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THE SECURITIES and Exchange Commission (SEC) seeks to ensure that independent directors of publicly traded firms possess security of tenure.
SEC Chair Francisco Ed. Lim informed journalists on Friday that they are presently exploring the possibility of releasing a new memorandum circular on corporate governance, which will include provisions for the security of tenure for independent directors.
Mr. Lim stated that independent directors ought to enjoy security of tenure throughout their nine-year term, allowing them to voice concerns regarding company policies without the anxiety of dismissal from their position.
“We’re still deliberating on the matter because what I envision is a new memorandum circular focused entirely on corporate governance issues, which will entail aspects like the terms of independent directors and their security of tenure… What we have in mind is security of tenure within that nine-year framework,” he remarked.
“If you’re an independent director and you advocate for what you believe is correct, yet it contradicts the wishes of the controlling shareholders, you’re jeopardizing your tenure,” he added.
An independent director is an individual on a company’s board who does not hold any significant ties to the company, its parent, subsidiaries, or affiliates, and is free from management influence.
Per the Code of Corporate Governance for Publicly-Listed Companies issued in 2016, the SEC advised that the board should comprise at least three independent directors or that they constitute a minimum of one-third of the board.
Mr. Lim expressed that he also intends to rigorously apply the nine-year term limit for independent directors according to existing regulations, rather than permitting companies to apply for exemptions.
“In some instances, what occurs is that they (companies) approach the SEC to request an exemption from the nine-year term limit. This is why certain independent directors surpass the nine-year limit. I aim to enforce (the term limit),” he noted.
“There is no monopoly on talent. There is talent available in the market.”
According to the Code of Corporate Governance, independent directors can serve a maximum cumulative term of nine years. However, the board must provide compelling justification and obtain shareholder approval if an independent director’s term is extended beyond nine years.
“If the current independent directors genuinely wish to assist, they can become independent directors for other companies, particularly smaller firms that could benefit from their knowledge and expertise. The SEC might facilitate this by establishing a term limit for independent directors,” Mr. Lim stated.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort remarked that the SEC’s proposal would further enhance corporate governance standards within the nation.
“This will aid in maintaining checks and balances on significant decisions, while preventing groupthink,” he conveyed in a Viber message.
“This will also assist in aligning with the evolving regulatory environment regarding higher environmental, social, and governance standards,” he added.
DIALOGUES WITH GOCC
Conversely, Mr. Lim mentioned that the SEC has been engaging with the Philippine Stock Exchange (PSE) regarding potential Philippine government-owned and -controlled corporations (GOCC) that may be listed on the stock market.
He further noted that the GOCCs must be “worth listing” to mitigate unnecessary risk for investors.
“That’s ongoing. We have been in discussions. Our actions have been to consult with the PSE, since it is not a matter of including all GOCCs,” he explained.
“We will pinpoint. I desire to have an official list,” he added.
Currently, there are no listed GOCCs in the Philippines.
In a report from April, the Organisation for Economic Co-operation and Development highlighted state-owned banks such as the Land Bank of the Philippines and the Development Bank of the Philippines as potential candidates for listing at the PSE.
Simultaneously, Mr. Lim indicated that the SEC is leaning towards establishing a tiered minimum public float requirement for initial public offerings (IPOs), though he noted that there has been no definitive resolution thus far.
“We will continue to discuss it. The earlier we can implement it, the better,” he remarked.
The PSE anticipates six IPOs this year. However, the local exchange has only registered one public listing so far, with Cebu-based fuel retailer and distributor Top Line Business Development Corp. in April. — R.M.D.Ochave
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