The Shareholders’ Association of the Philippines (SharePHIL), a nonprofit group that claims to champion the rights of minority holders, on Thursday said it supported the moves of the government that prescribed a term limit for independent directors of publicly listed companies.
SharePHIL, headed by former Philippine Stock Exchange (PSE) President Francis Lim, said it supports the order despite other groups appealing to the agency to defer the measure.
“The continuous nine-year term limit is too long that will defeat the objectives of term limits for independent directors. It will only serve the interest of incumbent independent directors to the prejudice of our public companies and the investing public,” Lim said.
Among the prescriptions of DOF Order 54-2015 issued in April, the independent director should “ideally” serve for five consecutive years, after which there will be a “cooling period” of two years. After the period, the independent director can be again reelected for another five consecutive years. But after serving a cumulative period of 10 years, he is “ideally perpetually” barred from being elected as independent director. The said rule is termed as 5-2-5.
The order, which took effect immediately, is titled “Adoption of Guidelines Prescribing the Fit and Proper Rule for Directors of Insurance Companies and Public Companies.”
SharePHIL, however, said that it supported the Department of Finance (DOF) order, but it “strongly urge” regulators to shift to the 5-2-4 format, or one independent director will serve for a total of nine cumulative years. The said format is a standard in the Asean Corporate Governance scorecard, a ranking among member-countries in the Association of Southeast Asian Nations that most Philippine firms ranked low.
“The 5-2-4 rule, which was subjected to studies by experts before it was adopted as the standard under the Asean Corporate Governance scorecard, is a much better alternative,” Lim said.
Earlier this month, business groups, including the the PSE, have written the DOF, asking to defer the implementation of the said order.
They said setting the term limits on directors, despite widespread recommendations and legislated limits in other countries, has not been “empirically and conclusively proven to improve board effectiveness.”
The groups asked to defer the said measure, or at least the five-year term limit and five-year corporation limit for independent directors contained in a memorandum circular of the Securities and Exchange Commission released in 2011, to allow for a wider consultation and to conduct more study on the measure.
“We note that the Philippines is exceptional in the ASEAN, the OECD [Organisation for Economic Co-operation and Development] or anywhere else in mandating such term limits by regulatory fiat,” the groups said in their joint statement.
Aside from the PSE, other signatories of the statement include the Bankers Association of the Philippines, Employers Confederation of the Philippines, Federation of Filipino-Chinese Chambers of Commerce and Industry Inc., Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry and the Philippine Franchise Association.