• Directors’ votes in board meetings should be disclosed


    Emeterio Sd. Perez

    IF public investors read the entries posted by listed companies on the website of the Philippine Stock Exchange, they will find only the number of issued shares, outstanding shares and listed shares. Some listed companies may have more issued than outstanding shares, which may not all be listed.

    Aboitiz Power Corp. (APC), for example, reported a total of 7,358,604,307 shares as issued, outstanding and listed. This may not be true of other listed companies whose outstanding shares may be less than their issued shares because of a share buyback.

    The public may ask Aboitiz Power the class of shares it had reported as having been issued, listed and outstanding. They may find the information in the company’s entry after “issue type,” which is “common.”
    Doesn’t Aboitiz Power, or APC for short, have other classes of shares in its capital stock?

    For the information of the public investors, they will find the composition of APC’s capital stock in the general information sheet (GIS) submitted by Aboitiz Power to the Securities and Exchange Commission.

    Non-voting preferred shares

    In an earlier Due Diligencer, I wrote about preferred shares issued by listed companies. In it, I posed the question why public investors have been denied ownership of voting preferred shares. In some cases, the majority stockholders of listed companies share their ownership of preferred shares with the public stockholders. The irony in this kind of generosity is that the owners, who are mostly families, limit their public stockholders to non-voting preferred shares.

    Incidentally, a reader of The Manila Times posted a comment on Due Diligencer’s “Mermac and Mitsubishi hold 96.109% of AC voting preferred shares.” Identifying himself as Amnata Pundit, he wrote on Jan. 27, 2016: “As for your position that preferred shares are liabilities, the yields are fixed and guaranteed but they are expenses like light and water, but the shares [are]not redeemable on maturity like bonds so there is no effect on the balance sheet.

    “If there are voting rights—and this is the first time I heard of preferred shares with voting rights by the way—and there is failure to meet the dividends/yields, then theoretically the injured parties can take over the company.

    “But the Ayalas are the preferred shareholders, so obviously they cannot/will not oust themselves. Perhaps this is the angle that needs serious study to find out if this arrangement is fair.”

    Voting rights

    Listed companies issue only non-voting preferred shares to the public investors and continue to do so because of the tolerance of the SEC and PSE. Besides, who among the public investors care about voting rights by owning voting preferred shares when most of them are in the market for dividends?

    Will the public investors prefer voting preferred shares that pay less dividend to non-voting preferred shares, which may make them earn more, say 5.5 percent per annum?

    The public investors have a choice between voting rights and dividends. If they would go for voting rights, then they have to fight it out with the majority stockholders by filing their complaints with the SEC.

    The question is, will SEC officials listen? Their possible response to the public investors, who would dare question the monopoly of voting preferred shares by the majority owners, is for them to go to court. At any rate, the SEC had lost its jurisdiction over stockholders’ squabbles to regular courts so designated by the Supreme Court.

    By the way, since preferred shares are liabilities, why should their fixed dividends be sourced from unrestricted retained earnings?

    The options

    As a possible option, the public investors should analyze the membership of the boards of listed companies. If the public ownership reports say the majority stockholders control only 51 percent of common shares, they should ask if this majority ownership entitles the owner or owners to the election of ALL directors.

    A majority control of 51 percent is obviously not 100 percent. Yet, both the SEC and PSE tolerate the owners’ election of the entire board and the appointment and selection of independent directors.

    Another option is for the public investors who end up stockholders of listed companies to file a test case in court questioning the board membership of independent directors. As their description suggests, they must be independent of the majority. Are they?

    How can two or three directors be independent when they are nominated by insiders and assume their board membership when they are accepted by the majority stockholders? What a paradox!

    Finally, listed companies should be required to report not only the agenda of a board meeting but the results of such meeting.

    “Results” as used here, mean the disclosure of the votes of each director, including independent directors, on the agenda taken up inside the boardroom. This would make listed companies more transparent. Wouldn’t it? Just asking.



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