% shareholding or more as of December 31, 2022

	OUTSTANDING COMMON SHARES	% OWNERSHIP
Mermac, Inc.	296.63 million	47.91
PCD Nominee Corporation (Non-Filipino)*	144.49 million	23.34
PCD Nominee Corporation (Filipino)*	115.76 million	18.70
Mitsubishi Corporation	37.77 million	6.10
Others	24.49 million	3.96
Total	619.14 million	100

* Out of the 260.25 million common shares registered under the name of PCD Nominee Corporation, 38.14 million or 6.16% are for the account of Standard Chartered Bank while 32.15 million or 5.19% are for the account of Citibank N.A.

Shareholdings of Directors and Officers as of December 31, 2022

	Security	Balance as of December 31, 2021*****	Addition	Disposal	Balance as of March 31, 2022*****
Directors
Jaime Augusto Zobel de Ayala	Common	785,034	–	–	785,034
	Preferred B Series 1	20,000	–	–	20,000
	Voting Preferred	543,802	–	–	543,802
Fernando Zobel de Ayala*	Common	757,134	–	–	757,134
Fernando Zobel de Ayala*	Preferred	554,983	–	–	554,983
Cezar P. Consing	Common	212,346	–	7,960	204,386
Delfin L. Lazaro	Common	82,554	–	–	82,554
Delfin L. Lazaro	Voting Preferred	258,297	–	–	258,297
Keiichi Matsunaga**	Common	1	–	–	1
Antonio Jose U. Periquet	Common	1,200	–	–	1,200
Rizalina G. Mantaring	Common	57,870	–	–	57,870
Rizalina G. Mantaring	Voting Preferred Shares	3,604	–	–	3,604
Officers
Jose Rene Gregory D. Almendras	Common	318,844	–	–	318,844
Catherine H. Ang	Common	36,613	–	–	36,613
	Voting Preferred Shares	5,290	–	–	5,290
	Preferred B Series 2	2,000	–	–	2,000
Alfredo I. Ayala	Common	235,776	–	–	292,586
Estelito C. Biacora	Common	14,183	–	–	14,183
Paolo Maximo F. Borromeo	Common	123,041	–	–	123,041
Josephine G. de Asis	Common	43,674	–	–	43,674
Bernard Vincent O. Dy	Common	49,439	–	–	49,439
Ernest L. Cu	Common	227,628	–	–	227,628
John Eric T. Francia	Common	134,426	–	–	134,426
Solomon M. Hermosura	Common	207,107	–	–	207,107
Solomon M. Hermosura	Voting Preferred Shares	53,583	–	–	53,583
Jose Teodoro K. Limcaoco	Common	409,120	–	–	409,120
Ruel T. Maranan	Common	35,094	–	–	35,094
John Philip S. Orbeta	Common	822,857	–	–	822,857
Arthur R. Tan	Common	419,182	–	–	419,182
Rosario Carmela G. Austria	Common	–	–	–	–
TOTAL		6,459,681	–	–	6,451,721

All directors and officers from Managing Directors and above, and the Controllers, Chief Internal Auditor, Chief Risk Officer, Treasurer, Corporate Secretary and Assistant Corporate Secretary, shall report their trades to the Office of the Compliance Officer within three (3) business days from dealing with such securities. All other officers and employees shall likewise report to the Office of the Compliance Officer within ten (10) days from the end of each quarter their trades with Ayala securities during such quarter.

II. REMUNERATION OF CEO AND FOUR (4) MOST HIGHLY COMPENSATED MANAGEMENT OFFICERS

Process Used in Determining the Remuneration of the CEO and Four (4) Most Highly Compensated Management Officers

Process	CEO	Top 4 Highest Paid Management Officers
(1) Fixed remuneration	Approved by the Board of Directors upon the recommendation of the Compensation Committee of the Board.	Approved by the Board of Directors upon the recommendation of the Compensation Committee of the Board and the Chairman of the Board
(2) Variable remuneration	The Company adopts a performance-based variable pay program aligned with business strategy. It is determined by the Compensation Committee of the Board and duly approved by the Board of Directors.	The Company adopts a performance-based variable pay program aligned with business strategy. The Performance Bonus Pie is approved by the Compensation Committee of the Board. Individual amount is approved by the Chairman and CEO and the President and COO.
(3) Per diem allowance	In the conduct of business abroad, per diem allowance is provided to reimburse miscellaneous expenses like airport fees, travel tax, taxi fare, laundry and phone allowance
(4) Bonus	Same with variable remuneration	Same with variable remuneration
(5) Stock Options and other financial instruments	grantees, the size of the grant, the offer price and the discount. The grant is approved by the Board of Directors upon the recommendation of the Compensation Committee of the Board.
(6) Others (specify)	N.A	N.A

Remuneration of Management

Name and Principal Position	Year	Salary	Bonus	Other Annual Compensation
Fernando Zobel de Ayala President and CEO Jaime Augusto Zobel de Ayala Chairman Paolo Maximo F. Borromeo* Managing Director, Corporate Strategy and Development Group Head Alberto M. de Larrazabal* Senior Managing Director, Chief Finance Officer, Chief Risk Officer, Chief Sustainability Officer, and Finance Group Head Josephine G. De Asis**** Executive Director and Controller Solomon M. Hermosura Managing Director, Chief Legal Officer, Corporate Secretary, Chief Compliance Officer, Data Protection Officer, and Corporate Governance Group Head Jose Teodoro K. Limcaoco* Senior Managing Director, Chief Finance Officer, Chief Risk Officer, Chief Sustainability Officer, and Finance Group Head John Philip S. Orbeta*** Managing Director, Chief Human Resources Officer, and Corporate Resources Group Head
CEO and Most Highly Compensated Executive Officers	Actual 2020	P348.13M	P270.81M	P 0
	Actual 2021	P300.72M	P162.49M	P 0
	Projected 2022	P255.45M	P190.74M	P 0
All other officers***** as a group unnamed	Actual 2020	P686.11M	P436.25M	P 0
	Actual 2021	P641.56M	P270.92M	P 0
	Projected 2022	P521.17M	P307.08M	P 0

*Up to April 2021

**Starting April 2021

***Up to December 2021

****Starting from January 2022

*****Managers and up (including all above-named officers)

III. RELATED PARTY TRANSACTIONS

The Related Party Transactions of the Company are disclosed in the audited financial statements.

Rights and Equitable Treatment of Stockholders

Corporate Governance Report > Rights and Equitable Treatment of Stockholders

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I. RIGHT TO PARTICIPATE EFFECTIVELY AND VOTE IN ANNUAL/SPECIAL STOCKHOLDERS’ MEETINGS

Quorum Requirement : One-half of the outstanding stock is present or represented except in cases where the Corporation Law requires a greater number.

System Used to Approve Corporate Acts

System Used

By poll.

Description

Straight and cumulative voting.

In all items for approval, each voting share of stock (common and voting preferred share) entitles its registered owner as of the Record Date to one vote.

In the case of the election of directors, directors are elected individually. Each stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate the aforesaid shares and give one nominee as many votes as the number of directors to be elected multiplied by the number of his shares, or he may distribute them on the same principle among as many nominees as he shall see fit; provided that, the whole number of votes cast by him shall not exceed the number of shares owned by him multiplied by the total number of directors to be elected.

Upon registration at the annual stockholders’ meeting, each stockholder will be given a ballot to enable him to vote in writing on each item or proposal in the Agenda. Nonetheless, each stockholder may vote viva voce or by other means of communicating his approval or objection.

All votes will be counted and tabulated by the Committee of Inspectors of Proxies and Ballots and the results will be validated by the external auditor of the Company, SGV & Co.

Stockholders’ Participation During Annual Stockholders’ Meeting

The agenda for the Annual Stockholders’ Meeting, the detailed Definitive Information Statement and the unbundled proxy form are distributed to the stockholders on record at least 28 days prior to the meeting to enable the stockholders to study and understand every agenda item of the meeting.

In support of greater transparency and improved shareholder involvement, the company provides multiple voting options such as appointing a proxy, voting in-person, or through electronic voting in absentia. There is a secure, easy-to-use Voting in Absentia and Shareholder (VIASH) System accessible to all stockholders, allowing stockholders to exercise their right if unable to attend the Annual Stockholders’ Meeting. Equal effect is given to votes whether cast in person or in absentia.

During the annual stockholders’ meeting, the Chairman of the Board encourages the stockholders to ask questions for each agenda or matters for approval during the meeting. The question and answer portion is documented in the minutes of the meeting.

Because of restrictions to address the COVID-19 pandemic, and the utmost importance that the Company place on the health and well-being of its employees, its stockholders and partners, the annual stockholders meetings for the years 2020 to 2022 were held in a fully virtual format. Stockholders were able to using the VIASH System until the end of the meeting and questions for the meeting were allowed to be sent to corporatesecretary@ayala.com.ph.

The Company calls for a regular or special stockholders’ meeting. The details of the proposed actions for stockholders’ decision are presented in the Definitive Information Statement which is made available to the stockholders. During the meeting, the Company’s board and/or management present the proposed actions and encourage stockholders to ask questions.

In cases of amendment of the Articles of Incorporation where written assent is allowed, a stockholder may deliver, in person or by mail, his vote directly to the Corporation.

Treatment of Minority Stockholders

Policies	Implementation
A Director may be removed with or without cause, but directors shall not be removed without cause if it will deny minority shareholders representation in the Board.	The Company strictly adheres with its policies with respect to the treatment of minority stockholders.
The minority shareholders shall have the right to propose the holding of a meeting, and the right to propose items in the agenda of the meeting, provided the items are for legitimate business purposes.
The minority shareholders shall have access to any and all information relating to matters for which the management is accountable for and to those relating to matters for which the management should include such matters in the agenda of the meeting provided always that this right of access is conditioned upon the requesting shareholder’s having a legitimate purpose for such access.

The company’s Board Charter and the Charter of the Nomination Committee allows any stockholder, including minority stockholders, to nominate candidates for board of directors.

II. DIVIDEND DECLARATIONS

Cash Dividend on Common Shares

Declaration Date	Record Date	Payment Date
June 24, 2016	July 11, 2016	July 24, 2016
December 2, 2016	December 16, 2016	January 1, 2016
June 22, 2017	July 7, 2017	July 22, 2017
December 1, 2017	December 15, 2017	December 31, 2017
June 22, 2018	July 6, 2018	July 22, 2018
December 6, 2018	December 20, 2018	January 5, 2019
July 16. 2019	July 30, 2019	August 15, 2019
December 5, 2019	December 19, 2019	January 4, 2020
June 16, 2020	June 30, 2020	July 16, 2020
December 3, 2020	December 18, 2020	January 2, 2021
July 15, 2021	July 29 2021	August 13, 2021
December 10, 2021	December 24, 2021	January 7, 2022

Cash Dividend on Preferred B Series 1 Shares

Declaration Date	Record Date	Payment Date
December 1, 2017	January 22, 2018	February 15, 2018
December 1, 2017	April 18, 2018	May 15, 2018
December 1, 2017	July 20, 2018	August 15, 2018
December 1, 2017	October 18, 2018	November 15, 2018
December 6, 2018	January 22, 2019	February 15, 2019
December 6, 2018	April 16. 2019	May 15, 2019
December 6, 2018	July 22, 2019	August 15, 2019
December 6, 2018	October 21, 2019	November 15, 2019
December 5, 2019	January 22, 2020	February 15, 2020
December 5, 2019	April 20, 2020	May 15, 2020
December 5, 2019	July 22, 2020	August 15, 2020
December 5, 2019	October 20, 2020	November 15, 2020
January 28, 2021	February 11, 2021	February 15, 2021
April 7, 2021	April 22, 2021	May 15, 2021
July 19, 2021	August 3, 2021	August 15, 2021
October 19, 2021	November 2, 2021	November 15, 2021

Cash Dividend on Preferred B Series 2 Shares

Declaration Date	Record Date	Payment Date
December 1, 2017	January 10, 2018	February 5, 2018
December 1, 2017	April 10, 2018	May 5, 2018
December 1, 2017	July 11, 2018	August 5, 2018
December 1, 2017	October 8, 2018	November 5, 2018
December 6, 2018	January 10, 2019	February 5, 2019
December 6, 2018	April 4, 2019	May 5, 2019
December 6, 2018	July 10, 2019	August 5, 2019
December 6, 2018	October 9, 2019	November 5, 2019
December 5, 2019	February 4. 2020	February 28, 2020
December 5, 2019	May 5, 2020	May 29, 2020
December 5, 2019	August 4, 2020	August 29, 2020
December 5, 2019	November 4, 2020	November 29, 2020
January 28, 2021	February 19, 2021	February 28, 2021
April 23, 2021	May 7, 2021	May 29, 2021
July 30, 2021	August 13, 2021	August 29, 2021
November 2, 2021	November 16, 2021	November 29, 2021

Cash Dividend on Voting Preferred Shares

Declaration Date	Record Date	Payment Date
December 2, 2016	April 25, 2017	May 20, 2017
December 1, 2017	April 24, 2018	May 20, 2018
December 6, 2018	April 23, 2019	May 20, 2019
December 5, 2020	April 23, 2020	May 20, 2020
April 8, 2021	April 26, 2021	May 20, 2021

III. ALTERNATIVE DISPUTE RESOLUTION

Any dispute, controversy or claim between the Corporation and its stockholders arising from, relating to, or in connection with the implementation of the Articles of Incorporation or By-Laws, or from intra-corporate relations, except those involving criminal offenses and interests of third parties, may be referred to and resolved by arbitration as provided under the Philippine Alternative Dispute Resolution Act of 2014.

The arbitration shall be conducted in accordance with the Arbitration Rules of the Philippine Dispute Resolution Center, Inc. of the Philippine Chamber of Commerce and Industry (the “Arbitration Rules”) and SEC Rules and Regulations then in effect.

Violations	Sanctions
First Violation	Reprimand
Second Violation	Suspension from office. The duration shall be at the reasonable discretion of the Board, depending on the gravity of the violation.
Third Violation	Removal from office.