THE BANGKO SENTRAL ng Pilipinas (BSP) has tightened the requirement for seats and term limits of independent board directors, as part of efforts to boost corporate governance and risk management in banks and other financial firms.
In a statement, the BSP said its Monetary Board (MB) has approved new corporate governance standards for BSP-supervised entities “aimed at ensuring that the board of directors is composed of a collective mix of individuals who possess the expertise and competence to effectively manage the financial institution.”
The BSP also said in its statement that the changes also seek to promote a “critical exchange of views and exercise of objective judgment” in the board.
A board must have a majority consisting of non-executive directors — including independent directors — or those who do not hold key positions involved in the firm’s day-to-day operations.
Moreover, independent directors must account for a third of the board — or two seats, whichever is more — compared to 20% previously.
But the MB retained the existing requirement for simple rural banks to have only one independent director.
An independent director may serve for a maximum cumulative term of nine years.
A non-executive director may concurrently serve as director in up to five publicly listed companies.
The new rules also prohibit one person from concurrently sitting as chairman and chief executive officer in a firm in order “to promote independence of the board from management and to support an environment where the board can sufficiently challenge the actions of those involved in operations.”
The central bank added that “[i]n exceptional cases” when the MB approves that one person may hold both positions, that individual should be “a lead independent director.”
The BSP likewise spelled out the duties and responsibilities of the board, namely: shaping of corporate culture and values; setting objectives, adopting strategies and overseeing management implementation; appointing key members of senior management; overseeing implementation of the corporate governance framework; and adopting a robust risk governance framework.
“The amendments to the corporate governance guidelines are aimed at promoting prudence and greater accountability in line with the implementation of continuing reforms in the financial sector,” the BSP said, pointing out that such reforms further aligned its rules with international corporate governance standards. — M. L. T. Lopez