Stock options are for owners only



A PUBLIC ownership report (POR) is supposed to inform the public about the ownership profiles of listed companies. For the report to be informative, it should show the composition of the company’s capital stock to the public.

According to existing practice, a POR is limited to common shares. In a few instances, the public appears to be the majority stockholders of listed companies.

Of course, investors outside of the families who own the business are never and will never be the controlling stockholders. Never would the controlling majority allow outsiders, much less the public stockholders, to meddle in the management of their listed companies.

But if the public investors are allowed to gain at least a directorship, they can provide the much-needed check and balance sorely missing in most listed companies.

The public may also suggest that POR be not limited to common shares but should cover other classes of stocks, whether listed or not listed.

In using “listed or not listed,” Due Diligencer refers to preferred shares, and public investors may only hold the non-voting class.

Independent directors
Company insiders never allow even a semblance of freedom for their anointed independent directors (ID).

Who among these directors would dare contradict the majority when it’s these owners who appointed them to their posts? Should any of them try to intervene in any of the proposals or propositions decided by the majority, he/she would certainly be causing his/her own ouster from the board.

What are independent directors for if not as consultants to the business owners? If they don’t function as such, how can they receive the same kind of compensation as regular directors get? A few of them even enjoy additional perks such as stock options.

Try surfing, from which you could find controversies surrounding the independent directors’ entitlement to stock options. How and why officials of the Securities and Exchange Commission (SEC) failed to take a more assertive stand against these directors availing themselves of stock options should prompt the public to become active stockholders, instead of remaining the passive investors they are perceived to be.

Stock options
Should independent directors enjoy what public stockholders of listed companies have been long denied by the board of listed companies?

While independent directors subscribe to stock options, and some of them pay less than the stock’s market price, the public on the other hand, are deprived of the same right that they truly deserve. Without the public investors, listed companies would not be able to issue additional shares to the majority stockholders.

Seldom do listed companies, if ever, include the public among the buyers of voting preferred shares that are mostly reserved for the majority stockholders. How and why SEC officials tolerate this is beyond Due Diligencer’s comprehension.

It would be better if someone would challenge the SEC’s powers over the listed companies, so that commission officials would appreciate the public as partners of business owners in listed companies.

As securities regulators, SEC officials should understand how to strike a balance between the interest of the public and that of the majority stockholders of listed companies. The question is, why do they, as regulatory authorities, deal strictly only with stockbrokers who are among the market trading participants. How about the business owners?

Due Diligencer’s take
Why are public stockholders of listed companies issued only non-voting preferred shares that get listed on the Philippine Stock Exchange?

This is the poser that SEC officials and their market monitoring teams should answer. Will they?

Why do listed companies limit the coverage of PORs to common shares? Again, only SEC officials hold the answer.

To the first, Due Diligencer could only make a guess: Non-voting preferred shares are issued to the public to prevent the dilution of the majority stockholders’ control over their own business. Had listed companies allowed their public stockholders to buy additional voting preferred shares, they would have created a check and balance inside the boardrooms.

To the second poser, Due Diligencer could also speculate only on the reason for POR’s limitation to common shares: Listed companies want outsiders – the neutral observers – to perceive their public stockholders also as significant stockholders who control as much as 40 to 60 percent of the listed shares.

Why not make independent directors regular members of the board by including them among the nominees of the majority owners? Whatever happened to stockholders’ preemptive rights? Just asking.


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