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SECMEMORANDUMCIRCULARNO.16
Seriesof2002
GUIDELINESONTHENOMINATIONANDELECTION
OFINDEPENDENTDIRECTORS
Toproperlyguide the companies in the nomination and election of independent directors and to have uniform procedures on the same, the
Commissionherebyprescribesthefollowingguidelines:
I.COVERAGE
ThisCircularshallbeapplicabletopubliccompaniesandthosesubjecttosecondarylicensesfromtheCommission,asfollows:

EnBancDecisions,
Orders,andResolutions
OrdersofSECOperating
Departments

A.IssuersofregisteredsecuritiestothepublicwhetherornotlistedinthePhilippineStockExchange(PSE)
B.Publiccompanies 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

Laws,Rulesand
Regulations

C.Financecompanies

SECOpinions

D.Investmenthouses

Accountant`s
Information

E.Brokersanddealersofsecurities

AntiMoneyLaundering
Council
Citizen`sCharter
MemorandumCirculars
CareerOpportunities
Procurement
CertificationProgramfor
MarketParticipants
FrequentlyAsked
Questions

F.Investmentcompanies
G.Preneedcompanies
H.SubsidiariesorbranchesofforeigncorporationswhichoperateinthePhilippinesandarelistedinthePSE
I.Stockandothersecuritiesexchange/s.
II.DEFINITION
A.Independentdirector 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
judgmentincarryingouthisresponsibilitiesasadirectorinanycorporationthatmeetstherequirementsofSection17.2oftheSecurities
RegulationCodeandincludes,amongothers,anypersonwho:
i.Isnotadirectororofficerorsubstantialstockholderofthecorporationorofitsrelatedcompaniesoranyofitssubstantialshareholders
(otherthanasanindependentdirectorofanyoftheforegoing)
ii.Isnotarelativeofanydirector,officerorsubstantialshareholderofthecorporation,anyofitsrelatedcompaniesoranyofitssubstantial
shareholders.Forthispurpose,relativesincludesspouse,parent,child,brother,sister,andthespouseofsuchchild,brotherorsister
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
substantialshareholders
iv.Has not been employed in any executive capacity by that public company, any of its related companies or by any of its substantial
shareholderswithinthelastfive(5)years
v.Isnotretainedasprofessionaladviserbythatpubliccompany,anyofitsrelatedcompaniesoranyofitssubstantialshareholderswithinthe
lastfive(5)years,eitherpersonallyofthroughhisfirm
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
substantialshareholders,whetherbyhimselforwithotherpersonsorthroughafirmofwhichheisapartneroracompanyofwhichheisa
directororsubstantialshareholder,otherthantransactionswhichareconductedatarmslengthandareimmaterialorinsignificant.
B.Whenusedinrelationtoacompanysubjecttotherequirementsabove:
i.Relatedcompanymeansanothercompanywhichis:(a)itsholdingcompany,(b)itssubsidiary,or(c)asubsidiaryofitsholdingcompany
and
ii.Substantialshareholdermeansanypersonwhoisdirectlyorindirectlythebeneficialownerofmorethantenpercent(10%)ofanyclassof
itsequitysecurity.
C.Anindependentdirectorshallhavethefollowingqualifications:
i.Heshallhaveatleastone(1)shareofstockofthecorporation

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SecuritiesandExchangeCommissionRepublicofthePhilippines
ii.Heshallbeatleastacollegegraduateorheshallhavebeenengagedorexposedtothebusinessofthecorporationforatleastfive(5)
years
iii.Heshallpossessintegrity/probityand
iv.Heshallbeassiduous.
D.No person enumerated under Section II (5) of the Code of Corporate Governance shall qualify as an independent director. He shall
likewisebedisqualifiedduringhistenureunderthefollowinginstancesorcauses:
i.(i)Hebecomesanofficeroremployeeofthecorporationwhereheissuchmemberoftheboardofdirectors/trustees,orbecomesanyof
thepersonsenumeratedunderletter(A)hereof
ii.(ii)Hisbeneficialsecurityownershipexceeds10%oftheoutstandingcapitalstockofthecompanywhereheissuchdirector
iii.(iii)Fails,withoutanyjustifiablecause,toattendatleast50%ofthetotalnumberofBoardmeetingsduringhisincumbencyunlesssuch
absencesareduetograveillnessordeathofanimmediatefamily.
iv.(iv)Suchotherdisqualificationswhichthecompany'sManualonCorporateGovernanceprovides.
III.NUMBEROFINDEPENDENTDIRECTORS
A.All companies are encouraged to have independent directors. However, issuers of registered securities and public companies are
requiredtohaveatleasttwo(2)independentdirectorsoratleast20%ofitsboardsize,whicheveristhelesser.Providedfurtherthatsaid
companiesmaychoosetohavemoreindependentdirectorsintheirboardsthanasaboverequired.
B.TheExchange/sarerequiredtohaveatleastthree(3)independentdirectorsandanindependentdirectorPresident.Toeffectivelycarry
outtheprovisionsofSection33.2(g)oftheSecuritiesRegulationCode,theindependentdirectorsmustnotbeallowedtosolicitvotesfor
himselforforothersorbesubjecttoelectionbythestockholdersuntilthesharesarelisted,orExchange'soutstandingcapitalstockareno
longermajorityownedbythebrokers.
IV.NOMINATIONANDELECTIONOFINDEPENDENTDIRECTOR/S
Thefollowingrulesshallbeapplicabletoallcoveredcompanies:
A.The Nomination Committee shall have at least three (3) members, one of whom is an independent director. It shall promulgate the
guidelinesorcriteriatogoverntheconductofthenomination.Thesameshallbeproperlydisclosedinthecompany'sinformationorproxy
statementorsuchotherreportsrequiredtobesubmittedtotheCommission.ThemembersoftheNominationCommitteeoftheExchange
shallbeclearedbytheCommission.
B.Nominationofindependentdirector/sshallbeconductedbytheCommitteepriortoastockholders'meeting.Allrecommendationsshallbe
signedbythenominatingstockholderstogetherwiththeacceptanceandconformitybythewouldbenominees.
C.Itshallprescreenthequalificationsandprepareafinallistofallcandidatesandputinplacescreeningpoliciesandparameterstoenable
ittoeffectivelyreviewthequalificationsofthenomineesforindependentdirector/s.
D.Afterthenomination,theCommitteeshallprepareaFinalListofCandidateswhichshallcontainalltheinformationaboutallthenominees
forindependentdirectors,asrequiredunderPartIV(A)and(C)ofAnnex"C"ofSRCRule12,whichlist,shallbemadeavailabletothe
CommissionandtoallstockholdersthroughthefilinganddistributionoftheInformationStatementorProxyStatement,inaccordancewith
SRCRule17.1(b)orSRCRule20,respectively,orinsuchotherreportsthecompanyisrequiredtosubmittotheCommission.Thename
ofthepersonorgroupofpersonswhorecommendedthenominationoftheindependentdirectorshallbeidentifiedinsuchreportincluding
anyrelationshipwiththenominee.
E.Onlynominees whose names appear on the Final List of Candidates shall be eligible for election as Independent Director/s. No other
nominationshallbeentertainedaftertheFinalListofCandidatesshallhavebeenprepared.Nofurthernominationshallbeentertainedor
allowedonthefloorduringtheactualannualstockholders'/memberships'meeting.
F.ElectionofIndependentDirector/s
i.ExceptasthoserequiredunderthisCircularandsubjecttopertinentexistinglaws,rulesandregulationsoftheCommission,theconductof
theelectionofindependentdirector/sshallbemadeinaccordancewiththestandardelectionproceduresofthecompanyoritsbylaws.
ii.It shall be the responsibility of the Chairman of the Meeting to inform all stockholders in attendance of the mandatory requirement of
electingindependentdirector/s.Heshallensurethatanindependentdirector/sareelectedduringthestockholders'meeting.
iii.Specificslot/sforindependentdirectorsshallnotbefilledupbyunqualifiednominees.
iv.Incaseoffailureofelectionforindependentdirector/s,theChairmanoftheMeetingshallcallaseparateelectionduringthesamemeeting
tofillupthevacancy.
v.Thecoveredcompaniesshallamenditsbylawsinaccordancewiththeforegoingrequirementsassoonaspracticable.
V.TERMINATION/CESSATIONOFINDEPENDENTDIRECTORSHIP
Incaseofresignation,disqualificationorcessationofindependentdirectorshipandonlyafternoticehasbeenmadewiththeCommissionwithin
five(5)daysfromsuchresignation, 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
stockholdersinaregularorspecialmeetingcalledforthatpurpose.Anindependentdirectorsoelectedtofillavacancyshallserveonlyforthe
unexpiredtermofhispredecessorinoffice.
VI.EFFECTIVITY

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SecuritiesandExchangeCommissionRepublicofthePhilippines
ThisMemorandumCircularshalltakeeffectafterfifteen(15)daysfrompublicationinanewspaperofgeneralcirculation.
November28,2002.MandaluyongCity,Philippines.

(OriginalSigned)

LILIAR.BAUTISTA
Chairperson
OurLocation

SECBuilding,EDSA,GreenhillsMandaluyongCity,MetroManilaPhilippines
:
(632)5840923
OurFaxNumber
:
(632)5845293
Ouremailaddress
:
inquiry@sec.gov.ph
DirectoryofOfficesandKeyPersonnel

OurTelephoneNumbers

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