SEC enforces strict term limits for independent directors

The Securities and Exchange Commission (SEC) is imposing stricter limits on the terms of independent directors, as part of continuing efforts to strengthen board independence and promote good corporate governance in line with international best practices.

The Commission on 26 January issued SEC Memorandum Circular No. 7, Series of 2026, providing for the Term Limit of Independent Directors.

Effective February 1, independent directors who have served the maximum cumulative term shall be perpetually barred from re-election as an independent director in the same company.

This is in contrast to previous guidelines which allowed extension beyond the maximum cumulative term of nine years, subject to the presentation of a meritorious justification by the company and approval by the shareholders.

“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 added.

Term limit

The term limits of independent directors apply to companies with a class of equities listed for trading with an Exchange. Independent directors may serve for a maximum cumulative period of nine years in the same company, reckoned from 2012.

Both continuous and intermittent service shall be counted toward the nineyear limit, with any fractional period of service exceeding six months counted as one full year.

Independent directors who have not yet reached the nine-year cumulative limit, but who have served in the interim as a non-independent director or as an officer of the company, shall be required to observe a two-year cooling off period before they may be re-elected as an independent director.

An independent director who has already served the maximum term may continue to serve as a non-independent director or officer of the same company without any cooling-off period.

Transitory provision

Incumbent independent directors who have served the maximum term upon the effectivity of the circular may continue to serve until the 2026 annual stockholders’ meeting or on any other day priorly approved by the Commission.

For each year of non-compliance with the term limit, a company shall be subject to a basic penalty of P1 million for each independent director in breach, plus an additional monthly fine of P30,000 for as long as the independent director remains on the board. A third and succeeding offense shall subject the company to suspension or revocation of the company’s secondary or primary license.