Public investors must assert their right to a board seat


Emeterio Sd. Perez

OUTSIDE the families who control Big Business in this country are the public investors who trade on listed stocks. Yes, the rich and the very rich own what should have been classified as public companies, but which, in reality, are not public. Being the owners of these companies, the rich and the very rich deprive the public who hold shares in these companies listed on the Philippine Stock Exchange (PSE) their right to a board seat.

Are the top officials of the Securities and Exchange Commission (SEC), particularly the agency’s five-person regulatory body, afraid to antagonize the controlling stockholders of the listed companies?

The public investors should have asked SEC Chairperson Teresita Herbosa why she and her fellow commissioners deny the public stockholders of listed companies their right to elect their own representative to the board. Is it because she had inherited the practice from her predecessors?

The recent policy enunciated by the SEC increased the required minimum public ownership of listed companies to 20 percent from 10 percent of outstanding shares “that are freely available and tradable in the market and are non-strategic in nature, or those not meant for the purpose of gaining substantial influence on how the company is being managed.”

From 10% to 20%

Was it only a coincidence that SEC Memorandum Circular No. 13, which on Nov. 28, 2017 Herbosa signed as the chairperson of the SEC’s five-person commission, did not provide for the allocation of at least a board seat for the public?

The circular increased the public float to 20 percent from 10 percent of “outstanding shares” but limited such allocations to shares that “are freely available and tradable in the market… What could Herbosa mean by said provision of the minimum public ownership rule? Was she referring only to listed shares, whether common or preferred, as long as they are “freely available and tradable in the market”?

Do the quotations cover only listed shares?

If Herbosa is really serious in making listed companies also public, she should have said so in her circular. The problem is, she did not, apparently forgetting the significant role played by the public investors in enabling family-owned companies to get their common shares listed on the PSE.

Haven’t the public investors been solely responsible for saving so much corporate fund for the listed companies when those companies issue common shares to themselves?

A non-listed company pays 25 percent of the market value of their common stocks when issuing them to the members of their families. A listed company pays only 1/2 of one percent of the common stock’s market value.

No SEC protection?

Public investors could never expect the SEC officials to protect them from company insiders who also control the board. They should not also rely on Herbosa and company for help if they ever feel aggrieved and are taken for
granted or taken advantage of by the majority owners.

In the first place, as public stockholders of listed companies, they should have asked the SEC how they lost their pre-emptive rights over the issue of additional common shares by listed companies.

Of course, being public investors, they may even be blamed for allowing themselves to be denied of their right to buy additional shares every time such shares are issued by the listed companies they partly own. The question that remains to be asked is not why but how they, as public stockholders, been deprived of their pre-emptive rights over the additional sale of shares?

Why blame the public?

The answer should have come from the same public stockholders, who have chosen to remain passive stockholders. For a change, which could be radical, they – meaning the public – should and must become active stockholders. Being active does not necessarily mean becoming the activist stockholders who question every management’s prerogative in charting the growth of listed companies.

Due Diligencer’s take

The SEC’s priority should not have been to increase the minimum public ownership to 20 percent. Instead, it should have reviewed the compliance of listed companies with the present public float of at least 10 percent. The five-person commission could have asked the public the reason why they have not been electing their own representative to the board.

Is it because the seats that belong to the public stockholders have been given away by the majority to the so-called independent directors? If that is so, then it is up to the SEC to think of ways to abolish their selection.

After all, independent directors are independent only in name. If they do what they are tasked or supposed to do in the boardroom, it is certain they would face the risk of ostracism, if not outright expulsion from the board.
After all, there is no such thing as independence inside the boardroom. Is there? Just asking.


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