• Defining 10% minimum public ownership



    In my last Due Diligencer column in 2015, which appeared on Dec. 30, I wrote a brief ownership profile of five listed companies, which by the definition of the Securities and Exchange Commission are also deemed public. These are Ayala Corp., Philippine Long Distance Telephone Corp., SM Investments Corp., JG Summit Holdings Inc. and Aboitiz Equity Ventures Inc.

    The selection is not intended to pick on these five companies. Rather, the presentation of their ownership profiles could hopefully lead to the definition by the SEC and the Philippine Stock Exchange of the 10-percent minimum public ownership rule and the extent or limit of its coverage.

    In short, both the SEC and PSE are tasked to fully inform about the implication and interpretation of the rule of ownership. What, for example, does “free float” mean? Does it suggest public ownership, which, judging by the numbers, would be too big for investors to even imagine they would be holding?

    60% of what?
    If you are among the public, read the public ownership reports (POR) that listed companies report as regular filings. Do you believe the percentages that they attribute as public ownership, which in some cases even top 60 percent? This is simply incredible.

    Because only insiders of listed companies have access to the boards, it is time for the SEC to come out with a regulatory definition of the word “public”. When it does, its definition should anticipate all the issues that may be raised surrounding public ownership.

    Is 10-percent minimum public ownership enough for listed companies to also qualify to become public?

    As Finance Secretary Cesar Purisima has suggested, public participation in the ownership of the capital stock of a listed company should be reflected in the composition of the board.

    Equal pay for equal work
    Take a look at the boards of listed companies and you will find that independent directors, who hold only qualifying shares, are much luckier than stockbrokers because their appointment by the owners entitles them to the same compensation that only legitimate directors are entitled to receive. To them applies the equal-pay-for-equal work policy.

    Stockbrokers, who hold shares for their clients, many of them public investors, are disqualified from board membership for alleged conflict of interest. Really? How about the majority stockholders who are insiders? Why are they allowed to even control the board and at the same time tolerated in trading the shares they hold in their own company?

    Conflict of interest? Will SEC Chairperson Teresita Herbosa define the phrase for the public? After all, it was under her watch when the five-person commission “abandoned” an old SEC policy prohibiting independent directors from availing themselves of a company’s employees’ stock options.

    Reversed by Herbosa and company was the decision of the SEC’s Corporation Finance Department “to deny MPIC’s request to reconsider its position barring independent directors from receiving or accepting stock options under the ESOP, prompting MPIC to cancel the stock option offers” to independent directors including former Chief Justice Artemio Panganiban.

    The four-letter acronym stands for Metro Pacific Investments Corp., which is the listed flagship owned by the Salim group of Indonesia.

    Non-independent directors
    In ruling for Panganiban, Herbosa and the SEC’s three other commissioners virtually killed whatever was left of the independence of independent directors. To them, “prohibiting stock option plans to independent directors is discriminatory as there is no real and tangible difference between an independent director and a non-independent director.”

    The quotation actually belongs to Panganiban. Herbosa, SEC commissioners Ma. Juanita E. Cueto, Manuel Huberto B. Gaite and Eladio M. Jala adopted said argument in voiding SEC Resolution No. 452, series of 2007.

    Resolution No. 452 spelled out the SEC’s policy in making independent directors truly independent but which the SEC en banc “abandoned” to favor Panganiban. In turn, Herbosa and company replaced it with SEC Resolution No. 296, which effectively made independent directors subservient to and nominees of the owners of listed companies.

    The SEC’s ruling posted on the SEC website showed a lone dissenter to the majority decision. He was Commissioner Raul J. Palabrica, who left the SEC when his seven-year term expired in 2012. He was appointed by former President Gloria Macapagal-Arroyo in 2005.



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