SEC seeks strict 9-year limit for independent directors
Independent directors may soon be barred from seeking a longer term beyond nine years as the Securities and Exchange Commission (SEC) proposed a circular setting term limits.
SEC chair Francis Lim on Wednesday told reporters that setting the term limit in stone would allow opportunities for “true, meaningful independent directors.”
Under the draft memorandum, independent directors will be elected for a three-year fixed term, meaning they will have security of tenure.
This is to ensure that independent directors “with different views” are protected from sudden removal.
“To make the independent directors truly independent, we’re giving them a three-year security of tenure … Once voted, they are elected for three years, not just one,” Lim said on the sidelines of the Shareholders’ Association of the Philippines’ digital library launch.
There’s a way out currently
At the same time, however, the chair clarified that they may only be elected for a maximum of three consecutive terms totaling nine years.
After that, they are barred from reelection in the same company.
Current rules state that independent directors are only elected for a one-year term. They may serve as independent directors for up to nine years, although companies may apply for exemptive relief for extraordinary cases.
But once the proposed rules are approved, the term limit would be firm and the SEC would no longer grant extensions, Lim noted.
The circular will take effect immediately, meaning independent directors serving their ninth year in 2026 may not be reelected, and their term will not be extended.
Companies that fail to adopt the three-year security of tenure and the nine-year term limit may be fined P1 million.
The draft circular is available for public comment until Oct. 15.
Lim earlier pointed out that independent directors whose terms have expired in one company can move to smaller firms and share their expertise while also giving opportunities to other leaders.
