TODAY’S matter of great importance is one that we have addressed in the recent past, has been subject to a great deal of legitimate dissent by those most affected by it, but has been actively ignored, to the point of arrogance, by the government agency that created the issue, in this case, the Securities and Exchange Commission (SEC).
In May of this year, the SEC issued Memorandum Circular No. 17, series of 2026 (MC 27-2026), which imposed term limits on independent directors of “any exchange” — functionally meaning only the Philippine Stock Exchange (PSE), as it is the only one that exists — who represent brokerage firms authorized as trading participants in the stock market. Under MC 27-2026, no person fitting that description may serve more than a cumulative 10 years on the board of directors of the PSE, and must observe a “cooling-off period” of at least one year after having served five years before being eligible for reelection.
The immediate effect of this order was to throw the most recent election of directors for the PSE, which happened in July, into utter chaos, with shareholders being forced to choose among candidates who fit the new rule, regardless of their preferences. Also, because MC 27-2026 provides a “grandfather clause” for directors who are already serving but are outside the bounds the order establishes, it will complicate at least the next two annual PSE board elections.
It would be one thing if the SEC provided a compelling, shareholder- and consumer-protection reason the PSE board requires an extraordinary amount of intervention, but it has not. In the “whereas” clauses justifying its decision, the SEC argues that the limitations are necessary “to ensure fair and effective representation” and “provide new perspectives in the board of an ‘exchange.’” Again, keep in mind that this is not a broad decision on corporate governance, but is targeted at one specific corporation, the PSE, the only “exchange” that can be covered by the rule.
Ironically, the SEC’s “whereas” justifications actually contradict its decision. In one paragraph, it notes that one of the objectives of securities regulation, according to the principles of the International Organization of Securities Organizations (Iosco) that it follows, the protection of investors is of paramount importance. Later, it acknowledges that shareholders must have the ability to actively participate in the nomination and election of directors.
Under the PSE’s corporate by-laws — which are approved by the SEC, and set forth the qualifications and conditions for directors — directors representing brokers are already limited to just five of the board’s 15 seats. They cannot form a majority on their own, and it is entirely possible that, depending on the votes of shareholders, fewer than five or even no “broker-directors” — to borrow the SEC’s term for them — may be elected. Those seats are not guaranteed.
Realistically, that minority position of “broker-directors” does not guarantee that possible conflicts of interest are eliminated. But it demands a convincing explanation from the SEC, something very much more substantial than “fresh perspectives,” of why compulsory exclusion is necessary. What specific failure will this rule correct that fair elections conducted annually, independent oversight and firm enforcement cannot?
Length of service alone supplies no answer. An ineffective director can do damage well before 10 years. An experienced director can continue contributing long afterward. A calendar measures neither competence nor integrity.
If entrenched influence prevents shareholders from exercising a free and informed choice, the SEC should explain how — and show why a 10-year cutoff would solve that problem. Repeatedly winning an election is not, by itself, proof that the election is broken. It can reflect an informed preference of a majority of shareholders for experience, sound judgment and a proven record.
Ultimately, shareholders bear the financial and governance consequences of board decisions. They have a direct, personal interest in weighing the benefits of continuity against the promise of change. Annual elections allow them to do exactly that. And, as shareholders who have assumed personal risk to invest in the corporation, they have every right to expect that they will govern the company according to its by-laws that they understood and approved by putting in their own money, and not be told how the company will be governed by a government agency that has no stake in the outcome.
We find it discouraging to have to criticize the SEC, because in the main it does good work. But an error in judgment is what it is, and it should be brought to public attention. The unproductive and unjustifiable overreach in MC 27-2026 must be withdrawn.