SEC doubles down on proposed term limit for independent directors

MANILA, Philippines — The Securities and Exchange Commission (SEC) is set to release a second exposure draft of its proposed memorandum circular that sets stricter term limit for independent directors, while providing them with security of tenure at the same time.

“It’s up for second exposure, the independent directors memorandum circular,” SEC commissioner McJill Bryant Fernandez told The STAR.

“Given the comments we’ve received, the direction is to have a second exposure,” he said.

In the initial draft circular, Fernandez said that there were comments on the proposed term limits, security of tenure as well as the penalty.

“Of course there were suggestions that were practiced based on other jurisdictions. Meaning it is being compared,” he said.

Fernandez said that the target is for the commission to release the second exposure draft either this month or by December.

“Ideally, what we want is for it to come out this year,” he said.

The SEC on Sept. 30 issued a draft memorandum circular which sets the rules on the duration of term and amends its rules on term limits of independent directors.

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

Publicly listed firms and registered issuers were given until Oct. 15, 2025 to submit their comments and inputs on the draft memorandum circular on the duration of term and term limit of independent directors.

SEC chairperson Francis Lim earlier acknowledged that there will be issues on the exposure draft, but assured that the commission is ready to face them.

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.

Under the initial draft memorandum circular issued by the SEC, an independent director shall be elected for a three-year fixed term and subject to the term limit.

An independent director should serve for a maximum cumulative term of nine years.

On the other hand, an independent director who has served the maximum term shall be disqualified to be an independent director in the same company.

Companies that fail to comply may be fined P1 million.

“Basically, we will be strict on the nine-year limit. We will do away with exemptive reliefs. At the same time, to make the independent directors truly independent, we’re giving them a three-year security of tenure. In other words, once voted, he or she is elected for three years, not one year only,” Lim earlier said.

Lim also previously told The STAR that the SEC is looking at putting a term limit for broker directors of the Philippine Stock Exchange Inc. (PSE).

The proposal aims to introduce term limits for broker directors of the PSE, similar to the existing limits for its independent and non-broker directors.

The PSE’s independent directors as well as non-broker directors currently have term limits, while broker directors do not have any.

Lim said that the intent of the “idea under study” is to level the playing field and provide other brokers the opportunity to serve on the PSE board.

Broker directors are persons who proportionately represent the PSE membership in terms of volume/value of trade and paid-up capital, while non-broker directors are those who are not associated with any broker or dealer or member of the exchange.