• The lucky independent directors



    A NUMBER of public ownership reports (POR) do not reflect the true ownership profile of listed companies. They are submitted by listed companies to the Securities and Exchange Commission (SEC) and posted on the website of the Philippine Stock Exchange (PSE) in compliance with the market’s full disclosure rule.

    It is up to the market monitoring teams of both the SEC and the PSE to read and analyze these filings. They could, and if needed, must penalize listed companies for wrong or incomplete entries in their PORs.

    Sometimes the silence of the PSE management may be understandable, given that its shares are also listed on its own board, and it might be difficult for the public to distinguish between PSE, the market watcher, and PSE, the listed company.

    For a change that could prove drastic, the SEC and the PSE should change the requirements for POR reporting. They should require listed companies to include their issuances of voting and non-voting preferred shares in their PORs.

    By including the preferred shares in POR computations, the companies would show whether they are complying with the required 10 percent public ownership of the outstanding capital stock and not just the outstanding common shares.

    It is unfortunate that some listed companies’ PORs show public investors as holders of more than 10 percent of outstanding capital stock, or are even classified as the majority and controlling stockholders, yet do not have a representative to the board.

    Latest POR filings
    Here are three of PORs that make their public stockholders significant, if not the majority owners:

    • As of Sept. 30, iPeople Inc. had 748.933 million outstanding common shares, according to a POR filing. It listed three principal stockholders owning a combined 595.266 million iPeople common shares, or 79.482 percent. Among them, House of Investments was and remains the biggest stockholder, with 503.099 million iPeople common shares, or 67.18 percent.

    The public, according to iPeople, owned 153.145 million iPeople common shares, or 20.448 percent.

    • As of Oct. 13, MCO (Philippines) Investments Ltd. held 3.95 billion common shares, or 69.714 percent of 5.666 billion common shares in Melco Resorts and Entertainment (Philippines) Corp. Public stockholders, on the other hand, held 1.531 billion Melco common shares, or 27.021 percent.

    • Keppel Philippine Properties Inc. (KPPI) listed as of Oct. 13 three principal stockholders in its POR as holders of 235.182 million KPPI common shares, or 80.04 percent of 293.829 million KPPI common shares. It credited the public with 58.637 million KPPI common shares, or 19.956 percent.

    The three PORs show something in common: that their public stockholders owned significant numbers of common shares, which are voting shares. Yet, not even one of these three listed companies had allocated a board seat to represent the public.

    Stock options
    Insiders are definitely more privileged than the public. They buy shares at huge discount to market stock prices.

    Consider Alfredo I. Ayala, managing director at Ayala Corp. (AC). He bought 7,084 AC common shares at the 2011 ESOP (executive stock option plan) price of P274.06 per share. He also acquired 7,003 AC shares at the 2013 ESOP price of P500 per share.

    The additional acquisitions increased the number of AC common shares Ayala owned as of Oct. 11 to 186,633 shares, of which 146,786 shares he indirectly owned through ESOP.

    On Oct. 11, AC shares opened trading at P1,050, hit a high of P1,055, dropped to a low of P1,041 and closed the session at P1,052.

    Last Friday, trading in AC common shares closed at P1,071, putting Ayala ahead by P683.97, computed at his average acquisition price of P387.03 per share.

    Due Diligencer’s take
    The board of a listed company is divided between regular and independent directors. The latter should act as nominees of the public stockholders. Yet, they don’t. Instead, they go along with the moves and decisions of the majority or the families who own the business.

    In such cases, being independent is a misnomer. Its use to describe board directors is unfair to the public. Unlike public stockholders of listed companies, independent directors don’t own shares enough to get themselves elected to the board on their own.

    Besides, there is no such thing as independence inside the boardroom. An independent director should not be entitled to the same pays and perks that regular directors receive. But in reality, independent directors do; so in short, when it comes to compensation, there is no distinction between regular and independent directors. Every director gets paid his/her salary, bonus and additional incentives that are defined under “others.”

    As an independent director, he/she also becomes an insider. As an insider, he/she is also entitled to stock options that are priced below market.

    “Independence,” after all, pays much. Who says it doesn’t? Just asking.



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