This page
contains
the full text of the
Guidelines
on the Nomination and Election of Independent Directors
____________________________________________________________________
MEMORANDUM
CIRCULAR NO. 16, Series of 2002
GUIDELINES
ON THE NOMINATION AND ELECTION
OF
INDEPENDENT DIRECTORS
To
properly guide the companies in the nomination and election of
independent
directors and to have uniform procedures on the same, the Commission
hereby
prescribes the following guidelines:chanroblesvirtuallawlibrary
I.
COVERAGE
This
Circular shall be applicable to public companies and those subject to
secondary
licenses from the Commission, as follows:chanroblesvirtuallawlibrary
a.
Issuers of registered securities to the public whether or not listed in
the Philippine Stock Exchange (PSE);
b.
Public companies or those with assets of at least Fifty Million Pesos
(P50,000,000.00)
or such other amount as the Commission shall prescribe, and having Two
hundred (200) or more holders each holding at least One hundred (100)
shares
of a class of its equity securities;
c.
Finance companies;
d.
Investment houses;
e.
Brokers and dealers of securities;
f.
Investment companies;
g.
Pre-need companies;
h.
Subsidiaries or branches of foreign corporations which operate in the
Philippines
and are listed in the PSE;
i.
Stock and other securities exchange/s.
II.
DEFINITION
A.
Independent director 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 in any corporation that meets the requirements of Section
17.2 of the Securities
Regulation Code and includes, among others, any person who:chanroblesvirtuallawlibrary
i.
Is not a director or officer or substantial stockholder of the
corporation
or of its related companies or any of its substantial shareholders
(other
than as an independent director of any of the foregoing);
ii.
Is not a relative of any director, officer or substantial shareholder
of
the corporation, any of its related companies or any of its substantial
shareholders. For this purpose, relatives includes spouse, parent,
child,
brother, sister, and the spouse of such child, brother or sister;
iii.
Is not acting as a nominee or representative of a substantial
shareholder
of the corporation, any of its related companies or any of its
substantial
shareholders;
iv.
Has not been employed in any executive capacity by that public company,
any of its related companies or by any of its substantial shareholders
within the last five (5) years;
v.
Is not retained as professional adviser by that public company, any of
its related companies or any of its substantial shareholders within the
last five (5) years, either personally of through his firm;
vi.
Has not engaged and does not engage in any transaction with the
corporation
or with any of its related companies or with any of its substantial
shareholders,
whether by himself or with other persons or through a firm of which he
is a partner or a company of which he is a director or substantial
shareholder,
other than transactions which are conducted at arms length and are
immaterial
or insignificant.cralaw:red
B.
When used in relation to a company subject to the requirements above:chanroblesvirtuallawlibrary
i.
Related company means another company which is: (a) its holding
company,
(b) its subsidiary, or (c) a subsidiary of its holding company; and
ii.
Substantial shareholder means any person who is directly or indirectly
the beneficial owner of more than ten percent (10%) of any class of its
equity security.cralaw:red
C.
An independent director shall have the following qualifications:chanroblesvirtuallawlibrary
i.
He shall have at least one (1) share of stock of the corporation;
ii.
He shall be at least a college graduate or he shall have been engaged
or
exposed to the business of the corporation for at least five (5) years;
iii.
He shall possess integrity/probity; and cralaw:red
iv.
He shall be assiduous.cralaw:red
D.
No person enumerated under Section II (5) of the Code
of Corporate Governance shall qualify as an independent director.
He
shall likewise be disqualified during his tenure under the following
instances
or causes:chanroblesvirtuallawlibrary
i.
He becomes an officer or employee of the corporation where he is such
member
of the board of directors/trustees, or becomes any of the persons
enumerated
under letter (A) hereof;
ii.
His beneficial security ownership exceeds 10% of the outstanding
capital
stock of the company where he is such director;
iii.
Fails, without any justifiable cause, to attend at least 50% of the
total
number of Board meetings during his incumbency unless such absences are
due to grave illness or death of an immediate family.cralaw:red
iv.
Such other disqualifications which the company's Manual on Corporate
Governance
provides.cralaw:red
III.
NUMBER OF
INDEPENDENT
DIRECTORS
A.
All companies are encouraged to have independent directors. However,
issuers
of registered securities and public companies are required to have at
least
two (2) independent directors or at least 20% of its board size,
whichever
is the lesser. Provided further that said companies may choose to have
more independent directors in their boards than as above required.
B.
The Exchange/s are required to have at least three (3) independent
directors
and an independent director-President. To effectively carry out the
provisions
of Section 33.2(g) of the Securities
Regulation Code, the independent directors must not be allowed to
solicit
votes for himself or for others or be subject to election by the
stockholders
until the shares are listed, or Exchange's outstanding capital stock
are
no longer majority owned by the brokers.
IV.
NOMINATION
AND ELECTION OF INDEPENDENT DIRECTOR/S
The
following rules shall be applicable to all covered companies:chanroblesvirtuallawlibrary
A.
The Nomination Committee shall have at least three (3) members, one of
whom is an independent director. It shall promulgate the guidelines or
criteria to govern the conduct of the nomination. The same shall be
properly
disclosed in the
company's information or proxy statement or such other
reports required to be submitted to the Commission. The members of the
Nomination Committee of the Exchange shall be cleared by the Commission.
B.
Nomination of independent director/s shall be conducted by the
Committee
prior to a stockholders' meeting. All recommendations shall be signed
by
the nominating stockholders together with the acceptance and conformity
by the would-be nominees.
C.
It shall pre-screen the qualifications and prepare a final list of all
candidates and put in place screening policies and parameters to enable
it to effectively review the qualifications of the nominees for
independent
director/s.
D.
After the nomination, the Committee shall prepare a Final List of
Candidates
which shall contain all the information about all the nominees for
independent
directors, as required under Part IV(A) and (C) of Annex "C" of SRC
Rule
12, which list shall be made available to the Commission and to all
stockholders
through the filing and distribution of the Information Statement or
Proxy
Statement in accordance with SRC Rule 17.1(b) or SRC Rule 20,
respectively,
or in such other reports the company is required to submit to the
Commission.
The name of the person or group of persons who recommended the
nomination
of the independent director shall be identified in such report
including
any relationship with the nominee.
E.
Only nominees whose names appear on the Final List of Candidates shall
be eligible for election as Independent Director/s. No other nomination
shall be entertained after the Final List of Candidates shall have been
prepared. No further nomination shall be entertained or allowed on the
floor during the actual annual stockholders'/memberships' meeting.
F.
Election of Independent Director/s
i.
Except as those required under this Circular and subject to pertinent
existing
laws, rules and regulations of the Commission, the conduct of the
election
of independent director/s shall be made in accordance with the standard
election procedures of the company or its by-laws.
ii.
It shall be the responsibility of the Chairman of the Meeting to inform
all stockholders in attendance of the mandatory requirement of electing
independent director/s. He shall ensure that an independent director/s
are elected during the stockholders' meeting.cralaw:red
iii.
Specific slot/s for independent directors shall not be filled-up by
unqualified
nominees.cralaw:red
iv.
In case of failure of election for independent director/s, the Chairman
of the Meeting shall call a separate election during the same meeting
to
fill up the vacancy.cralaw:red
v.
The covered companies shall amend its by-laws in accordance with the
foregoing
requirements as soon as practicable.cralaw:red
V.
TERMINATION/CESSATION
OF INDEPENDENT DIRECTORSHIP
In
case of resignation, disqualification or cessation of independent
directorship
and only after notice has been made with the Commission within five (5)
days from such resignation, disqualification or cessation, the vacancy
shall be filled by the vote of at least a majority of the remaining
directors,
if still constituting a quorum, upon the nomination of the Nomination
Committee
otherwise, said vacancies shall be filled by the stockholders in a
regular
or special meeting called for that purpose. An independent
director
so elected to fill a vacancy shall serve only for the unexpired term of
his predecessor in office.cralaw:red
VI. EFFECTIVITY
This
Memorandum Circular shall take effect after fifteen (15) days from
publication
in a newspaper of general circulation.cralaw:red
November
28, 2002. Mandaluyong City, Philippines.
LILIA R.
BAUTISTA
Chairperson
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