PSE chief nixes proposed term limits for independent directors

MANILA, Philippines — Philippine Stock Exchange Inc. (PSE) president and CEO Ramon Monzon has expressed reservations over a proposed memorandum circular from the Securities and Exchange Commission (SEC) that seeks to impose a mandatory nine-year term limit on independent directors while simultaneously granting them security of tenure.

“I told SEC chairperson Francis Lim that I am not in favor of it. Why are we going to require a company to keep or maintain an independent director for three years? The election of independent directors is held every year. But what if the independent director’s performance is not good? Or what if someone good becomes available? You have to stick with it?” Monzon told The STAR in an interview.

“But overall, the nine years look okay. But the problem, I told him, is that other jurisdictions are liberalizing. Us, on the other hand, are regulating. Anyway, he’s very open. He said put that in your comments since we have a public comment period up to Oct. 15,” the PSE chief said.

The SEC issued a draft memorandum circular late last month, which sets the rules on the duration of terms and amends its rules on term limits for independent directors.

The issuance is expected to strengthen the independence of independent directors, as well as to align with international best practices under Republic Act 11232, also known as the Revised Corporation Code of the Philippines.

Under the draft memorandum circular, an independent director shall be elected for a fixed three-year term and is subject to term limits.

An independent director should serve for a maximum cumulative term of nine years. An independent director who has served the maximum term shall be disqualified from serving as an independent director in the same company.

Lim said that the proposed three-year security of tenure aims to make the independent directors “truly independent.”

“In other words, once voted, he or she is elected for three years, not one year only,” he said.

Lim said that the SEC would also eliminate exemptive reliefs and will strictly enforce the nine-year term limit.

A company’s independent director is currently allowed to serve for a maximum cumulative term of nine years, after which the independent director shall be perpetually barred from re-election as such in the company, but may continue to qualify as a non-independent director.

However, in the instance that a company wants to retain an independent director who has served for nine years, the firm’s board should provide meritorious justifications and seek shareholders’ approval during the annual shareholders’ meeting.

With the draft memorandum circular still subject to public comments, Lim earlier acknowledged that there will be issues, but assured the public that the SEC is ready to face them.

Ramon Lopez, an independent director at listed firms SM Investments Corp. and Monde Nissin Corp., said that the proposed three-year fixed term for independent directors is logical and fair.

“On the nine-year maximum term of independent directors, this is a reasonable provision that is being strictly adhered to by corporations with a high standard of corporate governance,” he told The STAR.

Aside from enforcing a mandatory term limit for independent directors of publicly listed companies, the SEC is also considering implementing a term limit for broker directors of the PSE.

Lim earlier told The STAR that the proposal, which is still under study, aims to introduce term limits for PSE broker directors, similar to the existing limits for independent and non-broker directors.

He said the intent is to level the playing field and provide other brokers the opportunity to serve on the PSE board.

Asked about his position on the proposal, Monzon said, “If he wants to level the playing field, then all directors should have term limits. If independent directors are to have term limits, then why not for broker directors as well? So I think that is leveling the playing field.”