The proposed move, an SEC official said, is designed to enhance the independence and effectiveness of boards of directors of listed companies.
The SEC official said stockbrokers should not be allowed to sit as independent directors due to possible conflict of interest. "The broker might use inside information for personal gains. We want to avoid that," the official said.
Veteran stockbroker Vivian Yuchengco said she welcomes SEC’s proposal, pointing out that brokers can’t be independent because they deal in listed shares and may even be the broker of owners of listed corporations.
In the wake of recent corporate scandals, the role of the independent director on a corporate board has received heightened scrutiny. In an effort to ensure objectivity and independence of the board of directors, the SEC has issued additional requirements for independent directors.
To properly monitor governance of listed corporations, the SEC is requiring all independent directors to submit by Dec. 31, 2006 a certification under oath that they possess all the qualifications and none of the disqualifications provided for in the Securities Regulation Code.
Under the law, the independent director should not be an officer or a substantial shareholder of a corporation or its related companies. He or she should also not be a relative of any director, officer or substantial shareholder of the corporation.
The certification shall also contain an enumeration of the independent director’s affiliations or positions in all organizations, corporate or otherwise, that may directly or indirectly give rise to a conflict of interest.
Thereafter, the certification shall be submitted within 30 days from date of election or appointment to the said position or where applicable.
An outside director is expected to ensure that the board members act on a fuly informed basis, in good faith with due diligence and care and in the best interest of the company.
Under the Securities Regulation Code, any corporation with a class of equity securities listed for trading on an Exchange or with assets in excess of P50 million and having 200 or more holders, shall have at least two independent directors or such independent directors shall constitute at least 20 percent of the members of such board, whichever is the lesser.
Equitable PCI Bank and a number of its former directors and officers came under fire from the SEC for violations of securities rules when the bank appointed its independent directors.