No independence inside the boardroom


Emeterio Sd. Perez

A COMPANY is deemed listed when its common shares are listed on the Philippine Stock Exchange (PSE). However, it may not necessarily be classified as public, because being public is much broader than simply being listed.

It is only the public ownership report (POR) that shows, for instance, that a family-owned business is “more public” than others. However, this occurs only in PSE filings.

As has often been explained here, most of the companies whose common shares are listed are not public. That is because in the first place, their owners would never allow outsiders to peek into what happens in the boardroom.

Has anyone among the public stockholders of listed companies ever had a board seat? This is a poser that company insiders who are either the majority stockholders or members of the management would refuse to answer.

The question is simple, but to which there would be no response. Are public stockholders not considered partners in the business, but only as a source of funds, or worse, as meddlers who should not be allowed to take a peek into the majority owners’ boardroom decisions and activities?

Board seat

It seems public stockholders are being used as a management tool to make certain listed companies look public.

For public investors to know where they really stand, they should review their holdings. Is their ownership of common shares enough to land them at least a board seat? If the answer is yes, they should unite and elect one of them to the board.

If they own a combined 44.14 percent of outstanding common shares, as reported by Metro Pacific Investment Corp. (MPIC) in one public POR, they should be entitled to at least six nominees to the 15-person board.

Of course, public stockholders will never get to elect anyone among them as director because MPIC will never let them. As a listed holding company, it serves as the investment arm of the Indonesian-owned First Pacific Co. Ltd.

Hasn’t anyone studied the layers of ownerships of Metro Pacific and how the company ended up being owned by a group of Filipino nominees led by Manuel V. Pangilinan?

Abolish IDs

Again, the question here is why listed companies prefer independent directors to a nominee, or nominees, of their public stockholders? As appointees of the majority stockholders, the former would not oppose any of the suggestions of company insiders. This is THE reality among listed companies that are not and would never be public at all.

Why not abolish the designation of independent directors? After all, they are independent only in name. Will any of them oppose or contradict the owners’ proposal to increase these directors’ compensation? Definitely not.

Here is a solution: As the country’s securities regulator, with jurisdiction over PSE-listed companies, SEC officials should consider making independent directors regular nominees of the majority. Their seats should be allotted to the public stockholders.

After all, certain listed companies make it appear they are “more public” than others. If they are as they portray themselves to be in their PORs, they should tell the public how independent directors perform inside the boardrooms.

Due Diligencer’s take

Are independent directors indispensable as members of the board of listed companies? If so, then by all means, they should stay.

However, since such directors are appointed by the owners, they become regular members of the board. As nominees of the majority, they should be categorized as such and not as independent members of the board.
In this country, there is no such thing as “independence” even among legislators. It is only in schools that pupils are taught about the three branches of government such as the Executive, the Legislative and the Judiciary being independent of one another.

Yes, it is only in textbooks that independence by the three branches of government exists. The same is true with independent directors, who are independent only by name but are never truly independent. If they are, or if they even show a semblance of independence, their term would end as soon as possible.

As directors, independent directors or IDs could join the list of nominees picked by the majority. As nominees, they are qualified to serve as legal consultants to the board of directors and the listed company as a whole. Any question of law that may arise, either inside the boardroom or the company itself, could and should be resolved by an ID, who receives the same pay and perks as regular members of the board.

Another thing, wouldn’t it be possible to require listed companies to inform their public investors of the important matters taken up by their board of directors by posting them on the PSE website to make the companies not necessarily public but transparent? Just asking.


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