Full disclosure



PUBLIC investors who buy and sell listed stocks on the exchange should be made to understand that being outsiders, they will never get even a hint on whatever the majority owners of the company in which they hold shares are cooking “inside the boardroom.” It is up to the public stockholders to dissect every company disclosure that affects their ownership of listed common shares sold to them by the business owners.

“Inside the boardroom” refers to the familiarity of business owners to all disclosures that are posted on the website of the Philippine Stock Exchange (PSE). If the public took time to study each filing more closely, they would notice that lawyers are primarily tasked to sign and submit most of these filings to the Securities and Exchange Commission (SEC) and the PSE.

Why lawyers? The owners of listed companies need their legal knowledge on anything corporate.

(Note: Not corporate lawyers, please, because the modifier would bring us to “criminal lawyers” who may not be involved at all in any criminal activity.)

The SEC taps the services of lawyers who practice their craft on Articles of Incorporation and Articles of By-laws filed either by new or stock corporations and partnerships. They are also assigned to review company charters for amendments or changes

This shows the public why listed companies are required to follow the full disclosure rule. However, the same rule, as implemented by the SEC, is being questioned by San Miguel Corp. (SMC).

SMC vs SEC? Why not?

It would be better for the public investors to wait for the ruling of the appropriate courts, which would probably define full disclosure. Without taking up any of the possible issues that SMC may ask, say the Supreme Court, Due Diligencer is assessing the need to revamp the full disclosure rule that governs listed companies.

What is this rule all about? Would disclosing information about what had been taken up by the board be enough compliance with it?

This brings ‘Due Disclosure’ to the topic. If a listed company has been disclosing—even if piece by piece—the results of board meetings, including acquisitions and mergers, should the SEC treat such filings as total or partial compliance with the full disclosure rule?

What could be more important to public investors than knowing what a listed company has been discussing inside the boardroom? Requiring the disclosure of the meeting’s agenda and the action/s taken by the directors is a must under the full disclosure rule.

Public interest
Is the interest of the public investors better served when a listed company files “statement of changes in beneficial ownerships”?

Public investors have their own interest to protect while the SEC exercises the power to regulate listed companies despite the PSE’s self-regulatory organization (SRO) status. They would be eagerly waiting for the legal issues that would be ventilated by SMC and how the SEC would respond to them.

A court case would be good for the public. It would enhance an investor’s knowledge of the full disclosure and a listed company’s compliance with it.

More importantly, however, a court ruling would tell the public when a full disclosure takes effect. Will it be on a follow-up filing or on earlier disclosures, which are finally summed up only by “statement of changes in beneficial ownerships”?

Public investors may be looking forward to SMC vs SEC, and vice versa. The legal battle between a listed company and a regulatory authority is worth even a long wait.

Due Diligencer’s take
Public investors may notice the omission of facts from this piece as to what SEC requires that SMC had failed to disclose.

That omission is intentional. Let SMC file a suit first, and let the SEC answer. Theirs would be an interesting court fight because it would enlighten the public, including Due Diligencer, on the meaning of full disclosure.

Here are some questions: What is partial or full compliance? Does “partial” mean allowing piece-by-piece disclosure as bits of information become available? Does the rule allow the summation of all disclosures into a “statement of changes in beneficial ownerships”?

Incidentally, the SEC may not know that it has been failing the public investors. Whether it either forgets or ignores the right of investors to information is not one for Due Diligencer to judge.

For example, if an insider who happens to be a significant stockholder of a listed company sells shares, he/she is named. How about the buyer? Whoever buys him/her out is seldom identified.

The reverse is also true. Why is an insider who buys a big block of listed shares identified but not the lone seller? Just asking.



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