THE SECURITIES and Exchange Commission (SEC) wants to ensure that independent directors of publicly listed companies have security of tenure.
SEC Chairperson Francisco Ed. Lim told reporters on Friday that they are currently looking at issuing a new memorandum circular on corporate governance, including a provision on security of tenure for independent directors.
Mr. Lim said independent directors should have security of tenure during their nine-year term so they can speak up on company policies without fear of being removed from their post.
“We’re still discussing the issue because what I would want is a new memorandum circular purely on corporate governance-related matters, which will include like the term of independent directors, even their security of tenure… What we’re thinking is security of tenure within that nine-year limit,” he said.
“If you’re an independent director and you fight for something which you believe is right, but it’s not consistent with what the controlling shareholders say, you’re putting your tenure at risk,” he added.
An independent director is a member of a company’s board but does not have any material relationship with the company, its parent, subsidiaries or affiliates, and is independent of management.
Under the Code of Corporate Governance for Publicly-Listed Companies issued in 2016, the SEC recommended the board should have at least three independent directors or make up at least one-third of the board.
Mr. Lim said he also wants to strictly enforce the nine-year term limit for independent directors under current rules, instead of allowing companies to file for exemption.
“What is happening in some cases is they (companies) go to the SEC to seek exemption from that nine-year term limit. That’s why you see some independent directors exceeding the nine-year limit. I want to cap (the term limit),” he said.
“There’s no monopoly of talent. There is available talent in the market.”
Under the Code of Corporate Governance, independent directors can serve for a maximum cumulative term of nine years. However, the board has to provide meritorious justification and seek shareholders’ approval if an independent director’s term is extended beyond nine years.
“If the sitting independent directors really want to help, they can become independent directors of other companies, especially the smaller companies who stand to benefit from their wisdom and experience. The SEC may want to enable that by giving a term limit to independent directors,” Mr. Lim said.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the SEC’s proposal will further improve corporate governance standards in the country.
“This will help in ensuring checks and balances with high level decisions, while avoiding groupthink,” he said in a Viber message.
“This will also help to align with the changing regulatory landscape towards higher environmental, social, and governance standards,” he added.
TALKS WITH GOCCMeanwhile, Mr. Lim said the SEC has been in talks with the Philippine Stock Exchange (PSE) on potential Philippine government-owned and -controlled corporations (GOCC) that could be listed on the stock market.
He added that the GOCCs should be “worth listing” to avoid creating unnecessary risk for investors.
“That’s a work in progress. We have been discussing. What we did was to discuss it with the PSE, because it’s not a matter of listing all GOCCs,” he said.
“We will identify. I want to have an official list,” he added.
At present, there are no listed GOCCs in the Philippines.
In a report last April, the Organisation for Economic Co-operation and Development said state-run banks such as the Land Bank of the Philippines and the Development Bank of the Philippines are potential candidates for listing at the PSE.
At the same time, Mr. Lim said the SEC is veering towards a tiered minimum public float requirement for initial public offerings (IPOs) but noted that there’s no final decision yet.
“We will still discuss it. If we can implement it earlier, the better,” he said.
The PSE is eyeing to have six IPOs this year. However, the local bourse has only seen one public listing so far, with Cebu-based fuel retailer and distributor Top Line Business Development Corp. in April. — R.M.D.Ochave
