A coalition of business associations and governance advocates has urged the Securities and Exchange Commission (SEC) of the Philippines to review its plan to implement a nine-year term limit for independent directors of publicly listed companies and other regulated entities, citing potential risks to corporate governance, competitiveness, and business stability.
In a policy note addressed to SEC Chairman Francis Lim, Dr. Adriana Mabanta, Executive Director of the Buklod Bayani Coalition, emphasized that director tenure should not automatically determine independence, warning that the rigid application of the rule may produce unintended governance and operational consequences.
“While this rule is well-intentioned, applying a fixed tenure cap as an automatic disqualification regardless of performance or proven independence, it could weaken governance quality and strategic continuity,” Mabanta said.
Impact on corporate governance in the Philippines
Mabanta cited global and local research showing that long-tenured independent directors (LTIDs) often contribute to stronger firm performance, improved oversight, and stability during CEO transitions.
“Experienced independent directors provide continuity, institutional knowledge, and stability, especially during leadership transitions or crises. Arbitrary term limits risk disrupting these benefits without clear evidence that tenure alone compromises independence,” she noted.
The coalition argued that Philippine board renewal policies should be performance-based, not tenure-based. Mabanta said regular independence assessments, peer evaluations, and contribution metrics would be more effective safeguards than fixed-year disqualifications.
Concerns for specialized and family-run Philippine firms
The nine-year term limit, Mabanta warned, may disproportionately affect technical industries, family-owned businesses, and regional companies that already face a limited pool of qualified independent directors.
“Replacing technically proficient or trusted long-serving directors can be costly and risky, especially for firms in highly specialized sectors or in provincial areas. This could disrupt governance and investor confidence,” she said.
Ease of doing business implications
Mabanta, who also serves as Secretary General of the Philippines–Ease of Doing Business Foundation, Inc., said the SEC Philippines’ term limit may conflict with national goals to simplify regulation and improve the ease of doing business.
“Frequent board reshuffling, higher recruitment costs, and the loss of institutional knowledge can increase compliance burdens and administrative inefficiencies, the very issues the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 seeks to reduce,” she explained.
Call for impact assessment and phased implementation
The Buklod Bayani Coalition urged the SEC Philippines to conduct an impact assessment and hold multi-sector consultations with regulators, companies, and governance experts to ensure that the policy aligns with Philippine business realities.
The group also proposed replacing the hard nine-year limit with periodic independence reviews supported by disclosure and formal board evaluation.
Mabanta warned that the planned January 1, 2026 implementation could trigger mass board turnover among listed firms whose independent directors will exceed the cap by that date.
“Even with staggered scheduling under the draft circular, many Philippine corporations could face simultaneous replacement of their independent directors, causing governance instability,” she said.
To mitigate this, Mabanta recommended extending the transition period to 2027 or adopting phased compliance measures to allow companies to manage board succession more smoothly.
The SEC Philippines said the measure aims to align domestic corporate governance standards with international best practices and strengthen board accountability. However, the coalition believes flexibility and local context are crucial to ensuring that reforms enhance, rather than hinder effective governance.