SEC bats for more independent directors in listed companies

The Securities and Exchange Commission is pushing for legislative amendments that would allow independent directors to occupy at least one-third of all seats in the boards of listed companies.

In a recent briefing, SEC Chairperson Lilia R. Bautista said the commission is working on possible amendments to the Corporation Code of the Philippines, which would include increasing the minimum number of independent directors for listed companies.

Bautista said the current regulation requiring two independent directors in every board of listed company is not enough. She said the number should be increased to make their presence more effective.

Under the Corporation Code, all listed companies are required to have at least two independent directors or at least 20 percent of the board is controlled by independent directors.

Bautista said an increase in the number of independent directors on boards of listed corporations is expected to ensure better management and greater transparency and fairness in operations. Thus, she is encouraging all companies to have independent directors.

An independent director is defined as a person who is independent of management, and free from any relationship which would materially interfere with his exercise of independent judgment in carrying out his responsibilities as director of a corporation.

Bautista said raising the number of independent directors in companies listed at the Philippine Stock Exchange is only one of many amendments SEC wants done on the Corporation Code.

The independent director cannot be an officer or substantial stockholder of the corporation or any of its related companies, and he cannot be related up to the second degree of consanguinity to anyone who is an officer or substantial stockholder of the same company.

As part of his qualifications, as independent director should have at least one share of stock in the corporation; and should have at least a college degree or have been exposed to the corporation’s business for at least five years.

The proposal has received mixed reactions from the private sector. A lawyer said raising the required number of independent directors from the current two will entail adding on directors unfamiliar with the business.

One listed firm said independent directors are ineffective in performing their functions in boards of listed corporations. It cited the fact that independent directors can never be on equal footing with a director who owns a substantial portion of the company.

An analyst at a local brokerage house, however, said the plan would ensure greater protection of minority shareholders from companies that do a lot of self-dealings.

Other companies said the plan requires further study, to ensure a comprehensive approach to transparency and good governance.