Independent directors: guardrails, not decoration

Independent directors exist to do one simple but vital job: act as honest, informed watchdogs for shareholders and the public.

- BENEL D. LAGUA

Their legal and fiduciary responsibilities include overseeing management, ensuring reliable financial reporting, safeguarding minority-shareholder interests, approving related-party transactions only when fair, supervising risk and compliance frameworks, and serving on — often chairing — critical committees such as audit, governance and risk. Corporate-governance codes and stock-exchange rules define an “independent” director as someone free from relationships that would materially impair independent judgment.

That is why announcements by Securities and Exchange Commission (SEC) Chair Atty. Francis Lim about tightening the rules for independent directors are more than housekeeping. The proposals being discussed — security of tenure (fixed three-year elections within an overall nine-year cap), stricter enforcement of the nine-year cumulative limit, and clearer restrictions on exemptions — seek to protect the independence that the role promises.

Under the current practice, annual reelection and routine extensions can create dependency: an independent director who repeatedly seeks the board’s approval to keep the seat may be less willing to challenge management. The SEC’s move to give independent directors a firmer predictable term and to remove easy workarounds for extensions aims to reduce that pressure and allow directors to speak up without fear of immediate replacement.

How does that translate into better outcomes?