Hidden holdings

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Emeterio Sd. Perez

ARE all listed companies compliant with the 10-percent minimum public ownership rule (MPO)?

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The question is addressed to the Securities and Exchange Commission (SEC), which may want to review the ownership profiles of listed companies before its five-person commission even considers any plan to raise the minimum number of shares that the public should own.

The SEC may want to explain why the holdings of the public stockholders do not translate to memberships in the board of directors. The majority stockholders of listed companies prefer to give board seats to independent directors than allow outsiders to elect among themselves their board nominees, and therefore a peek into their businesses.

At the same time, the SEC may also consider rating the performance of today’s independent directors. How independent are these board members who get the same compensation that the owners pay their nominees?

Full disclosure
The SEC may opt to require the full disclosure of the beneficial owners of the holdings attributed to PCD Nominee Corp., which holds shares only as record stockholder.

It is the responsibility of the SEC’s market watchers to see to it that listed companies follow the 10-percent MPO rule. The only question that begs for an answer is: Do listed companies really allocate at least 10 percent of their outstanding capital stock to the public?

In other words, as Due Diligencer is repeating for emphasis the poser in the first paragraph: do listed companies comply with the MPO rule? As the regulatory authority, only the SEC can provide the answer. If the public really owns at least 10 percent of outstanding common shares, they should be entitled to at least a seat in the board.

Ironically, most holding companies maintain seven-person boards for obvious reason. With that number of directors, how can public stockholders elect even one director?

Apparently, the SEC’s tolerance enables certain holding companies to have only seven directors, of which one or two are independent but anointed by the owners.

Detailed holdings
The public cannot rely on the SEC for protection. They should know that the five-person commission lost in 2001 under an amended law most of its regulatory powers to regular courts.

Nevertheless, the public, who are also stockholders of listed companies, are perceived to be in the market only for dividends. This perception can change.

By turning themselves into active stockholders, the public investors can assert their right by asking the owners what they want to ask and not wait to be told only what the majority stockholders want them to know. Limiting the information to what should be disclosed should be taken as a serious violation of the full disclosure rule.

If only the SEC would strictly implement the full disclosure rule, its officials would learn that public stockholders have been used to depending on filings with the Philippine Stock Exchange (PSE) for much of the information about listed stocks. What about off-the-record statements made by majority stockholders inside the boardrooms?

Due Diligencer’s take
Public investors should not be taken for granted by either the SEC or PSE. Instead, they should be recognized for their important role in making companies public even if only a few of the listed shares are traded daily.

As a regulatory body, the SEC may have found itself powerless in imposing the 10-percent MPO because its top officials may not have been actively encouraging the public to become active stockholders. As the market’s regulatory body, the five-person commission should have come out by now with findings on which among the listed companies are not compliant with the 10-percent MPO rule.

Will it be difficult for the SEC to identify for the public who among the significant stockholders, whose holdings are held by PCD Nominee, are allies of the owners? After all, the commission maintains company files that are easily within reach of the five commissioners, including the chairman.

It is within the power of the SEC’s five-person regulatory body to require listed companies to explain why some of them portray the public as significant stockholders in their public ownership reports (POR).

Can’t anything be worse than a POR that makes the public the majority stockholders of certain listed companies without board representation? Just asking.

esdperes@gmail.com

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