“AN independent director,” says the Securities and Exchange Commission, “means a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director…”
The SEC’s definition of an independent director can be found in SEC Memorandum Circular No. 16 Series of 2002, which serves as a guideline in “the nomination and election of independent director” by “public companies or those with assets of at least P50 million or such other amount as the Commission shall prescribe, and having 200 or more holders each holding at least 100 shares of a class of equities.”
Due Diligencer is making the SEC circular “more public” since it is only posted on sec.gov.ph and only those with access to the internet could read it. Public investors who trade in listed stocks should read the SEC guideline to know which listed companies comply with it. More importantly, they should be made aware of the responsibilities of independent directors, who may not be at all qualified for “election” because they lack the number of shares to get them “elected.” This is why Due Diligencer has been using either “appointment” or “selection” instead of the more commonly used “election.”
“Election,” as it is used in politics, is played by the numbers so that he who gets more votes wins, which is not true or applicable in the case of independent directors.
The problem, though, is the inability or failure of SEC officials to determine who among the present breed of independent directors make public their role as members of the board. Due Diligencer tried but failed to find any disclosure on the participation of independent directors in board meetings, particularly in voting on certain corporate issues that affect the public.
For instance, have independent directors ever questioned or expressed their opinion on the planned borrowings of listed companies? So far, nothing has been posted on the website of the Philippine Stock Exchange on how they have played their role as protector of the interest of public stockholders who are never privy to anything taken up by directors inside the boardrooms.
If listed companies submit directors’ attendance in board meetings to the SEC and the Philippine Stock Exchange, can’t they not also make public the minutes of these meetings so that the public would know if independent directors deserve the pay and perks that go with their appointment?
At the same time, the investing public would be happy to know how their directors, particularly the independent ones, are living up to their billing as their protectors as the SEC would like them to be. After all, their “selection” or “appointment” is mandatory under the law such that failure to “select” independent directors is penalized accordingly.
Why ignore the rule and risk paying “P100,000 or 1/10 of 1 percent of consolidated net income/revenue, whichever is higher”? The penalty goes progressively higher such that for a fourth offense, a violator faces a fine of “P1.20 million or 12/10 of 1 percent of consolidated net income/revenue, whichever is higher.”
After all, the majority stockholders have the prerogative to choose whom to “appoint” to the board that they control. Don’t they also decide on the pay and perks of independent directors? This being the case, why should they “select” those they feel would be antagonistic to their own interest?
By the way, companies should not fear the SEC penalties. As securities regulator, the SEC follows due process so that the decision of the agency’s corporation finance department, which monitors listed companies, is appealable to the five-man body that is the commission.