The Securities and Exchange Commission (SEC) has proposed a new rule requiring independent directors of publicly-listed companies to serve a fixed three-year term, with no possibility of extension beyond nine years.
Under the draft memorandum circular, which is open for public comment until October 15, independent directors will have staggered terms of 1, 2, or 3 years at the outset. After the initial term, each director will serve a full three-year term. For example, a company with five independent directors will stagger the initial terms to ensure that only one director’s term expires each year.
SEC chairman Francis E. Lim emphasized that the reform aims to strengthen the role of independent directors, originally designed to protect minority shareholders and ensure decisions are made in the best interest of the company, rather than the controlling shareholders. Lim also said that this policy aligns with practices in global markets where similar term limits are already in place.
Under Memorandum Circular No. 4 (2017), the SEC allows for extensions beyond nine years if stockholders approved, with a meritorious justification. However, the new rule eliminates this flexibility, establishing a hard cap on tenure.
The SEC’s proposed changes are part of ongoing efforts to enhance corporate governance in the Philippines.
