• Stockbrokers should be allowed to sit in the board

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    Emeterio Sd. Perez

    Emeterio Sd. Perez

    HAVE the public investors ever wondered why they are not represented in the board of listed companies, when as a group they own enough number of shares to elect one of their own?

    The public as used here should also include the stockbrokers who, however, are not qualified to run for director even if they hold, either as record stockholders or direct owners, significant block of shares because of the disqualification imposed on them by the Securities and Exchange Commission (SEC).

    The reason: Why should they who trade on listed shares be allowed to sit in the board? As directors, they become insiders who would be privy to information that they could use to their advantage in buying and selling shares.

    To say the least, the regulatory justification is flimsy.

    * * *

    If stockbrokers are disqualified from getting elected directors for fear of SEC officials that they might engage in insider trading, why not impose the same rule on company executives and independent directors?

    The rule is so vague that it promotes double standard of justice.

    In the first place, independent directors are never qualified for election because in most listed companies they hold only qualifying share. Election is a numbers game and owning one definitely won’t elect one a director.

    But because they are nominated by the majority stockholders, independent directors get elected and enjoy corporate generosity which they receive in the form of compensation. In not a few public companies, the pays and perks come in few million pesos.

    Perhaps, it’s about time to change the rule. Changing it, however, depends on SEC Chairperson Teresita Herbosa and the agency’s four commissioners. Should they find it worthwhile to review it, then they could hold public consultation on it.

    * * *

    The public investors may even look to stockbrokers as their representatives inside the boardrooms. On the contrary, independent directors are not in the board to fight for them because they would not dare antagonize the controlling stockholders who invited them.

    Insider trading has assumed a bad connotation when it should not be. Duediligencer has been using “insiders’ trades” in reporting the acquisitions and sales of shares of executives based on Philippine Stock Exchange postings. It even compared the prices on the day an executive either sold or bought shares with the following session, not to expose them to SEC watchers for possible use of inside information but to determine if they were doing the right trades.

    Here are some posers for SEC officials: Who do the trades for company insiders? Is it not the brokers? If the brokers follow their clients’ trades, would they be violating any rule?

    If the public and brokers are not represented in the board of listed companies, blame this on the majority and the SEC. The latter has failed the public as far as protecting their interest is concerned.

    * * *

    Consider this: A majority stockholder who owns more than 50 percent could control the board by electing all his or her nominees. What happens to the rest of the stockholders? There could be public stockholders, who are the minority, do not care at all because they are in the market to earn a little more than what banks pay savings accounts, which is 0.25 percent a year.

    A concrete example is the recent takeover by businessman Andrew Tan of Touch Solutions Inc. (TSI) to enable his liquor brand to list its shares. Through a corporate vehicle, he acquired 43.2 million TSI shares, or more or less 70 percent of outstanding, from various significant stockholders.

    The rule required him to buy out the remaining stockholders who are the public but who rejected his offer of P6.48 per share. Who would sell at such a low price when TSI has even hit a high of P15.68 per share? Besides, after Tan’s acquisition, TSI sold 6.05 million shares at P14.18 each to two foreigners for a premium P7.70 per share over acquisition price. The deal grossed P85.99 million.

    When the members of the old board resigned to give way to the new owners, the Tan group, who controls 70 percent, elected their replacements. The filing did not say whether the owners of 30 percent were even asked for their nominees.

    esdperez@yahoo.com

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