SEC asks 9 listed companies to explain failure to elect independent directors

The Securities and Exchange Commission (SEC) will issue show-cause letters to nine listed companies for their failure to elect an independent director as required under Section 38 of the Securities Regulation Code.

These corporations are Pacifica Inc., Asia Amalgamated Holdings Inc., Ever Gotesco Resources, Wellex Industries, APC Group Inc., Araneta Properties, Universal Rightfield Property Holdings Inc., MRC Allied Industries Inc., and Leisure & Resorts World Corp.

Sec. 38 of the SRC provides that any corporation with a class of equity securities listed on an exchange or with assets in excess of P50 million and having 200 or more holders, must have at least two independent directors or such independent directors shall constitute at least 20 percent of the board.

The SEC’s Corporation Finance Department has directed these corporations to elect their own independent directors and to explain within five days from receipt of the letter why they should not be held liable for violation of said provision.

An independent director is defined under the SRC as a person who is independent of management, and free from any relationship which would materially interfere with his exercise of independent judgment in carrying out his responsibilities as director of a corporation.

The independent director cannot be an officer or substantial stockholder of the corporation or any of its related companies, and he cannot be related up to the second degree of consanguinity to anyone who is an officer or substantial stockholder of the same company.

The SEC is pushing for legislative amendments that would allow independent directors to occupy at least one-third of all seats in the boards of all listed companies.

The SEC said the current regulation requiring two independent directors in every board of a listed company is not enough.

SEC Chairman Lilia R. Bautista earlier said an increase in the number of independent directors on boards of listed corporations is expected to ensure better management and greater transparency and fairness in operations.

Bautista said raising the number of independent directors in companies listed at the Philippine Stock Exchange is only one of many amendments the SEC wants done on the Corporation Code.

The proposal, however, has received mixed reactions from the private sector. A lawyer said raising the required number of independent directors from the current two will entail adding directors unfamiliar with the business.

One listed firm said independent directors are ineffective in performing their functions in boards of listed corporations. It cited the fact that independent directors can never be on equal footing with a director who owns a substantial portion of the company.

An analyst at a local brokerage house, however, said the plan would ensure greater protection of minority shareholders from companies that do a lot of self-dealings.

Other companies said the plan requires further study, to ensure a comprehensive approach to transparency and good governance.

The SEC is working on expanding the rule on independent directors to cover even directors of non-listed firms as part of its campaign to improve corporate governance.