The Case for Term Limits on Independent Directors: Protecting True Independence
Under Philippine regulations — particularly the SEC Code of Corporate Governance for Publicly-Listed Companies and the framework in SEC Memorandum Circular No. 7, Series of 2026 — Independent Directors (IDs) of publicly-listed companies are subject to a maximum cumulative term of nine (9) years in the same company. Once this limit is reached, they are perpetually barred from re-election as an independent director (though they may continue serving as a regular director).
This rule exists for good reason. Extended tenure carries real governance risks that can undermine the very purpose of having independent directors:
1. Erosion of Independence
What begins as healthy engagement can gradually turn into unconscious alignment with management. Over time, long-serving IDs may lose the critical distance and objectivity that define their role. International standards (including ISS guidelines) increasingly view tenure beyond nine years as potentially compromising true independence.
2. Entrenchment and Reduced Challenge
Long tenure can breed complacency. Directors who have served for many years may become less inclined to vigorously question proposals or push back on the status quo — precisely when fresh scrutiny is most needed.
3. Stagnation of Ideas and Perspectives
Boards thrive on renewal. Extended service often means fewer new skills, experiences, and viewpoints entering the boardroom. In a rapidly changing regulatory, technological, and competitive environment, this lack of refreshment can lead to outdated thinking and missed risks or opportunities.
4. Hindered Board Diversity and Succession
Without term limits, companies risk “fossilized” boards that lack meaningful diversity in expertise, background, gender, or generational perspective — and delay the structured succession planning every healthy organization needs.
The nine-year cap strikes a thoughtful balance: it preserves valuable institutional knowledge by allowing seasoned IDs to transition into non-independent roles while ensuring the independent voice on the board remains genuinely independent and dynamic.
For listed companies, compliance with term limits is not merely a regulatory checkbox — it is a strategic investment in more resilient, accountable, and effective governance.
What has been your experience with long-tenured board members? Do term limits help or hinder board effectiveness in practice? I’d value your thoughts in the comments.
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