Can the executive committee of a corporation include non-directors, non-officers and foreigners in its membership? These are the issues that this will be discussed in this article.
The bylaws of a corporation may authorize the creation of an executive committee, which is an adjunct or extension of the board of directors, that can act on matters falling within the authority of the board. It has been constituted in corporations for reasons of necessity and expediency, whereby the board delegates to a smaller group of directors some corporate powers to assure prompt and speedy action on important matters without the need to convene the board or wait for its next meeting. The executive committee can thus be perceived to be as powerful as the board, as it actually performs board duties. Because of the nature of its functions, the authority to appoint such body should be expressly provided in the bylaws.
Under Section 34 of the Revised Corporation Code (RCC), if the bylaws so provide, the board may create an executive committee composed of at least three (3) directors. Said committee may act on matters within the competence of the board or as may be delegated to it, except on certain matters reserved by the law to the authority of the board. The only requirement under this provision is that at least three (3) of its members should be directors, meaning, that the other members need not be directors. This is the clear implication of Section 34 and this is consistent with several SEC opinions. Thus, if for example, an executive committee of seven (7) members will be created, four (4) of them do not need to be directors of the corporation. In such case, according to the SEC, the committee shall still be subject to the “normal restrictions and requirements relating to undue abdication of authority by the board” (SEC Opinion dated 18 May 1983).
Similarly, a member of the executive committee other than the three (3) incumbent directors need not be an officer of the corporation, considering that there is no such requirement in Section 34. And being appointed to the executive committee does not make the appointee an officer of the corporation. As mentioned, the executive committee is a creation and an extension of the board performing board, not management functions. Consequently, the executive committee is not part of nor under management for which reason its members cannot also be classified as officers of the corporation.
Regarding the membership of foreigners in the executive committee, there is nothing in the RCC restricting the nationality of the members of the executive committee. However, based on an SEC Opinion, the executive committee is within the contemplation of a “governing body” under the Anti-Dummy Law. The SEC stated that: “The legal conclusion is that the rule allowing foreigners to sit in the Board of Directors extends to the Executive Committee which is authorized to act on such specific matters within the competence of the Board of Directors. xxx xxx xxx Accordingly, a foreigner can be a member of the Executive Committee without violating the Anti-Dummy Law , provided, however that foreign representation in said governing body shall only be in proportion to the foreign stockholdings in the corporation and provided further that the foreigners shall not be given specific individual managerial responsibility” (SEC-OGC Opinion No. 19-14).
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The above comments are the personal views of the writer. His email address is [email protected]