SEC bars overterm independent directors

Publicly listed companies will have to reshuffle their boards, as the Securities and Exchange Commission (SEC) bars independent directors who have reached their term limits from re-election, tightening corporate governance rules.

The SEC issued Memorandum Circular No. 7, Series of 2026 on Monday, which takes effect in February and permanently disqualifies independent directors who have already served the maximum cumulative term in the same company.

This ends the previous practice that allowed companies to extend independent directors’ terms beyond nine years with shareholder approval.

“The essence of having independent directors is that their ability to exercise independent judgment 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 on Tuesday.

“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 the new rules, independent directors of listed companies may serve only up to nine cumulative years starting from 2012, whether continuously or intermittently. Any service beyond six months in a year will be counted as a full year.

Directors who served as non-independent directors or company officers in between must observe a two-year cooling-off period before returning as independent directors. Those who have already reached the limit may continue only as non-independent directors or officers.

Incumbent independent directors who have already reached the limit may stay until the 2026 annual stockholders’ meeting or another date approved by the SEC.

Companies that fail to comply face a basic penalty of P1 million per violating director, plus P30,000 per month, with repeat offenses risking license suspension or revocation.