Nine years after the Securities and Exchange Commission’s Code of Corporate Governance for Publicly-Listed Companies formalised the independent-director requirement, the Philippine market has successfully operationalised the letter of the rule. Every PSE-listed company has the requisite independent directors on its board. Every governance committee can produce the independence attestation. Every annual report contains the board-composition statement that demonstrates compliance.
The letter is complete. The spirit is more contested.
We are regularly asked by chairs, lead directors, and nomination committees to help identify independent directors for Philippine boards — most often for PSE-listed groups, occasionally for large privately-held family enterprises with professionalising boards. What those conversations have in common is the quiet acknowledgement, usually after the third meeting, that the board has complied with the rule for years and still feels that the independent-director seat is not quite delivering what it was intended to deliver. The voice is present. The change is not.
This piece is about why. It is not a critique of the CG Code, which is directionally right and has materially improved Philippine board practice. It is a note on the selection pattern that has calcified around the Code, and on what a more useful selection model looks like for organisations that want the seat to matter.
The independence test in the Code is a filter. It is not a specification. Most Philippine boards have treated it as both, and it cannot do both.
— 01 · The Compliance FrameWhat the rule actually says, and does not.
SEC Memorandum Circular No. 19 Series of 2016, the Code of Corporate Governance for Publicly-Listed Companies, sets a clear bar. Each listed board must have at least three independent directors or one-third of the board, whichever is greater. Independence is defined through a specific set of disqualifications: no employment relationship, no material business relationship, no family relationship with the issuer, no prior advisory engagement within the defined window. The director must hold independence at appointment and maintain it through tenure.
This is a well-constructed filter. It successfully excludes the people who should not be in the seat — related parties, transactional counterparties, long-standing advisors whose perspective would not be genuinely independent. It is a negative definition: it tells you what an independent director must not be.
The filter does not tell you what an independent director must be. That question — what the seat is for, what perspective or experience it is supposed to bring, what the candidate has to be capable of — is left to the nomination committee. In the Philippine market, the pattern that has emerged over the decade is that nomination committees, quietly and often without explicit intent, have defaulted to a selection pattern that over-indexes on two attributes: prior director experience, and shared background with the rest of the board. Both are understandable choices. Both produce boards that are technically compliant and functionally narrower than the Code intended.
— 02 · What Boards Actually NeedFrom an independent seat.
The independent-director role, properly used, does three kinds of work that the executive directors and the non-independent non-executive directors cannot do, or cannot do as well.
The first is challenge. The independent director is the one who can ask the question that nobody else in the room can ask without political cost. That function requires specific temperament — the candidate has to be comfortable with unpopularity, precise in framing, and durable through cycles of pushback. It also requires sector-adjacent competence, so that the question lands as informed rather than as naive.
The second is perspective from outside the system. The board is, almost by construction, an inside-perspective body. The executives live inside the business. The non-independent non-executive directors — the family representatives, the significant-shareholder appointees — live inside the ownership structure. The independent seat is the seat whose job is to hold a perspective neither of those two orbits can hold. That requires real distance from the issuer, and usually exposure to adjacent industries, regulators, or markets.
The third, underestimated, is insurance against pattern-lock. A board that has been together for five years develops patterns — of deference, of disagreement, of which questions get asked and which do not. The independent director, properly selected, is one of the few forces that can reset those patterns without the board-wide disruption of an executive change. This function is almost never mentioned in nomination briefs. It may be the most important of the three in practice.
Distribution of independent-director backgrounds, PSE-listed boards Observation sample · LAKAN board placement work 2022–2026 · remainder to 100% is uncategorised / multiple-background
— 03 · The Independence ParadoxWhy the usual pool produces familiar outcomes.
The standard Philippine independent-director pool concentrates in two backgrounds: retired peer-industry chief executives, and former senior regulators or ex-public-sector officials. Between them they account for more than half of the independent seats on PSE-listed boards. Both profiles are valuable. Both are also, for the function of an independent seat, structurally constrained.
A retired peer-industry CEO brings operating authority and sector fluency — and brings a pattern of thinking that is almost definitionally the same pattern as the executive team’s. They know the industry because they ran the industry. They are the right person to ask whether the operational plan is realistic. They are often not the right person to ask whether the operational plan is the right plan.
A former senior regulator brings regulatory fluency, public-sector relationships, and a particular kind of institutional gravitas. They are indispensable for sectors where regulatory exposure is central. They are also, in most cases, not the person who will challenge the executive team’s commercial assumptions or governance patterns, because those are not the muscles they have trained.
Neither background is wrong. Both are over-represented in the Philippine independent-director pool relative to what boards actually need. The pattern-lock function — the reset role — requires a profile that is distant enough from the executive team’s native pattern to see around it, and that profile is underweight in the current market. Academic, legal, cross-sector-operator, and investor-background independents, who are more common on Western boards, are under-represented on Philippine ones. That is the paradox. The pool of independent directors, while nominally diverse in biographies, is structurally converged on a narrow range of cognitive styles.
Independence is a relationship to the issuer, not a perspective on it. Most Philippine boards have selected for the first, and are quietly disappointed not to receive the second.
— 04 · A Better Selection ModelHow to brief a nomination committee.
A more useful independent-director selection process, for boards that want the seat to do its intended work, starts in a different place. It begins with a specification of what the board, in its current composition, is underweight on — not what the Code requires.
A good nomination brief for an independent seat has three parts.
The first is a composition gap analysis. The board looks at itself honestly: what operational, functional, sectoral, regulatory, and cognitive backgrounds are already represented, and which are not? Which perspectives are present in the room and which are systematically missing? This is uncomfortable work. It tends to surface that the board is stronger on, say, financial and operational depth than on consumer-facing commercial thinking, or stronger on sectoral expertise than on adjacent-sector experience. Whatever the gap is, the independent seat is the seat to fill it.
The second is a function specification. What work does the board need this particular seat to do? Challenge function? Pattern-reset function? Specific sectoral fluency? Adjacent-sector transplant? Each of these implies a different candidate profile, a different interview approach, and a different set of references. Nomination briefs that specify independent director with fifteen-plus years of C-suite experience do not specify the function; they specify the pool.
The third is a tenure architecture. Independent directors are most valuable in the middle of their tenure, not at the beginning or end. The challenge function requires enough time in-seat to understand the organisation; the pattern-reset function requires enough freshness not to have acclimated. Boards that think about independent-director succession on a seven-to-nine-year rolling architecture, with staggered entries so the independent block is never all new or all long-tenured, get substantially more from the seat than boards that treat each appointment as an isolated event.
— 05 · ClosingFor chairs and nomination committees.
The 2016 Code was a structural improvement. It is time to take the next step.
The boards that will get the most out of their independent seats over the next decade are the ones that treat the Code’s independence definition as the floor it is — a necessary condition, not a sufficient one — and that run their nomination process with a specification of what the seat is for, not a specification of what the seat must avoid.
This is not more regulation. It is better taste, applied earlier.
For the chairs and lead directors reading this who are currently evaluating an independent-director appointment, the most useful question to bring into the next nomination-committee conversation is the one the Code does not ask. Not does this candidate meet the independence test? That is table stakes. The useful question is: of all the perspectives the board does not currently hold, which one does this candidate bring?
If the answer to that question is none in particular, but they are respected and independent — the appointment is compliant, and it will deliver what it has delivered for the last decade. If the answer is a specific, describable perspective that the board currently lacks — the appointment is the kind that ends up, five years later, being named in an annual report as the moment the governance of the enterprise materially improved.
The difference is one question, asked early enough to matter.