Term cap on listed firms’ independent directors backed

The Shareholders Association of the Philippines (SharePHIL), a group advocating for investor protection, has thrown its support to the Department of Finance’s (DOF) plan to set term limits for independent directors of insurance and publicly listed companies.

Contrary to the position taken by eight other influential business groups, SharePHIL said the 5-2-5 years of service suggested by the DOF—which means independent directors can serve for five years and take a second and final five-year term after a two-year break—seemed “long enough for a qualified director to serve and contribute meaningfully to the success of the success of the company and its subsidiaries.”

“This term limit on independent directors can open opportunities to many others who are just as qualified and just as willing to serve as those who have served long enough,” SharePHIL said in a June 15 letter to Finance Secretary Cesar Purisima.

The letter, signed by the group’s president Francis Lim (a former Philippine Stock Exchange president) and chair Evelyn Singson, said setting term limits would give an opportunity to many future corporate leaders to widen and develop their expertise in running enterprises.

“It gives smaller public companies the chance to avail themselves of the services of our high-caliber independent directors after their stint in our conglomerates. We, thus, pose no objection to the DOF order on the adoption of the 5-2-5 terms for independent directors,” SharePHIL said.

SharePHIL even urged regulators to adjust the maximum term under a 5-2-4 format or a term of nine years after a two-year break under the Asean (Association of Southeast Asian Nations) governance scorecard (ACG). This format had already been adopted by some publicly listed Philippine companies such as BDO Unibank, China Bank, Globe Telecom and Philex Mining, the group said.

“We see no compelling reason why other listed companies cannot do the same. It may not also be amiss for us to state that, if we do adopt this format, we will improve on our chances to have more of our PLCs (publicly listed companies) included in the top 50 Asean PLCs under the ACGs, the first awarding ceremony of which will be held in the Philippines in the latter part of this year,” the group said.

Eight other business groups also sought the deferment of the five-year term limit and the five-corporation (among related entities) limit, citing the need for “wider consultation and a more thorough study.”

Proposed as an alternative to the postponement would be to extend the term limit from five to nine years and the possible relaxation of the five-corporation limit. The said groups are the Bankers Association of the Philippines, the Philippine Stock Exchange, the Makati Business Club, Employers Confederation of the Philippines, Federation of Filipino-Chinese Chambers of Commerce and Industry Inc., Management Association of the Philippines, Philippine Chamber of Commerce and Industry and Philippine Franchise Association.

SharePHIL said independent directors “should be truly independent in the strictest sense and compliant with the qualification requirements set by the DOF order for such position.”

“The argument that fresh blood with a new perspective can be just as much as an asset to the company as a long-staying director is worth considering. There is also the presumption that if one stays too long in the same company, he becomes an insider,” SharePHIL said.

As to the proposal to fix the compensation of the independent directors, for as long as this would be “competitive and commensurate to the time and contribution they are expected to make and attractive enough to lure the best and the brightest, SharePHIL believes this will not be a disincentive to those who are willing to serve,” the group said.

Overall, SharePHIL said it was supportive of the initiative of the DOF to build a strong and stable financial system by upholding the highest standards of governance in the public and private sectors. It urged regulators and all public and insurance companies to implement the provisions of DOF Department Order 054-2015 prescribing the “fit and proper” rule for directors even though the order is merely recommendatory in nature.

Noting that public and insurance companies are stewards of funds from the investing public, SharePHIL said the fit and proper rule and the setting of minimum qualifications for directors were “appropriate and timely.”