Di­rec­tors’ votes in board meet­ings should be dis­closed

Manila Times - - FRONT PAGE - BY EMETERIO Sd. PEREZ

IF pub­lic in­vestors read the en­tries posted by listed com­pa­nies on the web­site of the Philip­pine Stock Ex­change, they will find only the num­ber of is­sued shares, out­stand­ing shares and listed shares. Some listed com­pa­nies may have more is­sued than out­stand­ing shares, which may not all be listed.

Aboitiz Power Corp. ( APC), for ex­am­ple, re- ported a to­tal of 7,358,604,307 shares as is­sued, out­stand­ing and listed. This may not be true of other listed com­pa­nies whose out­stand­ing shares may be less than their is­sued shares be­cause of a share buy­back.

The pub­lic may ask Aboitiz Power the class of shares it had re­ported as hav­ing been is­sued, listed in the com­pany’s en­try af­ter “is­sue type,” which is “com­mon.”

Doesn’t Aboitiz Power, or APC for short, have other classes of shares in its cap­i­tal stock?

For the in­for­ma­tion of the pub­lic in­vestors, they gen­eral in­for­ma­tion sheet (GIS) sub­mit­ted by Aboitiz Power to the Se­cu­ri­ties and Ex­change Com­mis­sion.

Non-vot­ing pre­ferred shares

In an ear­lier Due Dili­gencer, I wrote about pre­ferred shares is­sued by listed com­pa­nies. In it, I posed the ques­tion why pub­lic in­vestors have been de­nied own­er­ship of vot­ing pre­ferred shares. In some cases, the ma­jor­ity stock­hold­ers of listed com­pa­nies share their own­er­ship of pre­ferred shares with the pub­lic stock­hold­ers. The irony in this kind of gen­eros­ity is that the own­ers, who are mostly fam­i­lies, limit their pub­lic stock­hold­ers to non-vot­ing pre­ferred shares.

In­ci­den­tally, a reader of TheMani­laTimes posted a com­ment on Due Dili­gencer’s “Mer­mac and Mit­subishi hold 96.109% of AC vot­ing pre­ferred shares.” Iden­ti­fy­ing him­self as Am­nata Pun­dit, he wrote on Jan. 27, 2016: “As for your po­si­tion that guar­an­teed but they are ex­penses like light and wa­ter, but the shares [are] not redeemable on ma­tu­rity like bonds so there is no ef­fect on the bal­ance sheet.

I heard of pre­ferred shares with vot­ing rights by the way—and there is fail­ure to meet the div­i­dends/ yields, then the­o­ret­i­cally the in­jured par­ties can take over the com­pany.

“But the Ayalas are the pre­ferred share­hold­ers, so ob­vi­ously they can­not/will not oust them­selves. Per­haps this is the an­gle that needs se­ri­ous study to

Vot­ing rights

Listed com­pa­nies is­sue only non-vot­ing pre­ferred shares to the pub­lic in­vestors and con­tinue to do so be­cause of the tol­er­ance of the SEC and PSE. Be­sides, who among the pub­lic in­vestors care about vot­ing rights by own­ing vot­ing pre­ferred shares when most of them are in the mar­ket for div­i­dends?

Will the pub­lic in­vestors pre­fer vot­ing pre­ferred shares that pay less div­i­dend to non-vot­ing pre­ferred shares, which may make them earn more, say 5.5 per­cent per an­num?

The pub­lic in­vestors have a choice be­tween vot­ing rights and div­i­dends. If they would go com­plaints with the SEC.

Their pos­si­ble re­sponse to the pub­lic in­vestors, who would dare ques­tion the mo­nop­oly of vot­ing pre­ferred shares by the ma­jor­ity own­ers, is for them to go to court. At any rate, the SEC had lost its ju­ris­dic­tion over stock­hold­ers’ squab­bles to reg­u­lar courts so des­ig­nated by the Supreme Court.

By the way, since pre­ferred shares are sourced from un­re­stricted re­tained earn­ings?

The op­tions

As a pos­si­ble op­tion, the pub­lic in­vestors should an­a­lyze the mem­ber­ship of the boards of listed com­pa­nies. If the pub­lic own­er­ship re­ports say the ma­jor­ity stock­hold­ers con­trol only 51 per­cent of com­mon shares, they should ask if this ma­jor­ity own­er­ship en­ti­tles the owner or own­ers to the elec­tion of ALL di­rec­tors.

A ma­jor­ity con­trol of 51 per­cent is ob­vi­ously not 100 per­cent. Yet, both the SEC and PSE tol­er­ate the own­ers’ elec­tion of the en­tire board and the ap­point­ment and se­lec­tion of in­de­pen­dent di­rec­tors.

An­other op­tion is for the pub­lic in­vestors who case in court ques­tion­ing the board mem­ber­ship of in­de­pen­dent di­rec­tors. As their de­scrip­tion sug­gests, they must be in­de­pen­dent of the ma­jor­ity. Are they?

How can two or three di­rec­tors be in­de­pen­dent when they are nom­i­nated by in­sid­ers and as­sume their board mem­ber­ship when they are ac­cepted by the ma­jor­ity stock­hold­ers? What a para­dox!

Fi­nally, listed com­pa­nies should be re­quired to re­port not only the agenda of a board meet­ing but the re­sults of such meet­ing.

“Re­sults” as used here, mean the dis­clo­sure of the votes of each di­rec­tor, in­clud­ing in­de­pen­dent di­rec­tors, on the agenda taken up in­side the board­room. This would make listed com­pa­nies more trans­par­ent. Wouldn’t it? Just ask­ing.

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