MAP Discusses Governance Champions: How Independent Directors Create Value

By Regie Gines

Last July 13, 2021, the Management Association of the Philippines (MAP) hosted an interesting session about the value of independent directors. Distinguished panelists shared their thoughts and experiences on the roles of independent directors, then and now.

Atty. Nenet Lavares, an Independent Director of Prulife, started with a challenging statement on how important and daunting the role of an independent director is, since they are perceived as “governance champions”. She described them as servant leaders, someone who places the greater good of the company above any personal or group interest, and one who serves with integrity. Her appointment as an independent director to various companies — a credit company, a publicly-listed universal bank, and a foreign-owned subsidiary company — allowed her to have a better grasp of the role’s value to the board. Far differently from before, when independent directors were purely there for prestige and stature.

Currently, the role has evolved into active participation in managing the operations collegially, with the intention of helping the company cascade its mission and vision, and looking after the interest of its stakeholders and shareholders. She firmly believes that there is absolute independence and corporate governance in being part of this board.

The second panelist was Dr. Fred Pascual, a Lead Independent Director of SM Investment. He detailed the historical emergence of outside members of corporate board directors which was introduced in the US during World War II. Over the years, this board practice has become active and present all over the world and has been considered a mechanism for good governance. The view is that independent directors can bring objective opinions from the valuation of the performance of the board, related party transactions, succession planning and others.

Furthermore, the growing difference in ownership structure, particularly Western vs. Asian, led to the birth of a new phenomenon: the Lead Independent Director. It further gained attention and momentum when there was a strong call for the separation of CEO and board chairmanship role. The Lead Independent Director is an alternative role that serves as an intermediary between the Chairperson and other directors.

A former Independent Director and Board Chairwoman of PNB, panelist Dra. Flor Tarrela believes that as a board member, one “cannot be wallpaper or a plant box in the room”. Rather, an independent director should be active in asking questions, particularly on critical issues. It became clear to her that the role should act on the best interests of the company to enhance the shareholder’s value.

Citing her experience in PNB, her role was definitely independent from management, free of any business relationship, and not part of the day-to-day operations of the bank. In general, she emphasized that independent directors are critical in boards because of their detached judgement, outside experience and objective view of management and operations. Hence, they should be active in improving corporate credibility and governance standards. She even shared some tips on how to become an effective independent director:

• Should know his/her role — to be involved in policies and the general direction of the company.
• Be active in discussions in committee meetings — in addition to skills and knowledge, prepare for the meetings, know the agenda, and ask questions to clarify issues.
• Should continue to learn, especially in this digital world where re-skilling or up-skilling is needed.
• Know, embrace and champion a corporate governance principle.

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About the author:

Regie is a director for recruitment and operations at John Clements Consultants, Inc.