Shareholders’ Association of the Philippines (SharePHIL) is proposing amendments to the Corporation Code of the Philippines with the aim of strengthening the independence of independent directors, corporate secretaries and external auditors.
In a letter to Senator Paolo Benigno Aquino IV who solicited stakeholder comments on the proposed amendments, SharePHIL enumerated eight additions to the proposed amended Section 23 of the Code governing directors of a registered corporation.
SharePHIL president Francis Lim said “independent directors, corporate secretaries and external auditors which play crucial roles in protecting minority shareholders’ interest in our public companies.”
He added that the proposed amendments “are also meant to minimize abusive related party transactions in line with best international practices on good corporate governance.”
SharePHIL chairperson Evelyn Singson said they are proposing that Independent Directors must be voted by double majority – majority of the number of shares entitled to vote in the election of directors (voting stock) and the majority of the minority shareholders (i.e., shareholders who are not among the top 20 stockholders owning voting stock) of covered companies.
“This is to help ensure that our independent directors are truly independent as they will be elected not only by the controlling shareholders but also the minority shareholders,” she explained.
SharePHIL also suggests that the term of the independent directors must not be more than nine years to align local practice with the ASEAN countries under the ASEAN Corporate Governance Scorecard.
It said external auditors and corporate secretaries must be chosen by the majority of independent directors of the corporation which in no case shall be less than two independent directors (the minimum number of independent director under existing regulations). “This is to help strengthen the independence of the external auditor and corporate secretary who play a crucial role in protecting the interest of the minority shareholders of a company,” Singson said.
Other proposed amendments of SharePHIL include:
- Material related party transactions must be approved by the majority of the independent directors which is in no case shall be less than two independent directors of the covered corporation to prevent abusive related party transactions which are detrimental to the interest of the minority shareholders;
- The presence of at least one independent director shall be required for the existence of quorum for meetings of the board of directors of covered companies;
- Making it part of the fiduciary duty of directors and trustees to promote and develop a culture of corporate governance in the corporation;
- Covered corporations shall adopt a system of compensation and reimbursement of reasonable expenses at such level to attract and retain the quality of independent directors needed by the corporation; and
- The Securities and Exchange Commission shall have the authority to define, increase, add or otherwise modify the corporate governance requirements prescribed by the Corporation Code, in line with best international practices on good corporate governance which, in its determination, are best suitable to the country.