Corporation Law: The Revised Corporation Code of the Philippines - Sec 34

   THE REVISED CORPORATION CODE  OF THE PHILIPPINES

Republic Act No. 11232 

TITLE III -  BOARD OF DIRECTORS/TRUSTEES AND OFFICE

Section 34.  Executive Management, and Other Special Committees.

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 of 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) filing of vacancies in the board; (c) amendment or repeal of bylaws or the adoption of new bylaws; (d) amendment or term is not amendable or repealable; and (e) distribution of cash dividends to the shareholders.

The board of directors may create special committees of temporary or permanent nature and determine the members' term, composition, compensation, powers, and responsibilities.


1. Purpose. 

  • The executive committee is a corporate body "with standing in law, although in a sense, it is an agent of the Board of Directors because it performs what otherwise is vested by law in the Board of Directors."
  • The RCCP allows the creation of an executive committee because the Board may not readily face the contingency of confronting urgent matters that require its attention.
  • It was further explained:
    • "So, essentially this is really a matter of policy. If one were to ask what the basic rationale is for an executive committee, it would simply be to facilitate the conduct of business by a corporation. To be realistic about it, we may have a corporation with a Board of 11 members or 7 members and sometimes this is not unusual. It is extremely difficult to muster a quorum at a time when the corporation must act on a vital matter. And the only way not to paralyze a corporation in those instances is to provide for a system whereby they may be able to confront or meet such contingencies. And the present practice is, as I said, to create an executive committee. As I said what we must really decide on is whether we would like to allow the conferment of broad authority or we would like to restrict the authority that may be conferred on an executive committee."
2. By-Laws.
  • The executive committee can only be created by virtue of a provision in the By-Laws.
  • The Board, by itself, cannot create an executive committee if nothing is stated in the By-Laws. 
  • As explained by the proponent of the provision, the executive committee is a corporate body with a standing in law, although, in a sense, it "is an agent of the Board of Directors. However, its authority is not simply derived from the Board of Directors since the organization or creation of the executive committee would be through the By-Laws."
3. Composition. 
  • Section 34 of the RCCP provides that an executive committee must be composed of not less than three members of the Board, to be appointed by the Board. 
    • ✅This means that there can be members of the executive committee who are not directors provided that at least three members are directors. 
    • ✅ 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.
    • ✅ A foreigner can be a member of the executive committee in proportion to the foreign shareholdings in the corporation.
4. Authority. 
  • The executive committee has all the authority of the Board to the extent provided in the resolution of the Board or in the By-Laws.
  • The resolutions passed and approved by the executive committee are as valid as the resolutions of the Board provided the resolutions have been made at the time the committee is constituted. 
    • Thus, the executive committee is, within the limits of its authority, as powerful as the Board as it actually performs certain duties of the Board and in effect, it is acting as the Board itself.
  • However, there must be no undue abdication of the powers of the Board. 
    • Committee = may manage the day-today operation of the business of the corporation; 
    • Board = business and affairs of the corporation shall be managed and all corporate powers shall be exercised under its ultimate direction
      • Moreover, the rights of the minority should not be impaired.
      • The Board cannot delegate the entire supervision and control of the corporation to an executive committee for this is contrary to the charter and the law that requires that the directors shall have general supervision and control of the corporation.
  • The decision of the executive committee is not subject to appeal to the Board.
    • They are valid and unappealable.
    • However, the Board may ratify the resolution if the resolution of the executive committee is invalid (as for instance it is not one of the powers conferred thereto).
    • Additionally, just like any Board resolution, the resolution of the executive committee may be repealed by subsequent Board resolutions unless what is involved is an accomplished fact or a contract that is binding on third persons.
  • It has been suggested that in the meeting of the executive committee, a member may ask for deferment of certain actions in case the Board members feel strongly that it should be a matter that should be decided by the entire Board and not by the executive committee.
5. Quorum.
  • The general rule for quorum requirements for the executive committee is the same as that for directors.
  • A majority of the group constitutes the quorum.
6. Required Vote.
  • The majority vote requirement for an executive committee shall be interpreted to mean majority of all the committee members, regardless of the classification of the membership into director/members or non-director/members. 
  • This is basically premised on the cardinal rule of statutory construction that if the law does not qualify, no further qualification should be made thereon.
7. De Facto Officers. 
  • If the executive committee was not validly constituted, the members thereof may be considered de facto officers. 
8. Board Committees. 
  • The Board, in the exercise of its business judgment can create committees that can give assistance in the performance of the Board's functions. 
  • These committees are distinct from the executive committee contemplated under Section 34. 
  • The "executive committee," referred to in Section 34 of the RCCP that is as powerful as the Board of Directors and in effect acting for the Board itself, should be distinguished from other committees that the Board may create at anytime under the business judgment rule; the actions of these committees require ratification and confirmation by the Board.
    • Other committees = actions require ratification and confirmation by the Board
  • Section 34 of the RCCP provides that the ''board of directors may create special committees of temporary or permanent nature and determine the members' term, composition, compensation, powers, and responsibilities." 
    • These special committees are not executive committees. 
    • It was explained that even before the RCCP, the Board of Directors had the power to create positions not specifically provided for in the By-Laws since the Board is the corporation's governing body, clearly upholding the power of the Board to exercise its prerogatives in managing the business affairs of the corporation. 
9. Code of Corporate Governance. 
  • Corporations that are covered by the Code of Corporate Governance are required to create an Audit Committee. 
  • The Board may also create a Nominations Committee and a Remuneration or Compensation Committee to assist its corporate governance.
PROBLEM: 
The Board of Directors of X Corporation through a resolution decided to create an executive committee and to delegate all its powers to the said committee. There is no provision in the Articles of Incorporation and By-Laws conferring such power. Is the creation of the Executive Committee valid? 
No. The creation of the Executive Committee is not valid. The executive committee may be created only if the same is provided for in the By-Laws. In addition, even assuming that there is a provision in the By-Laws, not all powers can be conferred to the committee. Section 34 of the Revised Corporation Code provides that the executive committee cannot act on the following: 
  1. approval of any action for which shareholders' approval is also required; 
  2. the filling of vacancies in the Board; 
  3. the amendment or repeal of By-Laws or the adoption of new By-Laws; 
  4. the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; and 
  5. a distribution of cash dividends to the shareholders.

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