SEC sets term limit for independent directors

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January 28, 2026 | 12:00am

MANILA, Philippines — The Securities and Exchange Commission (SEC) has set a term limit for independent directors to strengthen director independence and align with international best practices.

Through Memorandum Circular 7, Series of 2026 issued by the SEC on Jan. 26, an independent director will be elected for a term of one year and will serve a maximum cumulative term of nine years in the same company.

“The essence of having independent directors is that their ability to exercise independent judgement over a company’s affairs, making them an effective tool for promoting good corporate governance, transparency and accountability,” SEC chairperson Francis Lim said.

“A strict term limit ensures that independent directors maintain the objectivity and impartiality required to serve the very purpose envisioned under the law,” he said.

An independent director who has served the maximum cumulative term will be barred perpetually from re-election as an independent director of the same company, without prejudice to serving as a non-independent director or officer of the same firm without any cooling-off period.

In case an independent director is elected as non-independent director or officer of the company within the nine-year term limit, the circular states than he or she can be elected again as an independent director of the same company only after observing a cooling off period of two years from the date he or she ceases being a non-independent direct or officer.

This is provided that the cumulative service as independent director has not yet reached the nine-year maximum limit.

The SEC said the circular applies to companies with a class of equities listed for trading on an exchange, as defined under the Securities Regulation Code.

Independent directors of government-owned or controlled corporations will be governed by the terms and limitations in their respective charters.

Covered companies that breach the maximum cumulative term limit per independent director per year will be subject to a basic penalty of P1 million and a continuing penalty of P30,000 for every month that the independent director holds the seat.

The circular will take effect on Feb. 1.

Prior to the circular, a company can retain an independent director who has served for nine years, subject to the firm’s board providing meritorious justifications and shareholders’ approval during the annual shareholders’ meeting.