Nicole Patricia P.

Torres
Atty. Kalaw Key Messages – Fit & Proper
Rule

1. THE BOARD PLAYS AN IMPORTANT ROLE IN THE MANAGEMENT OF THE BUSINESS. THUS,
IT IS IMPORTANT TO APPOINT DIRECTORS WHO ARE COMPETENT, CAPABLE, AND WHO
POSSESS GOOD MORAL CHARACTER.

The Fit & Proper Rule lays down the minimum and ideal qualifications of directors of to ensure that they
possess the necessary qualifications and competence needed for their positions. It is made to ensure that
covered entities have directors that are “fit & proper” to hold their positions. 1 It also establishes the
standards for determining whether a member of the Board of Directors/Trustees or CEO is fit and proper -
which shall include, but shall not be limited to, standards of integrity, experience, education, training and
competence.2

In the private sector, the creation of the Fit & Proper Rule was impelled by the necessity “to build a strong
and stable financial system, and to promote good governance, considering the sizeable role of the latter
in the country's economic growth and development”.3 In GOCCs, on the other hand, the creation of the
Fit & Proper Rule was made to ensure that “the governing boards of every GOCC and its subsidiaries are
competent to carry out its functions, fully accountable to the State as its fiduciary, and acts in the best
interest of the State”4.

Essentially, these rules were carved out in order to ensure that Board members in both the private and
public sector are capable and competent. This supports and reinforces the centralized management
theory, which is underscored in Section 23 of the Corporation Code, which provides that all corporate
powers of corporations shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees. 5 This simply means that it is the Board who is
charged with running the affairs of the business, and who exercises all corporate powers, property and
business of the corporation. Thus, it is clear that the board plays a key and vital role in the business. It is
therefore essential that only those with competence and integrity are installed in Directorial positions, as
the fate of the company depends on them. This is to weed out the incompetent ones and to appoint only
those who are competent and qualified.

2. IN CHOOSING DIRECTORS WHO ARE FIT & PROPER FOR THEIR POSITIONS, ONE MUST ALSO
INVEST IN THE QUALIFICATIONS OF A DIRECTOR, NOT JUST THE DISQUALIFICATIONS.

As can be gleaned from the following positions, the following are the only requirements to hold a Board
position in Private sector and GOCCS:

a) At least twenty-five (25) years of age at the time of his election or appointment; 

b) At least a college graduate OR has at least five (5) years experience in business; 

c) Has attended a special seminar on corporate governance for board of directors conducted or
accredited by SEC or IC as may be applicable; and 

d) Must be fit and proper for the position of a director of the covered entity, taking into account the
following factors: integrity/probity, competence, relevant education/training, physical and mental

1 Governance Commission for GOCCs, GCG Memorandum Circular No. 2012-05.

2 GOCC Governance Act of 2011, RA 10149, Sec 3 (j) (2011).
3 Department of Finance, D.O. 054-2014.
4 GCG Memorandum Circular
5 The Corporation Code of the Philippines, [CORPORATION CODE], Batas Pambansa Blg. 68, sec. 23 (1980).
 fitness, diligence, and knowledge/experience6

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a) Be a Filipino citizen;
b) Be at least thirty (30) years of age at the time of appointment to the governing board
c) Be of good moral character, of unquestionable integrity, and of known probity;
d) Have a college degree, with at least five (5) years relevant work experience, except for a
sectoral representative who only needs to be a bonafide member
e) Possess management skills and competence preferably relating to the operations of the
GOCC to which he/she is appointed; and
f) Have attended, or will attend within three (3) months from the date of appointment, a special
seminar on public corporate governance for Directors conducted by the GCG or any individual or
entity accredited by the GCG.7

On the other hand, the list of disqualifications are longer. The specified grounds for disqualification of
directors and officer includes not only crimes, but also added other forms of culpability, or administrative
liability, as may be determined by the court, Monetary Board, regulatory body or other government
agencies. Also, persons who may be permanently disqualified from holding director or officer positions
are not only those who have been convicted by final judgment for offenses involving dishonesty or breach
of trust such as embezzlement, malversation, and extortion, but also those convicted by final judgment for
bribery, falsification, as well as violations of the Anti-Graft and Corrupt Practices Act.

In other words, the fit & proper rule serves more as a bar to incompetent people from assuming directorial
positions, rather than a reinforcement for those who are competent and qualified to hold such positions. It
is worth emphasizing that in choosing someone who is fit & proper to hold a Board position, an entity
should not only look at who are not qualified to hold positions. An entity should focus on the qualifications
of a director and invest on the added value that a director can bring to the company. It’s not what you
cannot bring to the table; it’s what you can.

3.TRAINING ENABLES DIRECTORS TO CONSISTENTLY AND CONTINOUOSLY IMPROVE.

Businesses are ever changing. And the only way that the Directors can keep with the changing
complexities of business and the environment is through training. Training makes room for continuous
improvement of directors, and ensures that a Director remains competent all throughout his term.

6 Supra note 3, sec. 5.

7 Supra note 1, ART. 4.