Corporate Governance – The end of ‘deaf and dumb’ directors

On the door of a room used as venue for meetings of the board of directors of a company hung an intriguing and odd poster which read: "SILENCE, meeting of the ‘deaf and dumb’ going on."

The poster may have been meant to depict what goes on in a typical board of director’s meeting. Those who are privy to what goes on in board meetings have a common observation. Board meetings are almost like a monologue, dominated by the controlling shareholder or the one representing the controlling shareholders.

There is hardly any discussion, let alone a meaningful one. Most directors do not say anything, much less ask questions (to avoid being unpopular or risking losing their seat and, with it, their per diem). Their presence is thus reduced to a token compliance with the statutory requirement on quorum. And, as fittingly captured by the ludicrous message in the poster, meetings of the board of directors, have sometimes been reduced, for all intents and purposes, to a travesty.

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With the recent reforms on corporate governance, however, the days of ("no talk – no mistake") directors whose only qualification is being bedfellows of the controlling shareholder may become a thing of the past.

The new Code of Corporate Governance enjoins more active and meaningful participation of directors in board meetings. The Code, in fact, explicitly requires directors to: "contribute meaningfully to the Board’s work, attend and actively participate in Board meetings, request and review meeting materials, and ask questions and request explanations. [SEC Memorandum Circular No. 2, II (6)(c)(ii)]. On the exercise of independent judgment, the Code states that a director "should not be afraid to take a position even though it might be unpopular."

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The new requirement of an "independent director" is a welcome significant change. However, whether or not it will bring about the desired reform remains to be seen. The present provisions of the Code need further refinement for proper compliance and effective enforcement. As it is, the meaning of "independent director" is far from clear. Unless necessary clarifications are made, the provision on "independent director" may just end up looking good on paper.

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The Code, by the way, applies only to corporations (including branches and subsidiaries of foreign ones) whose shares are registered or listed, as well as granties of licenses/secondary franchise from the SEC, and those "with assets in excess of P50 million and having 200 or more stockholders each holding at least 100 shares of a specific class of security" or share. Since the reforms are intended to protect the investing public and minority shareholders, "close" corporations are excluded from its coverage.

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Ateneo Law Class ’62 takes pride in the appointment of one of its distinguished members, Adolfo Azcuna, as a Supreme Court Justice. With his academic and public service credentials, integrity (never mind that nuisance opposition) and humility, he is a perfect fit for the position. Unknown to many, a Supreme Court slot had been his for the asking many years ago (during the Cory administration), but Adolf probably thought it was too early. Congratulations on a well-deserved appointment!

(The author works in the Abello Concepcion Regala & Cruz Law Offices or ACCRALAW, and may be contacted at tel. no. 8940109 or email: [email protected])