Ending Boardroom Entrenchment
One cannot credibly oppose entrenched power in politics while defending it in corporate boardrooms.
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One cannot credibly oppose entrenched power in politics while defending it in corporate boardrooms.
The Securities and Exchange Commission has taken a decisive and long overdue step to strengthen corporate governance with the issuance of SEC Memorandum Circular No. 7, Series of 2026, which imposes term limits on independent directors of publicly listed companies. The measure directly confronts a persistent governance concern: the gradual erosion of independence when tenure becomes indefinite.
Independent directors are meant to serve as safeguards — objective voices that protect minority shareholders and ensure accountability within corporate boards. But independence, by its nature, cannot be permanent. When the same individuals occupy these roles for prolonged periods, familiarity risks replacing objectivity — and oversight becomes less robust.
The legal basis for the measure is clear and unequivocal. Section 22 of the Revised Corporation Code of the Philippines expressly provides that independent directors are subject to rules on term limits and other requirements as may be prescribed by the Commission to strengthen their independence and align with international best practices.
This is reinforced by Section 179(d), which empowers the SEC to issue rules promoting corporate governance and expanding opportunities for qualified individuals to serve as independent directors. Section 179(m) further authorizes the Commission to determine the number of independent directors and the criteria for assessing their independence.
These provisions are not mere policy statements. They are direct grants of regulatory authority designed precisely to address governance weaknesses such as boardroom entrenchment.
The reform also aligns with global standards. The International Organization of Securities Commissions recognizes investor protection as a core objective of securities regulation and underscores the importance of governance structures that ensure meaningful oversight.
Independence cannot be reduced to a title. It must be preserved in fact, and that requires periodic renewal.
Predictably, there has been resistance. Some argue that term limits may deprive boards of experience or disrupt continuity. But this argument assumes that good governance depends on the indefinite retention of specific individuals. It does not. Strong institutions are built on systems, not personalities. Expertise remains available; what changes is the opportunity for others, equally or even more qualified, to contribute.
The deeper issue is one of consistency. Calls for accountability and reform cannot be selectively applied.
As SEC chairman Francis Lim has said, “Our people, particularly the educated middle class clamor against political dynasties — so the financial regulator answers that our public companies must reject boardroom entrenchment. No double standards.
“We must raise our governance standards to restore investor confidence. Our stock market has been falling behind. The time to act is now — and we call on everyone, particularly the educated middle class sector to step up for the sake of our capital markets.”
The point is direct and difficult to ignore. People must be true to themselves. One cannot credibly oppose entrenched power in politics while defending it in corporate boardrooms. The principle is the same. Independence loses meaning when positions are effectively held indefinitely.
SEC Memorandum Circular No. 7, Series of 2026, is not about removing individuals. It is about restoring the integrity of a role that is fundamental to investor protection. By ensuring that independent directors remain truly independent, both in fact and in perception, the Commission reinforces a basic truth: that corporate governance must evolve if markets are to grow, compete and regain public trust.
The time for reform is not tomorrow. It is now.
