SEC imposes stricter 9-year term limit on independent directors

Citing international best practices, the Securities and Exchange Commission (SEC) on Tuesday announced stricter limits on the terms of independent directors in companies to remove the possible extensions beyond the maximum cumulative term of nine years.

“The essence of having independent directors is that their ability to exercise independent judgement over a company’s affairs, making them an effective tool for promoting good corporate governance, transparency, and accountability,” SEC chairperson Francis Lim said in a statement.

“A strict term limit ensures that independent directors maintain the objectivity and impartiality required to serve the very purpose envisioned under the law,” he added.

Under SEC Memorandum Circular 7, independent directors who have served the maximum cumulative term will be perpetually barred from re-election as an independent director in the same company effective February 1, 2026.

Prior to the circular, independent directors were allowed to extend their terms beyond the maximum cumulative term subject to the justification of the company and approval by the shareholders.

The limits will consider continuous and intermittent services, with any fractional period of service over six months counted as one full year, and will apply to companies with a class of equities listed for trading with an exchange.

Those who have yet to reach the cumulative limit but have served in the interim as a non-independent director or as an officer of the company will be required to undergo a two-year cooling off period before being eligible for reelection as an independent director.

Meanwhile, those who already served the maximum term may continue to serve as non-independent director or officer of the same company without any cooling-off period.

Companies that violate this will be fined P1 million for each independent director in breach, along with an additional monthly fine of P30,000 as long as they remain on board.

A third and succeeding offense will subject the company to suspension or revocation of its secondary or primary license. — JMA, GMA Integrated News