Tuesday, May 22, 2018
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Corporate Securities Info

You’re fired!

Without being blunt about it, that was President Aquino’s message to former National Irrigation Administrator Antonio Nangel when, on the occasion of NIA’s golden anniversary celebration last June 25, he castigated the agency for missing its performance targets.

Within a week, Aquino appointed Claro Maranan as his replacement. There was none of the “show cause” letter and other rituals that usually precede the dismissal of high ranking government officials. The removal was swift and unceremonious.

Nangel could not invoke his right to due process (the standard line of defense of officials who want to cling to their jobs at all costs) because he had a fixed term of office—July 1, 2012 to June 30, 2013.


As a government-owned corporation, NIA is covered by Republic Act 10149, or the Government-Owned and -Controlled Corporations Governance Act of 2011, which provides that directors of GOCCs shall hold office for one year unless earlier removed for cause.

The President simply did not renew Nangel’s appointment (who was concurrently vice chair of NIA’s board of directors) and that was it. No court, not even the Supreme Court, can question the legality or propriety of such action.


Until the enactment of the GOCC law, the suspension, disciplining and removal of incompetent or corrupt GOCC directors and executives were a pain in the neck for the incumbent administration.

Each of the 158 or so GOCCs had its own covering statute which stated, among others, different terms of office for their directors and officers, depending on the political clout of the lawmaker who worked for its creation.

In one sweep, the GOCC law repealed those provisions and made them hold one-year office terms, which the president may renew if they meet the performance standards laid down by the Governance Commission for GOCCs, the body formed to oversee their operation.

The one-year term reflects the practice in the corporate world. Members of board of directors—and the officers they appoint to directly manage the corporation—hold office for one year unless sooner removed for causes provided by law or the company’s bylaws.

The directors’ continued stay in the board depends on the results of the annual stockholders meeting. If the stockholders do not vote them back, they have no choice but accept their fate. As owners of the company, the stockholders have the right to choose the people they want to run it.


Of course, if the spurned directors have reason (and proof) to believe that the selection process violated existing laws or company bylaws, they can go to court to question the results.


The company officers appointed by the board are, as a rule, covered by the same principle that they hold their positions at the pleasure of the appointing power—directly the board, and indirectly the stockholders, who elected the directors.

Unlike the election of directors where grievances should be brought before the regular court, the venue for the resolution of issues relating to suspension, demotion, disciplinary action or removal of officers depends on their standing in the corporate hierarchy.

If the officer concerned is a “corporate officer” as defined under the Corporation Code, any question involving these issues is considered an “intra corporate dispute” that the regular courts are solely authorized to resolve.

In case the officer does not come within the definition of a corporate officer, he is considered a regular employee and therefore the proper venue for his grievances on these issues is the National Labor Relations Commission, not the regular courts.

The code specifically names the following as corporate officers: president, secretary, treasurer and such other officers as may be provided for in the bylaws.

In “Marc II Marketing, Inc. vs Alfredo M. Joson, G.R. No. 171993, dated Dec. 12, 2011,” the Supreme Court ruled that “a position must be expressly mentioned in the bylaws in order to be considered as a corporate officer. Thus, the creation of an office pursuant to or under a bylaw enabling position is not enough to make a position a corporate office.”


Under this ruling, it is not sufficient that the board of directors declare, by way of a resolution or any action, that a person is a corporate officer; or has the rights, authority and privileges of a corporate officer; or holds a position that is equivalent to a corporate office.

It is essential that the position or office sought to be considered a corporate officer (and the person who occupies it treated as a corporate officer) is expressly stated in the bylaws as such.

By itself, a board resolution cannot amend any provision of the bylaws. The procedure on amendment of bylaws, which requires a stockholders meeting for that purpose and the approval of a majority of the directors and stockholders, should be followed.

The tribunal explained that “an employee occupies no office and generally is employed not by the action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.”

The distinction between the two kinds of employment is critical to the protection of the rights of employees.

As a general rule, courts defer to the business judgment of the company in its exercise of disciplinary authority over corporate officers. Since the latter enjoy a high level of trust and confidence (with commensurate compensation), more leeway is given to the company in deciding how it wants to manage their activities.

The rule is different for ordinary employees. The law states that all doubts in labor disputes should be resolved in favor of labor. They are in more need of the protection of the constitutional guarantee of security of tenure.

“You’re fired!” has varying consequences depending on who is at the receiving end.

(For comments, please send your email to rpalabrica@inquirer.com.ph)

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TAGS: Antonio nangel, Business, column, gocc law, National Irrigation Administration, raul j. palabrica
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