SEC-OGC Opinion No. 24-34, Re: Foreigner appointed as Chairman of a corporation engaged in a partially nationalized economic activity

In its recent issuance, the Securities and Exchange Commission-Office of the General Counsel (“SEC-OGC“) addressed a query concerning the eligibility of foreign national to act as Chairman of corporations engaged in partially nationalized economic activities. The opinion clarified that a foreigner may serve as the Chairman of such corporations, provided they perform no executive functions, and their role is limited to presiding over the board meetings.

The Query and Context

Venkatesh Construction Corporation (“Corporation”), a sixty percent (60%) Filipino-owned entity engaged in partially nationalized activities, appointed an Indian national as the Chairman of its Board of Directors. The Corporation’s By-Laws explicitly state that the Chairman does not perform executive functions, with the President overseeing the Corporation’s management. This prompted the Corporation to seek guidance on whether appointing a foreign national as Chairman violates the Anti-Dummy Law.

The SEC’s Ruling

The SEC stated that such an appointment does not contravene the Anti-Dummy Law, emphasizing that the role of a Chairman, limited to presiding over board meetings without performing executive functions, does not fall within the scope of prohibited activities for foreign nationals in partially nationalized industries.

The SEC’s interpretation is also consistent with its previous rulings:

• SEC 1985 Opinion: Where the President is the chief executive officer, typically the duties of the Chairman of the board relate to presiding at meetings of the board and of committees of which he is a member and carrying out such other duties as the board shall assign. The duty of the Chairman of the Board as presiding officer is not an executive one.

• SEC-OGC Opinion No. 07-07: An alien national may assume the post of the Chairman whose act shall be limited to that of a presiding officer during Board meetings.

• SEC-OGC Opinion No. 23-16: A non-Philippine national may qualify as Chairman of the board when the function of the Chairman as provided for in By-Laws, consists merely of presiding at meetings of the Board.

Clarifications on the Scope of the SEC 1985 Opinion

Another pertinent question was whether the SEC 1985 Opinion—allowing a foreigner to act as Chairman in nationalized and partially nationalized activity as long as he does not perform any executive function —was superseded by SEC-OGC Opinion No. 16-12 (“SEC 2016 Opinion”). The SEC clarified that the SEC 1985 Opinion remains valid. The SEC 2016 Opinion addressed a scenario where a foreign national concurrently held the positions of President and Chairman, combining both executive and non-executive roles. This dual capacity is disallowed due to the President’s executive functions.

Implications for Corporations

The SEC’s recent opinion offers guidance for corporations engaged in partially nationalized industries. It distinguished the Chairman’s non-executive role from executive functions. The opinion also provides a pathway for corporations to appoint qualified foreign nationals to preside over board meetings while adhering to legal restrictions. Corporations must align their By-Laws and practices with these interpretations to ensure compliance and optimize governance structures.