THE Securities and Exchange Commission (SEC) has issued for comment a draft memorandum circular that will impose a fixed three-year term for independent directors (IDs) and a maximum cumulative service limit of nine years, in line with international best practices.
The draft circular, released on Sept. 30, is open for comments until Oct. 15. It seeks to amend existing rules on director tenure to strengthen board independence and align with standards under the Revised Corporation Code of the Philippines.
Under the current system, independent directors are formally re-elected at each annual stockholders’ meeting, but their cumulative service is subject to a nine-year cap, although some have been allowed to exceed this limit through exemptive relief.
“We will do away with exemptive relief,” SEC Chairperson Francisco Ed. Lim told reporters on Wednesday.
“Basically, we will be strict on the nine-year limit. After three years, you can be re-elected. But maximum of nine years,” he added.
Under the proposed rules, an ID will be elected for a three-year fixed term, subject to disqualification provisions and the nine-year cap.
Companies will also be required to stagger the terms of their IDs to avoid all appointments expiring in the same year. For example, if a company has five IDs, it may initially assign terms of one, two, and three years to ensure that expirations occur in different years before all subsequent terms follow the three-year cycle.
Mr. Lim clarified that the new rules are not meant to question the independence of IDs, noting that other markets also impose varying director terms.
“We are benchmarking with other markets where directors are elected for varying terms, such as two or three years,” he said.
The nine-year cap has been in effect since 2012 through previous SEC memoranda.
Any fraction of a year served will count as a full year. Companies will also be required to disclose in their information statements any ID nominees who are at risk of breaching the maximum term.
IDs who reach the limit will be disqualified from serving again in the same capacity, although they may still be eligible for election as non-independent directors.
Covered companies that fail to comply may face penalties, including a basic fine of P1 million, plus monthly fines for continuing violations such as failure to vacate upon disqualification.
The SEC said incumbent IDs who have already served the maximum term may remain in their positions until their company’s 2026 annual stockholders’ meeting.
Mr. Lim said the commission is open to receiving feedback before finalizing the rules.
“It’s still just an exposure draft. We’re [still] waiting for comments from the public,” he said.
“I’m sure there will be issues, but we’re ready to face those issues.”
The circular is set to take effect on Jan. 1, 2026, once published in two national newspapers. — A.G.C. Magno
