Elections of Directors, Trustees, and Officers in Philippine Corporations

In the Philippine corporate framework, the governance structure of corporations is largely governed by the Revised Corporation Code of the Philippines (Republic Act No. 11232), which outlines the procedures and rules related to corporate management, particularly elections of directors, trustees, and officers. Here is a meticulous breakdown of these regulations:

1. Election of Directors and Trustees

a. General Requirements

Who Can Serve as Directors or Trustees: Only natural persons, of legal age, and holding at least one share in their personal capacity (for stock corporations) or acting on behalf of stakeholders in non-stock corporations, are eligible.
Number of Directors or Trustees: For stock corporations, a minimum of 5 and a maximum of 15 directors are required, unless otherwise stated in specialized legislation for certain types of corporations. For non-stock corporations, a minimum of 5 trustees is also required.
Qualifications and Disqualifications: The corporate bylaws may impose additional qualifications and disqualifications for board members. However, the Revised Corporation Code also provides grounds for disqualification based on the nature of the individual or past acts of misfeasance.

b. Voting and Quorum Requirements

Voting Process: Directors and trustees are elected by stockholders or members with voting rights. Each stockholder’s voting power is proportional to their shares in the corporation.
Quorum for Election: A quorum is usually required at the shareholders’ or members’ meeting, which is the majority of the outstanding capital stock or majority of the voting members present, unless the bylaws provide otherwise.
Methods of Voting: In stock corporations, the Code allows for cumulative voting. A stockholder may either distribute their votes equally among candidates or concentrate them on a few, ensuring minority shareholders a fair chance to be represented on the board.

c. Annual Meeting for Elections

Scheduling: The election of directors must occur during the corporation's annual stockholders' meeting, scheduled as specified in the bylaws.
Remote Participation: As per the Revised Corporation Code, electronic voting or remote participation may be allowed, especially for publicly held corporations or as permitted by the SEC.
Notice Requirements: The Revised Corporation Code mandates a formal notice period for the annual meeting to ensure stockholders or members can participate. Notice should be sent at least 21 days prior to the meeting for publicly listed corporations, as per SEC Memorandum Circular No. 6, Series of 2020.

2. Cumulative Voting

a. Mechanics of Cumulative Voting

Rights of Stockholders: Cumulative voting allows stockholders to allocate their total votes in any manner they wish. For instance, if a stockholder has 10 shares and there are 5 positions available, the stockholder has 50 votes which they may allocate across candidates as they see fit.
Objective: Cumulative voting is designed to empower minority shareholders, allowing them to pool their votes to elect specific board candidates rather than merely being outvoted by majority holders.

b. Legislative Provisions for Cumulative Voting

Compulsory Application: In stock corporations, cumulative voting is mandatory for the election of directors. It is specifically provided by Section 23 of the Revised Corporation Code.
Non-Stock Corporations: The concept of cumulative voting does not apply to trustees in non-stock corporations, as trustees are usually elected by members based on one vote per member unless the Articles of Incorporation provide otherwise.

3. Filling of Vacancies in the Board

Vacancies may arise in the board due to death, resignation, incapacity, or other grounds stated in the Code.

Vacancies Not Due to Removal or Expiration of Term: These vacancies may be filled by a vote of at least a majority of the remaining directors if they still constitute a quorum. If not, stockholders or members at a regular or special meeting must elect a replacement.
Vacancies Due to Removal or Expiration of Term: If a vacancy arises due to these reasons, only stockholders or members can fill the vacancy.

4. Election of Corporate Officers

a. Qualifications of Corporate Officers

Election by Directors: The board is responsible for electing corporate officers, such as the president, treasurer, and corporate secretary, during its initial meeting following the election of directors.
Mandatory Corporate Officers: Under the Revised Corporation Code, corporations are required to have at least a president, corporate secretary, and treasurer. The president must be a director, while the corporate secretary must be a Filipino citizen.
Other Officers: The board may create other officer positions as specified in the corporate bylaws, with qualifications and roles tailored to the needs of the corporation.

b. Removal of Corporate Officers

Grounds and Process: The board of directors has the authority to remove corporate officers with or without cause, as long as this action does not infringe on employment rights under labor laws.
Rights of Removed Officers: Officers who are removed without cause may seek remedies under labor law, depending on their employment status and the nature of their service to the corporation.

5. Shareholder Remedies and Regulatory Compliance

a. Remedies for Election Disputes

Intra-Corporate Disputes: Election-related disputes can be brought to the Regional Trial Court’s designated commercial court. Remedies include petitions for nullification of elections if there is a claim of irregularity.
Injunctions and Restraining Orders: In cases of gross procedural errors, courts may issue injunctions to prevent the holding of elections or may order re-elections if the initial process was tainted by fraud.

b. Compliance with the Securities and Exchange Commission (SEC)

Reporting Requirements: Corporations must report election results to the SEC. Any significant deviation from proper election procedures can lead to administrative penalties.
Annual Corporate Governance Reporting: Publicly listed corporations are mandated to submit detailed governance reports to the SEC, providing transparency regarding board elections, officer appointments, and governance practices.

6. Corporate Bylaws and Customary Practices in Elections

Role of Bylaws: The bylaws govern the specific mechanics of board elections, including procedures for nomination, proxy voting, and the scheduling of election meetings. Any amendments to bylaws relating to elections must conform to the Revised Corporation Code and receive SEC approval.
Customary Practices: Corporations may adopt best practices such as implementing nomination committees, conducting board assessments, and promoting diversity in board composition, although these are not statutorily required.

Conclusion

The Revised Corporation Code provides a robust framework for the election of directors, trustees, and corporate officers in the Philippines. This framework is designed to uphold fairness, empower minority shareholders, and promote transparency in corporate governance. The Code, along with SEC regulations, ensures that corporate elections and board compositions adhere to high standards of accountability and integrity.