• SEC ‘abandons’ own rule

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    Emeterio Sd. Perez

    Emeterio Sd. Perez

    A RULING issued by the Securities and Exchange Commission (SEC) favoring former Chief Justice Artemio Panganiban may be the best argument against the continued appointment of independent directors to the boards of listed companies.

    In SEC en banc Case No. 08-11-242, SEC Chairperson Teresita Herbosa and commissioners Manuel Huberto Gaite and Eladio Jala allowed Panganiban to avail of the executive stock option plans of Metro Pacific Investments Corp. (MPIC).

    SEC Commissioner Raul J. Palabrica dissented against the majority ruling while SEC Commissioner Ma. Juanita Cueto “took no part” in the decision.

    In reversing the SEC’s department ruling, Herbosa, Gaite and Jala voided in July 2012 the commission’s own policy prohibiting “independent directors from participating in employee or executive stock option plans of related companies.” No problem with this policy, which they ruled “is hereby abandoned.”

    For the sake of a former chief justice, they went on: “Let the standing policy be that embodied in SEC Resolution No. 296 allowing the participation of independent directors in the executive or employee stock option or stock ownership plans, subject to the limitations imposed by law and regulations.”

    Incidentally, Herbosa, Gaite and Jala virtually saw no logic in their own CFD’s ruling against Panganiban’s subscription to MPIC’s stock option plans.

    Here is what the CFD said: “The independence and objectivity of an independent director may be compromised by expectation of economic reward/benefit because it is the Board that initially determines the award of stock option plans and as a result, the independent director would have an attachment or feel beholden to the management of the corporation if he was granted stock options.”

    Instead, Herbosa and company appeared to have agreed with Panganiban that there is no “tangible difference between independent and non-independent director,” and ignored the reasoning of the commission’s CFD.

    The CFD’s well-researched ruling cited the following justifications why independent directors should not be granted stock options:

    “[a]Independent directors are supposed to be watchdogs of stockholders and of the larger public by bringing an objective and detached view to the board room and providing an independent check on management;

    “[b]their primary focus is on good governance and not on having pecuniary/ownership interest in the corporation; and

    “[c]they must be independent from management in fact and perception by the public.”

    Of course, Herbosa, Gaite and Jala would have none of their CFD’s definition of the duties of independent directors. To them, a listed company performs better when independent directors are as well compensated as their regular counterparts. If this is not “conflict of interest,” then what could this be? Only the SEC’s top three regulators know the answer.

    By the way, allowing Panganiban and other independent directors of all listed companies to avail of stock options of covered companies would make them not independent but nominees of the majority or controlling stockholders. There is no change of loyalty here because many, if not all, independent directors have never fought for the investing public but are beholden to the majority owners who pay them well.

    Perhaps, the SEC chairperson and the two commissioners who agreed with her did not know that their ruling would make Panganiban no longer an independent director but a nominee of the Indonesian-owned First Pacific Co. Ltd., which is the majority stockholder of Metro Pacific and its units.

    esdperez@gmail.com

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