THE requirement of having independent directors in Philippine boards has evolved from being a mere corporate governance mandate into a legal one under the Revised Corporation Code (RCC or Republic Act 11232) and the Securities Regulation Code (SRC or RA 8799).
The concept was first introduced by the Securities and Exchange Commission (SEC) in the 2016 Code of Corporate Governance for Publicly-Listed Companies. The 2016 Code was the first unified corporate governance framework that consolidated fragmented rules and emphasized independence, transparency and accountability. It stated, among other things, that the board should be composed of a majority of non-executive directors and at least two independent directors, or such number as to constitute one-third of the members, whichever is higher.
The RCC, which was passed on Feb. 20, 2019, introduced Section 22, which defines an independent director as a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship that could or reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
Section 38 of the SRC also defines an “independent director” as a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
The SRC prescribes that any corporation with a class of equity securities listed for trading on an exchange or with assets in excess of P50 million and having 200 or more holders, at least 200 of which are holding at least 100 shares of a class of its equity securities or which has sold a class of equity securities to the public pursuant to an effective registration statement in compliance with Section 12 of the SRC, should have at least two independent directors or a number constituting 20 percent of the members of such board, whichever is the lesser.
Section 22 of the RCC also reiterates the foregoing requirements, but adds that independent directors will also be required for banks and quasi-banks, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies and other financial intermediaries, as well as other corporations engaged in businesses vested with public interest similar to the above, as may be determined by the SEC.
The RCC also expressly provides that independent directors are subject to rules and regulations governing qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board memberships and other requirements that the SEC will prescribe to strengthen their independence and align with international best practices. Pursuant to this power, the SEC has issued several circulars regulating independent directors and their election.
SEC Memorandum Circular 16-02 prescribes the guidelines governing the nomination and election of independent directors. It mandates that their nomination go through a committee that will pre-screen their qualifications and put in place screening policies and parameters to enable it to effectively review qualifications.
On Jan. 26, 2026, the SEC issued Memorandum Circular 7 s. 2026 prescribing the term limit of independent director. Under the circular, an independent director should be elected for a term of one year and serve for a maximum cumulative term of nine years in the same company. An independent director who has served the maximum term shall be barred perpetually from re-election as an independent director of the same company, without prejudice to serving as a non-independent director or officer of the same company without any cooling-off period. The circular also clarified that being an independent director of a company is not, in itself, a ground for disqualification from serving as an independent director of another company wholly owned or controlled by the former.
The SEC has also prescribed that a securities broker-dealer is disqualified from sitting as an independent director of listed companies and registered issuers of securities.
In an opinion, the SEC said that a hospital consultant is not qualified to be an independent director of the corporation operating the same hospital. It said that an independent director’s engagement or transaction with the covered company must not be shrouded by conflict of interest.
Citing a memorandum from the Corporate Governance and Finance Department, the SEC-Office of the General Counsel also opined that the chairman of the board is not an officer of the company since he/she is not involved in day-to-day operations. An independent director who becomes the chairman of the corporation is not in violation of SEC Memorandum Circular 16-02.
As it currently stands, an independent director’s shareholdings in the covered company and/or in its related companies or in any of its substantial shareholders should not exceed 2 percent.
The presence of independent directors ensures the exercise of independent judgment in corporate affairs and proper oversight of managerial performance, including the prevention of conflicts of interest and the balancing of the competing demands of the corporation. To this end, it is the duty of the board, as well as the SEC through the passage of its regulations, to ensure that independent directors possess the necessary qualifications and none of the disqualifications required to hold the position.
Euney Marie Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel).
