The Securities and Exchange Commission’s plan to limit the term of independent directors and the number of corporations they can serve has drawn sharp criticism from top legal and capital market experts.
Retired Supreme Court Chief Justice Artemio Panganiban, who sits as an independent director in some publicly listed corporations, said in a speech before the Institute of Corporate Directors that while enormous expectations were laid at the doorsteps of independent directors, just like in the judiciary, many factors served to hamper—if not limit—their independence, chief among them the lack of security of tenure and compensation as well as impositions of the SEC.
The SEC plans to limit the term of independent directors to six years and the number of corporations that they can serve to six, citing the need to preserve these directors’ independence.
“Should not the limits be calibrated according to the IDs’ professional track record as shown by their participation, attendance, knowledge and experience? Not all directors are equally capable and diligent, why limit them equally?” Panganiban asked.
Panganiban’s views were shared by economist Romeo Bernardo, a former finance undersecretary, who noted that only a few countries currently impose similar term limits. Bernardo, also an independent director in various corporations, explained: “This proposal for limits on independent directors seems to focus only on importing formalities without contexts of what might look like good corporate governance. Perhaps regulators should concentrate on enforcing existing rules against insider trading and self-dealing, the common criticism of investors and analysts.”
In his speech, Panganiban noted that the most successful CEOs would run more than 20, sometimes 50 companies, including more than five large publicly listed firms, and yet are unquestionably successful.