The majority’s power over independent directors

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Emeterio Sd. Perez

Emeterio Sd. Perez

THE battle for proxies in the election of members of the board of listed companies is long gone. In the absence of an intense fight for a board seat, majority stockholders simply choose more nominees than their holdings would allow them to vote.

If, say, a group or family owns 51 percent to 60 percent of the outstanding voting shares, they could boost their majority control by exercising their power to nominate the independent directors and eventually “appoint” them. In effect, the power of the majority stockholders over the “selection” of independent directors should make the description of listed companies as also public a misnomer.

As an insider at the Philippine Stock Exchange who heads a group of companies told Due Diligencer, the 10-percent minimum public ownership rule is, more often than not, easily ignored while officials and examiners of the Securities and Exchange Commission are not looking.

If you are among the public, you should know if you have not been told that you own more shares in a listed company than an independent director. Yet, while the latter enjoys the pay and perks of a regular member of the board, you have to contend with the very small dividends that come in the form of either cash or stock.


Just imagine an independent director who owns only a nominal amount of shares to qualify him or her to a board seat receiving P1.20 million in basic pay a year when you don’t even know how he or she actually performs inside the boardroom. In the past, have you been informed if an independent director ever acted independently for the public?

Gone are the days when public stockholders knew why a director got elected. He was either one of the nominees of the majority stockholders or that of the minority. For instance, businessman Eduardo Cojuangco Jr. used to elect his nominees to the board of San Miguel Corp. until he sold his holdings a few years ago. So did the Social Security System and the Government Service Insurance System. From this ownership profile alone, the public knew that a nominee got elected as director by the shareholdings that were voted in his or her favor.

Today, you don’t have any clue anymore why the majority stockholders count the votes only for their nominees who include the independent directors. Suddenly, the minority seats are gone, replaced by nominal shareholders in the guise of independent nominees but who in reality belong to the majority group.

Due Diligencer need not cite any specific examples now to illustrate how the public investors have been taken for granted in the election of the members of the board of listed companies. But in a future piece, this writer will show why independent directors are never independent based on an opinion expressed no less by the SEC.

It is even worse when the SEC and the Philippine Stock Exchange do not see anything wrong with the institution of the “selection” of independent directors who are better categorized as nominees of the majority or controlling stockholders. After all, the owners decide their “appointment” to the board, or their “rejection.”

esdperez@gmail.com

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