Canlubang Automotive Resources Corporation

May 18, 1983 Canlubang Automotive Resources Corporation Fortune Building, Legaspi St. Legaspi Village, Makati Gentlemen: This refers to your letter dated February 7, 1983, requesting the opinion of this Commission on the following queries quoted hereunder: "a) Section 35 of the Corporation Code provides that the by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board". Does this mean that membership in the executive committee is limited to the members of the board only or could non-members of the board be appointed as members of the executive committee provided there are at least three members of the board who are members of the committee? prcd b) If the latter case is allowed, is there any limit in the number of non-members of the board who could be appointed members of the executive committee in relation to the number of board members who are in the committee? c) Are there limitations in the authority which may be delegated to the executive committee where there are non-members of the board as against the authority of the committee where all the members are directors? d) If membership in the executive committee is limited to members of the board only, may an executive committee which included non-members of the board as members and was constituted prior to the enactment of the New Corporation Code continue to function as such? If so, what are the limits of its authority?" Anent your first query, please be informed that while under Section 35 of the Corporation Code of the Philippines, the by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board, yet, "there seems to be no reason why a committee or 'other person' could not be a delegate of the board quite apart from the authorization that the board may appoint committees". "For example, it is common to have a management committee composed of key executives, some of whom are not members of the board and others of whom are not even elected officers of the corporation." (Ballantine & Sterling, California Corp. Laws, Vol. 1, Sec. 87.02 at 5-37 to 5-39, 1982 edition). Furthermore, there is no requirement that a committee be designated "an executive committee" to be clothed with powers of the board, nor is there a limitation to a single committee which can be clothed with such powers (Ibid). It is, therefore, opined that non-members of the board may be appointed as members of the executive committee provided there are at least three members of the board who are members of the committee. In reply to your second query, there seems to be no limit in the number of non-members of the board who could be appointed members of the executive committee in relation to the number of board members who are in the committee. As regards your third query, please be informed that subject to specific statutory limitations which may not be delegated to committees, a properly constituted committee composed of directors has all the authority of the board to the extent provided in the resolution of the board or in the by-laws. (Ballantine & Sterling, supra, Vol. * , Chap. 3, sec. 311 at 29). On the other hand, "an interesting question which frequently arises in practice is the extent to which the board can delegate powers to a committee which is made-up of, or includes, persons who are not directors". Under the California Law, from where Section 35 of the Corporation Code of the Philippines was lifted, it would seem that if others are members of the executive committee, such delegate committee shall be subject to the "normal restrictions and requirements relating to undue abdication of authority by the board. While the committee may manage the day to day operation of the business of the company, the business and affairs thereof shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. Your fourth query is rendered academic by the above answers. Please be advised accordingly. Very truly yours, (SGD.) JESUS J. VALDES Associate Commissioner