The powers and functions of NORTHRAIL are exercised by the Board of Directors. The Board is the policy making body and is primarily responsible for good governance in NORTHRAIL. Corollary to this main responsibility, the Board shall chart the corporate strategy and set guidelines for accomplishment of corporate objectives, as well as provide an independent check on management.

3.1. Mandate and Responsibility for NORTHRAIL’s Performance. The responsibilities of Board are articulated in the NORTHRAIL Articles of Incorporation and other relevant legislation, rules and regulations. These responsibilities shall include the following:

3.1.1. Provide corporate leadership to NORTHRAIL subject to rule of law, and the objectives set by the State and NORTHRAIL.

3.1.2. Establish NORTHRAIL's vision and mission, strategic objectives, policies and procedures that shall guide its activities, including the means to effectively monitor Management’s performance.

3.1.3. Define NORTHRAIL's values and standards.

3.1.4. Foster the long-term success of NORTHRAIL and secure its sustained competitiveness and profitability in a manner consistent with its corporate objectives and the best interests of the State.

3.1.5. Determine the organizational structure of NORTHRAIL, define the duties and responsibilities of its officials and employees and adopt a pay plan, compensation and benefit scheme, and position classification in accordance to E.O. 62 and RA 7227 until the GCG issues the new Compensation Position Classification System (CPCS) for all GOCCs.

3.1.6. Appoint all officials down to the third level and authorize the NORTHRAIL President to appoint all others: Provided, that all appointments shall be based on merit and fitness and all personnel actions shall be in pursuance of the Labor Code of the Philippines, except those coterminous employees or Members of the Board.7

3.1.7. The Board, in the performance of its duty to manage the business and affairs of NORTHRAIL, shall delegate the management authority to the President. The President is charged by the Board with the day-to-day leadership of management of NORTHRAIL. The President is expected to keep the Board apprised and updated, in an open and transparent manner, of NORTHRAIL’s progress and of any material deviations from the goals, objectives or policies established by the Board. To this end, the Board shall refrain from giving direct instructions to Management and shall course all directives through the President.

3.1.8. Prepare the annual and supplemental budgets of NORTHRAIL.

3.1.9. Comply with reportorial requirements, as required in the NORTHRAIL Articles of Incorporation and By-laws, as well as applicable laws, rules and regulations.

3.1.10. Carry out the mandate of NORTHRAIL, as provided in its Articles of Incorporation and By-laws.

3.1.11. Act as an effective and independent check on Management.

3.2. Specific Functions of the Board. In addition to those specified in the Articles of Incorporation and By-laws, the Board shall perform, among others, the following functions:

3.2.1. Determine NORTHRAIL's purpose and value, as well as strategies and general policies, to ensure that NORTHRAIL survives and thrives despite financial crises and its assets and reputation are adequately protected.

3.2.2. Determine important policies and establish programs that bear on the character of NORTHRAIL with a view towards ensuring its long-term viability and strength.

3.2.3.Monitor and evaluate on a regular basis the implementation of corporate strategies and policies, business plans and operating budgets, as well as Management's over-all performance to ensure optimum results;

3.2.4. Provide sound strategic policies and guidelines on NORTHRAIL operating budget and major capital expenditures.

3.2.5. Periodically evaluate and monitor the implementation of such policies and strategies including the business plans, operating budget and Management’s performance.

3.2.6. Ensure that NORTHRAIL complies with all relevant laws, regulations and codes of best business practices.

3.2.7. Implement a process for the recommendation or nomination of directors who can add value and contribute independent judgment to the formulation of sound corporate strategies and policies for NORTHRAIL, and its affiliates.

3.2.8. Establish a competitive selection process to ensure that the key executives of NORTHRAIL have the necessary motivation, integrity, competence and professionalism. Align key executive and board remuneration with the long-term interests of NORTHRAIL. Appoint competent, professional, honest and highly motivated management officers. Adopt a professional development program for officers and employees, and succession planning for key executives.

3.2.9. Identify key risk areas and performance indicators and monitor these factors with due diligence to enable NORTHRAIL to anticipate and prepare for possible threats to its operational and financial viability.

3.2.10. Ensure the integrity of NORTHRAIL's accounting and financial reporting systems, including independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.

3.2.11. Establish and maintain an investor and stakeholder relations program that will keep them informed of important developments in the corporation. The President shall exercise oversight responsibility over this program.

3.2.12. Oversee the process of disclosure and communications.

3.2.13. Adopt and implement a system of internal check and balance within the Board. A regular review and update of such system should be conducted to ensure the integrity of the decision making and reporting process at all times. There shall be a continuing review of NORTHRAIL’s internal control system in order to maintain its adequacy and effectiveness.

3.2.14. Formulate and implement policies that would ensure the integrity and transparency of related party transactions between and among NORTHRAIL, its affiliates, joint ventures, joint ventures, stakeholders, directors and officers including their spouses, children and dependent siblings and parents and of interlocking director relationships by Members of the Board. Monitor and manage potential conflicts of interest of Management, Members of the Board and stakeholders, including misuse of corporate assets and abuse in related party transactions.

3.2.15. Constitute Board Committees as may be necessary to assist the Board in the performance of its functions.

3.2.16. Establish and maintain an alternative dispute resolution system that can amicably settle conflicts or differences between NORTHRAIL and its affiliates, joint ventures, stakeholders or third parties, including regulatory authorities.

3.2.17. Meet regularly to properly discharge its responsibilities. The minutes of such meetings should be duly recorded. Independent views during Board meetings shall be encouraged and given due consideration.

3.2.18. Conduct and maintain the affairs of NORTHRAIL within the scope of its authority, as prescribed in its Corporate Charter and in accordance with existing laws, rules and regulations.

3.2.19. Attest to the truth and fairness of the financial statements of NORTHRAIL.

3.3. Composition of the Board. The Board of Directors of NORTHRAIL, as provided for in the Articles of Incorporation, shall be composed of eleven (11) members receiving the highest votes of the stockholders in a meeting called for the purpose. The powers and functions of NORTHRAIL shall be exercised by a Board of Directors to be composed of eleven (11) members, as follows:

3.3.1. Chairman;

3.3.2. President

3.3.2. Nine (9) other members from the private sector, two (2) of whom shall be nominated by BCDA.

The Secretary of the DOTC, the agency to which NORTHRAIL is attached to for purposes of policy and program coordination and for general supervision, shall be Ex Officio Co-Chairman of the governing board. He may designate an Ex Officio Alternate who ideally should be an official next-in-rank to him, and whose acts shall be considered the acts of the Principal.

The Chairman, the President, and Members shall be appointed by the President of the Philippines from a shortlist prepared by the GCG. In case of vacancy in the Board, the appointee shall serve the unexpired term of the predecessor.

The positions of Chairman and President NORTHRAIL shall be separate. The duties and responsibilities of the offices are defined and delineated to ensure check and balance, accountability and independence. In case the offices are unified, safeguards shall be instituted to guarantee independent decision making in the Board.

3.4 Specific Duties and Responsibilities of a Director. A director should observe the following norms of conduct:

3.4.1. Remain fit and proper for the position for the duration of his/her term:

3.4.2. Conduct fair business transactions and ensure that his/her personal interest does not conflict with the interests of the corporation;

3.4.3. Devote time and attention necessary to properly and effectively perform his/her duties and responsibilities;

3.4.4. Act honestly and in good faith, in the best interest of the corporation, including its stakeholders; 3.4.5. Act judiciously and exercise independent judgment; and

3.4.5. Observe confidentiality.

3.5 Term of Office. The term of office of the Chairman and each Member of the Board shall be for one (1) year, commencing on the 1st of July and ending on the 30th of June of the immediately succeeding year, unless sooner removed for cause. In the event that no new Board is elected and qualified after the official term of the Board of Directors, the existing Board, if still constituting a quorum, is still a legitimate Board with full authority to bind NORTHRAIL.

3.6 Qualifications of Board Members. No person shall be appointed or designated to the Board unless he is a natural-born Filipino citizen, of good moral character, of unquestionable integrity, and of recognized competence in relevant fields including, but not limited to, economics, management, international relations, law or engineering. All Board members must be appointed by His Excellency pursuant to R.A. No. 10149, GCG’s selection and nomination procedures, and the GCG Fit and Proper Rule.

3.7 Charter of Expectations. The Board recognizes its duties and shall adopt a Charter of Expectations as a general statement of its expectations as to how it will discharge its duties. The Charter will also serve as a tool in assessing the Boards’ performance and that of individual directors. 3.8 Permanent Disqualification of Board Members. The following individuals are permanently disqualified from appointment or re-appointment, or to continue holding the position of Appointive Director or CEO in any GOCC, as the case may be, thus:

3.8.1. Persons who have been convicted by final judgment of a court or tribunal of:

3.8.1.1. A crime or offense involving dishonesty or breach of trust such as, but not limited to, estafa, embezzlement, extortion, forgery, malversation, swindling, theft, robbery, falsification, or bribery; violation of the Bouncing Checks Law, the Anti-Graft and Corrupt Practices Act, prohibited acts and transactions under Section 7 of the Code of Conduct and Ethical Standards for Public Officials and Employees, violation of banking laws, rules and regulations; Provided, however, that when the penalty imposed in the final judgment of conviction is censure or reprimand, the GCG shall determine from the terms of the judgment whether it shall constitute a ground for permanent or temporary disqualification;

3.8.1.2. A crime or offense where the sentence imposed is a term of imprisonment of at least six (6) years and one (1) day, or;

3.8.1.3. A violation of the laws, rules and regulations particularly applicable to the sector under which the GOCC is classified, and in other related sectors;

3.8.2. Persons who have been judicially declared insolvent, spendthrift or incapacitated to contract;

3.8.3. Directors, CEOs and Officers of GOCCS who have been:

3.8.3.1. Found by a competent administrative body as administratively liable for violation of laws, rules and regulations particularly applicable to the sector of the GOCC concerned, as well as those covered by related sectors, and where a penalty of removal from office is imposed, which finding of the administrative body has become final and executory;

3.8.3.2. Determined by the Commission on Audit (COA) pursuant to a Notice of Disallowance which has become final and executory, to have, by virtue of their office, acquired or received a benefit or profit, of whatever kind or nature including, but not limited to, the acquisition of shares in corporations where the GOCC has an interest, using the rights, options or properties of the GOCC for their own benefit, receiving commission on contracts from the GOCC's assets, or taking advantage of corporate opportunities of the GOCC; or

3.8.3.3 Found to be culpable for a GOCC'S insolvency, closure, or cessation of operations, as determined by the GCG in consultation with the appropriate Government Agency;

3.8.4. Directors and officers of private corporations, or any person found by the GCG in consultation with the appropriate Government Agency, to be unfit for the position of Appointive Director because they were found administratively liable by such Government Agency for:

3.8.4.1. A violation of laws, rules and regulations relevant to the sector of the GOCC concerned, as well as in related sectors; or

3.8.4.2. Any offense/violation involving dishonesty or breach of trust; and

3.8.4.3. Which finding of such Government Agency has become final and executory

3.9. Temporary Disqualification of Incumbent Board Members. Incumbent Members of the Board of Directors shall be temporarily disqualified from appointment or re-appointment, or from continuing to hold office, as the case may be, if:

3.9.1. They refused or failed to fully disclose the extent of their business interest or any Material Information to NORTHRAIL, GCG or the appropriate Government Agency, when required pursuant to the requirements of the Securities Regulation Code, the Corporation Code of the Philippines, or any other relevant provision of law, as well as when required by a circular, memorandum, rule or regulation, applicable to such institutions, and such disqualification shall be in effect as long as the refusal or failure persists;

3.9.2. They have been absent or who have not participated for whatever reason in more than fifty percent (50%) of all meetings, both regular and special, of the Board during the immediately preceding semester, or who failed to attend for whatever reasons at least twenty five percent (25%) of all board meetings in any year; Provided, however, that such temporary disqualification applies only for purposes of the immediately succeeding appointment process for a new Term of Office;

3.9.3. They are delinquent in the payment of their obligations, defined as follows:

3.9.3.1. Delinquency in the payment of obligations means the failure to pay according to the terms of the contracted obligation with a GOCC, Subsidiary or Affiliate or with a private corporation, within at least sixty (60) days from formal demand.

3.9.3.2. Obligations shall include all borrowings obtained by a Director for his/her own account or as the representative or agent of others or where he/she acts as a guarantor, endorser or surety for loans from such institutions; the spouse or child under the parental authority of the Director; any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a Director; a partnership in which a Director, or his/her spouse, is the managing partner or a general partner owning a controlling interest in the partnership; and a corporation, association or firm whollyowned or majority of the capital of which is owned, by any or a group of persons mentioned herein.

3.9.3.3. Such temporary disqualification shall be in effect as long as the delinquency persists.

3.9.4. They have been convicted in the first instance by a court for:

3.9.4.1 Any offense involving dishonesty or breach of trust such as, but not limited to, estafa, embezzlement, extortion, forgery, malversation, swindling, theft, robbery, falsification, or bribery;

3.9.4.2. Violation of the Bouncing Checks Law, the Anti-Graft and Corrupt Practices Act, prohibited acts and transactions under Section 7 of the Code of Conduct and Ethical Standards for Public Officials and Employees;

3.9.4.3. Violation of banking laws, rules and regulations; or

3.9.4.4 An offense where the penalty imposed is to serve a maximum term of imprisonment of more than six (6) years; but whose conviction has not yet become final and executory; Provided, however, that such temporary disqualification shall automatically cease upon receipt by NORTHRAIL of a certified true copy of a judgment amounting to an acquittal;

3.9.5. They are Directors or Officers of private corporations which have been officially declared insolvent, dissolved or closed, pending their clearance by the GCG in consultation with the appropriate Government Agency;

3.9.6. They are disqualified for failure to observe/discharge their duties and responsibilities prescribed under the Ownership and Operations Manual Governing the GOCC Sector, the Code of Corporate Governance for GOCCs, the NORTHRAIL Manual of Corporate Governance, or existing rules and regulations of the GCG; and such temporary disqualification applies until the lapse of the specific period of disqualification or upon approval by the GCG of such Directors' appointment/reappointment;

3.9.7. They failed to attend within three (3) months from their appointment and assumption of office the public corporate governance seminar for Directors conducted by the GCG or any individual/entity accredited by the GCG; Provided, however, that such disqualification shall cease when the Director concerned has submitted to NORTHRAIL an official certification that he/she has attended such seminar;

3.9.8. They are dismissed/terminated from employment for just cause; Provided, however, that such temporary disqualification will cease when they have cleared themselves of involvement in the alleged irregularity;

3.9.9. They are under preventive suspension, whether it be in the government service or in private sector service; Provided, however, that Board shall determine from the cause for the preventive suspension whether it shall constitute a ground for temporary disqualification;

3.9.10. They have derogatory records as certified by, or on the official files of, the Judiciary, the National Bureau of Investigation (NBI), the Philippine National Police (PNP), the Ombudsman, quasi-judicial bodies, other government agencies, international police, monetary authorities and similar agencies or authorities of foreign countries, for irregularities or violations of any law, rules and regulations that would adversely affect the integrity of the Directors or the ability to effectively discharge their duties; and this disqualification applies until they have cleared themselves of the alleged irregularities/violations, or after a lapse of five (5) years from the time the complaint, which was the basis of the derogatory record, was initiated; Provided, however, that Board shall determine from the nature of the derogatory record whether it shall constitute a ground for temporary disqualification;

3.9.11. They are Directors or Officers of private corporations or GOCCs found by the appropriate Government Agency as administratively liable for violation of laws, rules and regulations relevant to the sector of the GOCC, as well as in related sectors, where a penalty of suspension from office or fine is imposed, regardless whether the finding of the appropriate Government Agency is final and executory or pending appeal before the appellate court, unless execution or enforcement thereof is restrained by the court; and such disqualification shall be in effect during the period of suspension or so long as the fine is not fully paid; or

3.9.12. They have conflict of interest as defined under the Code of Conduct and Ethical Standards for Public Officials and Employees and its Implementing Rules and Regulations; and this disqualification applies until the conflict of interest is resolved.

3.10 Fiduciary Duties of the Board and Officers. As fiduciaries of the State, Members of the Board of Directors and the Officers of NORTHRAIL have the legal obligation and duty to always act in the best interest of the NORTHRAIL, with utmost good faith in all its dealings with the properties, interests and monies of NORTHRAIL. The Members of the Board and Officers of NORTHRAIL shall:

3.10.1 Act with the utmost and undivided loyalty to NORTHRAIL;

3.10.2 Act with due care, extraordinary diligence, skill and good faith in the conduct of the business of NORTHRAIL;

3.10.3 Avoid conflicts of interest and declare any interest they may have in any particular matter before the Board;

3.10.4 Apply sound business principles to ensure the financial soundness of the NORTHRAIL; and

3.10.5 Elect and/or employ only Officers who are fit and proper to hold such office with due regard to the qualifications, competence, experience and integrity. Where a Member of the Board on an Officer, by virtue of the office, acquires or receives for oneself a benefit of profit, of whatever kind or nature including, but not limited to, the acquisition of shares in corporations where the NORTHRAIL has in interest, using the properties of NORTHRAIL for their own benefit, receiving commission on contracts from NORTHRAIL’s assets, or taking advantage of corporate opportunities of NORTHRAIL, all such profits or benefits shall be subject to restitution under Section 24 of Republic Act No. 10149, without prejudice to any administrative, civil or criminal action against Members of the Board of Directors or Officers. This provision shall be applicable notwithstanding the fact that such member of the Board or Officer risked one’s own funds in the venture.

3.11. Internal Control Responsibilities of the Board

3.11.1. The Control environment of NORTHRAIL consists of:

3.11.1.1 The Board, which ensures that the NORTHRAIL is properly and effectively managed and supervised;

3.11.1.2. A Management that actively manages and operates NORTHRAIL in a sound and prudent manner;

3.11.1.3. The organizational and procedural controls supported by effective management information and risk management reporting systems; and

3.11.1.4. An independent audit mechanism to monitor the adequacy and effectiveness of NORTHRAIL’s governance, operations, and information systems, including the reliability and integrity of financial and operational information, the effectiveness and efficiency of operations, the safeguarding of assets, and compliance with laws, rules, regulations and contracts.

3.11.2. The minimum internal control mechanisms for the Board’s oversight responsibility include, but shall be limited to:

3.11.2.1. Ensuring the presence of organizational and procedural controls, supported by an effective management information system and risk management reporting system.

3.11.2.2. Reviewing conflict-of-interest situations and providing appropriate remedial measures for the same.

3.11.2.3. Recommending, nominating and electing a President with the appropriate ability, integrity, and experience to fill the role. The President shall be subject to the disciplinary authority of the Board.

3.11.2.4. Reviewing proposed key executive appointments. 3.11.2.5. Ensuring the selection, appointment and retention of qualified and competent management.

3.11.2.6. Reviewing NORTHRAIL’s personnel and human resources policies, compensation plan and the management succession plan.

3.12. Collective and Individual Liability of Board Members. There shall be no difference between the liabilities of different Board Members, whether nominated by the government or other stakeholders.

Board members who willfully and knowingly vote or consent to patently unlawful acts of NORTHRAIL or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such members, shall be liable jointly and severally for all resultant damages suffered by NORTHRAIL, the State, stakeholders and/or third persons, without prejudice to the imposition of criminal or administrative penalties.

In addition, when a Board Member attempts to acquire or acquires, in violation of his duty, any interest adverse to NORTHRAIL in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for NORTHRAIL and must account for the profits which otherwise would have accrued to NORTHRAIL Any Board Member who enters into a transaction or contract grossly disadvantageous to the government, whether he profited from it or not, shall be liable for violation of Republic Act No. 3019, also known as the Anti-Graft and Corrupt Practices Act.

3.13. Exercise of Objective and Independent Judgment. The Board must have some degree of independence from Management in order to effectively fulfill its responsibilities. To this end, the Board shall include a sufficient number of competent non-executive board members who are capable of independent judgment. These non-executive and independent board members should have the relevant competence and experience and it is advisable that they be recruited from the private sector. They must also comply with the following requirements:

3.13.1. Independent board members shall hold no interests or relationships with NORTHRAIL that may hinder their independence from NORTHRAIL or its management and which may interfere with the exercise of independent judgment in carrying out their responsibilities.

3.13.2. An independent board member shall submit to the Corporate Secretary a letter of confirmation stating that he holds no interests affiliated with NORTHRAIL, its management or controlling shareholder at the time of his appointment and/or re-appointment.

NORTHRAIL shall, as appropriate, provide independent board members with technical support staff to assist them in performing their duties. Independent board members may, when necessary, also request and receive support from officers, employees or outside professionals such as auditors, advisers and counsel to perform such duties. NORTHRAIL shall cover the reasonable expenses of providing such support.

3.14. Board Meetings and Quorum Requirement. The Board shall schedule and hold regular meetings and convene for special meetings when required by the exigencies of business. Regular meetings shall be held monthly while special meetings may be held at any time upon the call of the Chairman or the President, or upon the request of two or more directors.

Notice of all special meetings stating the date, time and place of meeting must be sent to each and every director at least three (3) business days before any such meetings. A director may waive this requirement either expressly or impliedly.

A majority of directors as fixed in the Articles of Incorporation shall constitute a quorum for the transaction of corporate business. Every decision of at least a majority of the directors present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers, which shall require the vote of all the members of the board. Every member shall attend such meetings in person, through teleconferencing or video conferencing to ensure that the quorum requirement is met, unless otherwise prevented by justifiable causes.

3.15. Remuneration of Directors and Officers. The compensation of the Members of the Board of Directors and Officers shall have the following components:

3.15.1. Per diem for every board meeting actually attended; and

3.15.2. Performance-Based Incentives that may be allowed based on agreed upon metrics as provided under Section 11 of Executive Order No. 24, Series of 2011.

Members of the Board shall receive a per diem based on the NORTHRAIL classification approved by the GCG. The per diem collected per month shall not exceed the equivalent of four (4) meetings and shall further be subject to the limits set forth in Sections 9 and 10 of Executive Order No. 24, Series of 2011. Any increases from the current rates of per diems being granted shall take effect only upon approval by the President of the Philippines.

Officers of the Board who are not concurrent Members of the Board shall receive a per diem based on rates authorized by the NORTHRAIL Board. The per diem collected per month shall not exceed the equivalent of four (4) meetings and shall further be subject to the limits set forth in Sections 9 and 10 of Executive Order No. 24, Series of 2011.

3.16. Annual Performance Evaluation of the Board. Performance Agreements shall be entered into between NORTHRAIL, as represented by its Governing Board, and the State, as represented by GCG. 13 NORTHRAIL shall submit the components of the Performance Evaluation System (PES) to GCG for the succeeding calendar year annually. Submissions may be made during the period beginning the first working day of July and ending the last working day of August. Renegotiation of previously established Annual Targets for succeeding years can also be done during this period. The negotiation of the Performance Agreement shall conclude by the last day of October of the same year the PES components were submitted. Thereafter, the NORTHRAIL Board shall ratify the Performance Agreement.

3.16.1 Measures/Performance Indicators. The NORTHRAIL Board’s performance shall be based on the Measures/Performance Indicators and Annual Targets as contained in the Performance Agreement between BCDA and the GCG. It is understood that NORTHRAIL must achieve a weighted average rating of 90% to be eligible to grant any performance-based incentives.

3.16.2. Strategic Initiatives. NORTHRAIL commits to undertake key programs and/or projects identified as having significant impact on its performance and shall provide quarterly monitoring reports16 to the GCG for this purpose, while at all times adhering to the principles of transparency, good governance, and integrity.

3.16.3 Performance Evaluation for Directors (PED). The PED shall cover all appointive Directors as the basis for the determination of whether they shall be recommended for reappointment. It shall also cover the Ex Officio Directors or their alternates for the purpose of reporting to the President the performance of such Ex Officio Directors, as well as to allow the GCG to evolve a good governance system for Ex Officio Directors in NORTHRAIL