Opinion No. 18-13 Re: Effectivity of Memorandum Circular No. 16, Series of 2002; Chairman as Independent Director.

Securities and Exchange Commission Republic of the Philippines Department of Finance

OFFICE OF THE GENERAL COUNSEL

9 August 2018

SEC-OGC Opinion No. 18-13 RE: Effectivity of Memorandum Circular No. 16, Series of 2002; Chairman as Independent director.

Cardinal Rosales Avenue Cebu Business Park, Cebu City ATTY. BRICCIO JOSEPH C. BOHOLST Corporate Secretary and Compliance Officer City Sports Club Cebu, Inc.

Dear Atty. Boholst:

is a violation of MC No. 16 when one (1) of the only two elected independent corporation to which he is an independent director. opinion on whether the Commission's Memorandum Circular No. 16, Series of 2002 (hereinafter referred to as "MC No. 16") is still in force or whether it directors of a corporation with seven directors becomes Chairman of the This refers to your letter dated 21 September 2016 requesting for an

Regulations Code, to wit: provisions of MC No. 16 are embodied in Section 38 of the Securities and With regard to the first query, MC No. 16 is still in force and effect. The

twenty percent (20%) of the members of such board whichever is the lesser. For this purpose, an "independent director" shall mean a directors or such independent directors shall constitute at least excess of Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders, at least of two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities or which has sold a class of equity securities to the public pursuant to an effective registration statement in compliance with Section 12 hereof shall have at least two (2) independent equity securities listed for trading on an Exchange or with assets in "Section 38. Independent directors. - Any corporation with a class of

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independent judgment in carrying out the responsibilities of a with the corporation, which would interfere with the exercise of person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship director."1

No. 16 and Section 38 of the Securities and Regulations Code. Securities and Regulations Code2 likewise embodies the same contents as MC In addition, the 2015 Implementing Rules and Regulations of the

still in force and effect. declaring that MC No. 16 is no longer effective, the presumption is that it is Moreover, since there are no other issuances by the Commission

provides: With regard to the second query, Section II, Paragraph D of MC No. 16

"I. DEFINITION

XXX

shall likewise be disqualified during his tenure under the following instances or causes: D. No person enumerated under Section II (5) of the Code of Corporate Governance shall qualify as an independent director. He

becomes any of the persons enumerated under letter (A) He becomes an officer or employee of the corporation where he is such member of the board of directors/trustees, or hereof;

XXX3

does not hold any executive position and is not involved in the day-to-day a Memorandum addressed to the Office of the General Counsel, stated that: corporation while the Chairman of the Board is not. Hence, a Chairman who "[i]n corporate governance, the general rule is that the CEO is an officer of the The Director of the Corporate Governance and Finance Department, in

operations of the company is not considered an officer of the company."4

1 The Securities Regulation Code [THE SECURITIES REGULATION CoDE], Republic Act No. 8799, 2 2015 Implementing Rules and Regulations of the Securities and Regulation Code, Republic Act No. 8799, Title IX, Rule 38. 3 SEC Memorandum Circular 2002-16, Section II, Paragraph D. General Counsel (21 November 2016). Section 38 (2000) 4 Memorandum from the Corporate Governance and Finance Department to the Office of the

Page 3 of 3 Moreover, in the same Memorandum, it was likewise opined that:

independent director and that the position be held by a separate individual other than the CEO. As such, an independent director who becomes Chairman of the Board is actually consistent with recognized good practice and does not violate SEC Memorandum Circular No. 16, Series of 2002 and Rule 38 of the Securities and Regulation Code."5 "xxx [I]nternationally recognized good corporate governance practice recommends that the Chairman of the Board be an

Since a Chairman is generally not considered as an officer lest he holds an independent director of a corporation who becomes the Chairman of the No. 16. executive position and is involved in day-to-day operations, then an corporation, of which he is an independent director, is not in violation of MC

facts disclosed in the query and relevant solely to the particular issues raised the courts, or upon the Commission in other cases of similar or dissimilar circumstances.6 If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. therein and shall not be used in the nature of a standing rule binding upon It shall be understood that the foregoing opinion is based solely on the

Please be guided accordingly

CAMILU SMCORREA General Counsel

5 Id. 6 SEC Memorandum Circular 2003-15, No. 7.