The Philippines has long been a corporate governance underperformer, ranked last or second last in ACGA’s CG Watch bi-annual research ever since its launch more than 20 years ago. Tracing its roots back to the Manila Stock Exchange started in 1927, the Philippine Stock Exchange (PSE) has atrophied for decades to become one of Asia Pacific’s smallest and least traded stock markets. The appointment of Securities and Exchange Commission (SEC) Chair, Francis Lim, in June 2025, highlighted as a positive move in an earlier members’ brief, may presage an end to the market’s unenviable reputation. A series of significant reforms provides cause for genuine optimism.
Independence shibboleth slain
SEC Memorandum Circular No. 7 2026, effective February 1 2026, mandates independent directors of listed companies to be appointed for a one year term with an absolute nine-year cumulative term limit. The limit, which critically is retrospective to 2012, once reached, permanently bars an independent director from continuing to serve on a board in an independent capacity. Prior to this new rule, independent directors who reached the nine-year limit could continue with a vote of shareholders, which is often what happened. That is no longer the case and there is no longer any cooling off period available as before: the limit is absolute.
The 2012 look back means that a significant number of directors who have quietly accumulated a decade or more of "independent" service, a common feature on Philippine company boards, will be disqualified at this year’s round of annual general meetings. In one decisive move, Lim’s SEC has imposed on the market a long-called for governance improvement fiercely resisted for years by listed companies.
The new rule does permit a disqualified independent director to remain on the board as a non-independent director. Any independent director who is re-elected as a non-independent director within the nine-year term limit may be re-elected at a later date as an independent director, but only after a two-year cooling-off period, assuming they have not yet hit the nine-year limit.
The new rule also has some teeth: the SEC will impose penalties on listed companies for non-compliance. Term limit breaches will face an initial fine of PHP 1,000,000 (~US$16,500), and a monthly penalty of PHP 30,000 (~US$635) for every month thereafter. Repeated offences can trigger suspension or revocation of the company's primary or secondary SEC licence.
For foreign institutional investors, who have long expressed frustration at boards of Filipino companies stacked with "independent" directors who clearly maintained close personal and business ties to controlling shareholders, the SEC’s reform will be especially welcome.
There is anecdotal evidence that local companies are beginning to toe the SEC line. An analysis of the ten largest Filipino conglomerates shows that whilst most major corporate groups have already expunged INED “overstayers” from their boards, there are still a few holdouts (see table below).
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A blue print for stock market reform?
The ban on term limits, although welcome, will be controversial among listed companies. Less so is Chair Lim’s new attempt to improve the PSE’s woeful liquidity and primary stock market, easily one of Asia’s weakest, in terms of market capitalisation, new listings and trading.
Memorandum Circular No. 11, 2026, effective end February 2026, overhauls the PSE’s minimum public ownership (MPO) rules for new IPOs. Previously a one-size-fits-all approach for companies seeking to list on the PSE, the new rules introduce a tiered structure that calibrates public float requirements to market capitalisation. Under the new rules, smaller issuers, with an expected market cap of less than PHP 500 million (US$8.3 million) must offer at least 33% of shares to the public. Companies with a market capitalisation of more than PHP500 million but less than PHP50 billion (US$838 million), must list between 25% and 20% based on successive thresholds. Companies listing with a market capitalisation of more than PHP 50 billion are only required to list 15% of their share capital. For companies valued at more than PHP 200 billion (US$3.35 billion), the PSE is now permitted, at its discretion, to permit as little as 12% of shares to be listed, particularly where the capacity of the local market to absorb such a large issue would otherwise be a genuine constraint.
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The SEC’s new rules make sense for a market such as the Philippines, where wider public share ownership remains more limited. Increasing the level of shares required to be offered to the public assists price discovery, distributes voting power and helps reduce the risk of share price manipulation by controlling shareholders, long a problem on the PSE. And the one size fits all level of 20% under the previous rules, tended to deter large, family-controlled conglomerates from listing due to concerns over dilution of ownership. Reducing the float on the largest issuers, which should also be those companies most attractive to foreign and domestic institutional investors, the SEC is opening the pathway to more and more importantly, higher quality listing candidates.
Once listed, companies with a market value not exceeding PHP50 billion must maintain a minimum of 20% free float; companies valued at PHP50 billion and above must maintain a 15% free float. Companies whose public float falls below the required threshold will be given six-months to address the shortfall. Failure to do so will trigger mandatory monthly reporting to the SEC on progress to rectify any shortfall. Any shareholdings of 10% or more are classified as "strategic" and are excluded from public float calculations.
Holding boards accountable for financials
The third notable circular issued by the SEC, Memorandum Circular No. 9, 2026, deals principally with streamlining the process of filing financial and other disclosures. However, included in the memorandum is a new requirement for listed companies to include in their financial statements a mandatory Statement of Management's Responsibility (SMR), which must be signed under oath by the Chairman, Chief Executive Officer, and Chief Financial Officer, assuming full responsibility for the accuracy, completeness and truthfulness of the submitted financial statements.
This requirement comes with legal consequence in the Philippines and effectively enjoins senior management of a listed company to the audit and certification process.
Rules first: enforcement next
SEC Chair Lim has made an impressive start to his tenure and introduced a number of bold moves. Properly implemented and, most critically, effectively enforced, the new rules will improve board governance, increase board accountability and encourage much-needed market reforms, gradually leading to improved primary listings, better price discovery and, eventually, higher levels of institutional investor participation. The critical issue – familiar to anyone who has followed Philippine market reform efforts over the past two decades – is whether the institutional capacity and sustained political will exist to enforce these rules against the well-connected interests they most directly constrain.
About the Author(s)
Christopher Leahy
ACGA Specialist Advisor, Southeast Asia
Christopher Leahy is Specialist Advisor, Southeast Asia, with ACGA and Managing Director and founder of Velos Research, an independent research and advisory firm that partners with project owners, companies and investors to convert emission-reduction projects into commercial realities. Chris is also an independent non-executive director of Destileria Barako Corporation, an independent distillery and drinks group in the Philippines.
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