With recent media coverage on the tremendous powers of the executive committee of the Philippine Health Insurance Corporation (Philhealth) enabling it to control the financial transactions of said agency, my article today focuses on the structure and functions of executive committees.
By law and practice, executive committees have been constituted in corporations for reasons of expedience and necessity, whereby the board of directors delegates to a smaller group of directors some corporate powers to assure prompt and speedy action on important matters without the need for a board meeting, especially where such meetings cannot readily be held. The more complex and sophisticated the corporate business is, the more there would be a demand for the creation of an executive committee.
Regular board meetings are often conducted only once a month. There are occasions however where transactions require corporate approval but cannot wait for the board to meet, given the urgency or the need to make a prompt decision. To address such situation, the bylaws may authorize the creation of an executive committee, which is an adjunct or extension of the board, that can act on matters falling within the board’s competence (Dean Nilo T. Divina, The Revised Corporation Code, p. 240).
If the bylaws so provide, the board may create an executive committee composed of at least three (3) directors. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the bylaws or by majority vote of the board, except with respect to the: (a) approval of any action for which shareholders’ approval is also required: (b) filling of vacancies in the board; (c) amendment or repeal of bylaws or the adoption of new bylaws; (d) amendment of repeal of any resolution of the board which by its express terms is not amendable or repealable; and (e) distribution of cash dividends to the shareholders (Sec. 34, Revised Corporation Code). It should be clear that the executive committee cannot also approve the declaration of stock dividends since said act requires stockholders’ approval (Dean Nilo T. Divina, ibid.).
What should be emphasized is that the executive committee is as powerful as the board, as it actually performs certain duties of the board, and, in effect, it is acting for the board itself. And so, because of the nature of the functions of the executive committee, the authority to appoint such body should be expressly provided in the bylaws (De Leon, The Corporation Code of the Philippines, p. 305). The executive committee should however be distinguished from other committees, which may be appropriately referred to as “management” committees, which are also within the competence of the board to create at any time and whose actions require confirmation by the board itself.
It should also be clarified that the executive committee is not performing management functions and that its members should not be classified as officers of the corporation. The executive committee is a creation and an extension of the board, performing functions which the board is authorized to perform. In that sense, the executive committee is also performing board, and not management, functions.
In the same vein, foreigners who may not be allowed to hold officer positions in some nationalized enterprises, but who are allowed to sit in the board of directors in proportion to their stockholdings, are not prohibited from being appointed as members of the executive committee. As discussed above, what the executive committee performs are board functions (De Leon, ibid., p308).
The above comments are the personal views of the writer. His email address is [email protected]