• Voting preferred shares for public stockholders

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    EMETERIO SD. PEREZ

    EMETERIO SD. PEREZ

    WHO will review the rules on public ownership in listed companies? Should this be undertaken by the Philippine Stock Exchange or the Securities and Exchange Commission? These two questions may not be difficult to answer but are probably being taken for granted by their market monitoring teams — if they have any.

    WHO will review the rules on public ownership in listed companies? Should this be undertaken by the Philippine Stock Exchange or the Securities and Exchange Commission? These two questions may not be difficult to answer but are probably being taken for granted by their market monitoring teams—if they have any.

    Out of delicadeza, PSE should not be expected to undertake such task given the fact that its shares are also listed. As for the SEC, why not? As a regulatory agency, it could and should, as long as the PSE would cooperate with it in providing the data needed to review the ownership of listed companies.

    At this point, though, it may be important for the SEC—to the point of being repetitive—to re-study the definition of the 60-40-percent ownership ratio stated by the Supreme Court in the Gamboa case. Will the ownership computation be 60-percent minimum and 40-percent maximum ownership for Filipinos and foreigners, respectively? Although this was the gist of the SC ruling, the SEC decided to ignore it and appears to be very accommodating of family-owned businesses.

    60-40% of what?
    It won’t be easy for listed companies to comply with the Supreme Court ruling for various reasons. One would be the difficulty of assigning too many preferred shares to non-entities such as a trust fund, which may not even be legally registered as a stock corporation with the SEC.

    Even the use of a trust fund as a conduit for holding shares may be questionable when it allows the majority to vote them to control board. This had happened and is bound to happen again as long as no one asks the high court to clarify its ruling in the Gamboa-PLDT ownership issue.

    Should the SEC continue to tolerate the issuance of preferred shares as in the case of PLDT, then it would be frustrating the public, which expects neutrality from a regulatory agency that the SEC is.

    As a matter of fact, the SC’s interpretation of 60-40-percent ownership ratio in favor of Filipinos, should stop listed companies from issuing preferred shares in compliance with the 60-40 percent division of ownership between Filipinos and foreigners.

    Common shares only
    Question: Why is the issuance of preferred shares becoming a more common practice among listed companies?

    Answer: Issuing preferred shares is one way of going around the 10-percent minimum public ownership rule.

    Both the SEC and PSE tolerate the computation of the minimum public ownership based only on outstanding common shares. This tolerance must be the only reason for the regular posting of public ownership reports on the PSE website.

    Why only common shares for the public? If the rule says so, then it should be amended to stop the dilution of the public stockholders’ voting rights. Incidentally if granted the right to own voting preferred shares, the public may even be able to elect one among themselves to the board of any listed company.

    Of course, the majority owners fear the presence of outsiders in the board of their companies. After all, they own and control these companies and the public has no business interfering in how they manage them and in knowing their secrets.

    No preemptive rights
    Depriving the public of preemptive rights over the additional issuances of common shares should not have been happening had the SEC not allowed the practice. Being the regulatory authority, the commission is totally ignoring the right of the public, and is catering mostly to the whims of business owners.

    The SEC may have lost some of its functions to regular courts but should not take this against the public. Instead, it should consider it a blessing in disguise because it can now focus on monitoring the activities of listed companies.

    By strictly enforcing the policy on full transparency, the SEC would be able to discover its own shortcomings. It is up to its officials to discover the agency’s own faults and not wait for the public to expose them.

    It is about time for the SEC to pay more attention to the right of the public as investors who trade on listed stocks. Without them, there would be no stock market to speak of and no PSE for the commission to regulate.

    esdperez@gmail.com

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