How Can a Board Remove a Rogue Corporate President?

Introduction

A corporate president who acts against the company’s interests may expose the corporation to financial loss, regulatory sanctions, litigation, and reputational harm. Philippine corporate law allows the board of directors to address such conduct, but the board must distinguish between removing the president as a corporate officer and removing that person as a director.

The board generally has authority to remove a president from the corporate office through a properly called board meeting, subject to the Revised Corporation Code, the corporation’s articles and bylaws, applicable employment rules, and the requirements of due process. However, if the president is also a director, the board ordinarily cannot remove that person from the board itself. Removal as a director is a stockholder matter.

Governing Law Under the Revised Corporation Code

Under R.A. No. 11232, or the Revised Corporation Code of the Philippines, the board of directors exercises the corporate powers of the corporation and conducts its business, unless the law provides otherwise. The board also elects the corporate officers, including the president, treasurer, and secretary, unless the corporation’s articles or bylaws provide otherwise.

The president is generally required to be a director. This creates two separate legal capacities: the person may be a member of the board and, at the same time, hold the corporate office of president.

Position affected	Who generally has authority to remove	Required action
President as corporate officer	Board of directors	Board resolution adopted at a valid meeting
Director as member of the board	Stockholders	Vote of at least two-thirds of the outstanding capital stock, at a properly called meeting
President as employee	Corporation acting through its authorized body	Compliance with employment law and the employment contract, when applicable

Section 27 of R.A. No. 11232 specifically governs the removal of directors and trustees. It requires a vote of stockholders holding or representing at least two-thirds of the outstanding capital stock, or two-thirds of the members entitled to vote in a nonstock corporation. That provision applies to removal from the board, not merely to removal from the office of president.

Board Authority to Remove the President

The board’s authority to remove a corporate president arises from its authority to elect and supervise corporate officers. A president is an officer of the corporation, and the office is ordinarily held at the pleasure of the board, subject to the corporation’s bylaws, the officer’s employment contract, and applicable law.

The board may therefore remove the president for loss of trust and confidence, misconduct, unauthorized transactions, breach of fiduciary duty, violation of company policies, or other lawful grounds. The board may also replace the president without alleging misconduct if the bylaws and the circumstances of the appointment permit removal at the board’s discretion.

In Raniel et al. v. Jochico, et al., G.R. No. 153413, 16 March 2007, the Supreme Court recognized the distinction between corporate officers and directors. The authority to remove directors belongs to the stockholders or members who elected them, while the board may act regarding corporate officers in accordance with corporate law and the corporation’s governing documents.

SEC-OGC Opinion No. 09-06 likewise explains that the board of directors or trustees has no power to remove one of its members as director or trustee when the law assigns that power to the stockholders or members. The principle applies even when the same person holds an executive office.

What Voting Threshold Applies?

For removal of the president as a corporate officer, the usual requirement is approval by a majority of the directors constituting a quorum, unless the Revised Corporation Code, the articles of incorporation, the bylaws, or a valid board rule requires a higher vote.

The exact voting threshold should be confirmed from the corporation’s current bylaws and articles. The board should not assume that the two-thirds stockholder vote under Section 27 of R.A. No. 11232 applies to removal of the president as an officer. That statutory threshold concerns removal as a director or trustee.

For example, if a corporation has seven directors and its bylaws require a majority of the board for officer removal, a quorum must first be present. If the quorum is four directors, at least three affirmative votes would ordinarily be required if the bylaws use a majority of the directors present. If the bylaws require a majority of the entire board, at least four affirmative votes would be necessary.

Step One: Review the Corporate Documents

Before taking action, the board or its counsel should review the following documents:

• articles of incorporation;
• current bylaws;
• board resolutions concerning the president’s appointment;
• employment or management agreements;
• shareholders’ agreements, if any;
• corporate policies and codes of conduct; and
• banking, regulatory, and signing-authority resolutions.

The review should determine who has authority to call the meeting, the required notice period, the quorum, the voting threshold, and any contractual limitations on termination or removal.

Step Two: Gather and Preserve the Evidence

The board should identify the acts supporting the proposed removal and preserve the relevant evidence. This may include unauthorized contracts, financial records, electronic communications, audit findings, compliance reports, customer complaints, and minutes of prior meetings.

Evidence should be collected lawfully and preserved in a manner that protects its authenticity. The board should avoid relying solely on unverified accusations, anonymous reports, or personal disputes among directors and officers.

If the president controls corporate records, bank accounts, passwords, or company devices, the board may adopt interim protective measures consistent with the bylaws and applicable law. These measures may include changing signing authorities, requiring dual approvals, suspending access to systems, or appointing an acting officer, provided the actions are properly authorized and documented.

Step Three: Call a Proper Board Meeting

The meeting must be called by the person authorized under the bylaws or the Revised Corporation Code. The notice should state the date, time, place, and manner of the meeting, together with sufficient information about the proposed action.

The notice should expressly identify that the board will consider the removal or replacement of the president. A vague notice concerning “corporate matters” may create an avoidable challenge, especially where the removal is contested.

Directors should receive the notice within the period required by the bylaws. Proof of delivery should be retained, including email records, courier receipts, acknowledgment forms, or other reliable evidence.

Step Four: Establish Quorum

The secretary should verify attendance and record the directors present, absent, or participating through permitted remote communication. The meeting should not proceed to a binding vote unless the required quorum exists.

SEC-OGC Opinion No. 11-23 recognizes that corporations may define quorum requirements in their bylaws, provided the provision does not conflict with an express statutory requirement. The corporation’s bylaws must therefore be checked before determining whether the meeting may validly act.

A defective quorum may invalidate the resolution and expose the corporation and participating directors to further disputes. The minutes should state the basis for the quorum determination.

Step Five: Give the President an Opportunity to Respond

The Revised Corporation Code does not impose the same stockholder-meeting procedure for removing a corporate president as it does for removing a director. Nevertheless, allowing the president to respond to the allegations is sound corporate practice and may be required by the employment relationship, company policy, or the circumstances of the case.

The board may issue a written notice of the allegations and request a written explanation. It may also invite the president to attend the meeting, subject to the bylaws and the board’s rules on participation and voting.

The president should not vote on the resolution concerning the president’s own removal when a conflict of interest exists. The minutes should reflect whether the president participated, abstained, was excluded from deliberations, or was invited to respond.

Step Six: Adopt the Board Resolution

The resolution should clearly state whether the action is:

• removal from the office of president;
• termination of employment;
• suspension pending investigation;
• revocation of signing or management authority; or
• appointment of an acting or replacement president.

These actions are legally distinct. A resolution removing a person as president does not, by itself, remove that person as a director or terminate an employment contract unless the resolution and applicable law support those additional consequences.

The resolution should identify the vote, the directors who voted, the effective date, the authorized signatories, and the person designated to notify banks, regulators, employees, customers, and counterparties.

Step Seven: Appoint a Replacement or Acting President

The board should consider appointing an acting or replacement president in the same meeting, if permitted by the bylaws. The resolution should define the authority of the acting officer and identify whether the appointment is temporary or permanent.

The corporation should promptly update its internal records and external authorizations. These may include bank signature cards, government registrations, regulatory filings, contracts, permits, corporate websites, and notices to major clients and suppliers.

When Stockholder Action Is Required

Stockholder action is required when the objective is to remove the person as a director. Section 27 of R.A. No. 11232 requires a vote of at least two-thirds of the outstanding capital stock, at a regular meeting or a special meeting called for that purpose, after prior notice of the proposed removal.

The special meeting must be called through the procedure prescribed by law and the bylaws. A demand by stockholders holding at least a majority of the outstanding capital stock may require the secretary to call the meeting. If the secretary fails or refuses to act, the demanding stockholders may call the meeting in the manner allowed by the law.

In Bernas et al. v. Cinco et al., G.R. Nos. 163356-57, 15 September 2015, the Supreme Court held that a special stockholders’ meeting called by persons who lacked authority under the law or the bylaws was void from the beginning. Subsequent ratification by a majority of stockholders could not cure the defect.

Accordingly, a board seeking to remove a president who is also a director should not attempt to use a defective stockholders’ meeting to accomplish the director’s removal. The officer’s position may be changed by board action, but the directorship must be addressed through the statutory stockholder process.

Removal With or Without Cause

A corporate officer may generally be replaced because the board no longer has confidence in the officer’s ability to manage the corporation, provided the action is authorized and not contrary to a contract or law. The board should nevertheless state a legitimate corporate reason where the removal is contested or where the president has an employment agreement.

Removal without cause must not be used to evade statutory rights, contractual protections, minority representation, or labor standards. Under Section 27 of R.A. No. 11232, removal without cause of a director may not be used to deprive minority stockholders or members of their right to board representation.

Corporate Office Versus Employment

Removal from the corporate office of president does not automatically answer whether the person’s employment has ended. The corporation must examine the employment contract and determine whether the person is a corporate officer, an employee, or both.

If the person is a regular employee or occupies a position governed by the Labor Code, termination must comply with substantive and procedural due process. The corporation should identify a lawful authorized or just cause, provide the required notices, and observe the applicable procedure.

If the person is an elected or appointed corporate officer whose office is created by the corporation’s governing documents or by law, disputes concerning the office may fall within the jurisdiction of the regular courts rather than the labor tribunals. The characterization depends on the law, the bylaws, the appointment, and the actual relationship between the corporation and the officer.

Acts That May Create Legal Exposure

The corporation and the directors may face legal challenges when they remove a president through an improperly called meeting, disregard the bylaws, fabricate grounds, withhold required notice, or use the removal to conceal an unlawful corporate action.

Risk is also increased when the board:

• allows the president to vote despite a direct conflict of interest;
• fails to record the quorum and voting results;
• confuses removal as president with removal as director;
• announces the removal before adopting a valid resolution; or
• terminates employment without complying with applicable labor rules.

In a cooperative, a different statutory regime may apply. Article 51 of R.A. No. 6938, the Cooperative Code of the Philippines, provides that an elective officer, director, or committee member may be removed by a two-thirds vote of the voting members present and constituting a quorum at a regular or special general assembly meeting called for the purpose, after the person has been given an opportunity to be heard.

In Barrameda, et al. v. Atienza, et al., G.R. No. 129175, 23 June 2001, the Supreme Court emphasized that the internal management of a cooperative belongs to its duly constituted governing bodies and that unsupported intervention by an administrative or executive authority cannot lawfully replace the powers vested in the cooperative’s board and general assembly.

Illustrative Scenario

Assume that the president of a stock corporation enters into a major contract without board approval and transfers company funds to an account controlled by an affiliate. The board may call a meeting under the bylaws, give proper notice, establish quorum, allow the president to respond, and vote to remove the president from office.

If the president is also a director, the board may restrict the person’s authority as president and appoint a replacement, but it may not remove the person from the board through the same resolution. A separate stockholders’ meeting complying with Section 27 of R.A. No. 11232 would be required for removal as director.

Recommended Board Resolution Contents

A carefully prepared resolution should include:

• the authority under the articles, bylaws, or Revised Corporation Code;
• proof that notice was properly given;
• the directors present and the existence of quorum;
• the factual grounds or corporate reasons for the action;
• the president’s response or the opportunity given to respond;
• the exact vote and the directors who voted;
• the effective date of removal;
• the appointment and authority of the replacement; and
• the persons authorized to implement and communicate the resolution.

The minutes should be factual and restrained. Personal accusations, unnecessary commentary, and unsupported findings should be avoided because the minutes may later be examined in court, arbitration, regulatory proceedings, or an internal investigation.

Final Observations

The board may generally remove a rogue corporate president from the office of president through a valid board action, using the voting threshold prescribed by the Revised Corporation Code and the corporation’s governing documents. The usual board requirement is a quorum and the applicable majority vote, but the bylaws must be reviewed for any higher or different requirement.

The board must keep separate the removal of a corporate officer from the removal of a director. Removal from the board requires stockholder action under Section 27 of R.A. No. 11232, while termination of employment may require compliance with the Labor Code, the employment contract, and due process.

Before acting, the corporation should preserve evidence, review its governing documents, issue proper notice, allow a meaningful response, document the quorum and vote, and promptly update the company’s records and external authorities. These steps reduce the risk that the removal will later be declared invalid or treated as an improper attempt to bypass the rights of directors, stockholders, or employees.

About Nicolas and De Vega Law Offices

 Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.