Right to access corporate records
The country’s beloved business tycoon and philanthropist Washington SyCip must be turning in his grave in the wake of the filing of a criminal case by the Department of Justice (DOJ) against his son George SyCip, chair of Alliance Select Foods International, Inc., its directors and assistant corporate secretary for violation of the Corporation Code.
The case stemmed from the complaint by Alliance stockholders Harvest All Investment Ltd., Victory Fund Ltd. and Bondeast Private Ltd. over the respondent’s refusal to allow them to inspect the books and records of the company in which they have multimillion peso and dollar investments.
They sought the inspection on account of the “substantial financial downturn” suffered by Alliance that adversely affected its stock price in the market.
The DOJ said the respondents adopted a scheme to repeatedly refer the request for inspection between the board of directors and certain lawyers. It said, “This tactic, as shown by clear evidence of continuously delaying any decision on the matter indicates an evasive scheme adopted by the respondents to defeat the right of the complainants to inspect the corporate books and records of Alliance.”
Section 74 of the Corporation Code states that “the records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days.”
The rationale behind this right is simple. Having invested his money in the corporation (regardless of its proportion to the totality of the other investments), the stockholder has the right to know, through the books of the corporation, how his investment is being handled by the people entrusted with managing the corporation.
This right can be denied only if (a) the person demanding it has improperly used any information secured through any prior examination of the records of such corporation or any other corporation; and (b) he is not acting in good faith or for a legitimate purpose in making that demand.
The limits to the exercise of the right of inspection are meant to protect the company from stockholders who may avail of that right for, among others, selfish personal reasons or to serve the interests of the company’s competitors.
To underscore the significance of this right, a fine of not less than P1,000 but not more than P10,000, or imprisonment of not less than 30 days but not more than five years, or both, may be imposed by the court for its violation.
The penalty shall be imposed on any officer or agent of the corporation who refuses to allow the exercise of that right. But if the refusal is made pursuant to a resolution or order of the board of directors or trustees, the directors or trustees who voted for such action shall suffer the penalties instead.
It bears noting that this right enjoys the distinction as the only stockholder right cited in the Corporation Code that carries a specific statement of penalty if violated. This shows the serious intent of the Code in protecting the inspection right of stockholders.
All other violations of the Code are given “generic” penalty treatment at its tail end, or have to be dealt under the Securities Regulation Code (SRC) which was enacted 20 years after.
The refusal by the directors or officers of a corporation to allow the inspection of its books or records by its stockholders creates the impression that something fishy is going on in the corporation that the former do not want the stockholders to know.
If the late Washington SyCip, who was a firm advocate of good corporate governance, were still alive, he will undoubtedly take steps at the outset to prevent the incidents that led to the filing of the case against Alliance from happening.
One final note. In case the directors and officers of Alliance are found guilty of the offense, they may, pursuant to the SRC, be barred by the Securities and Exchange Commission from being elected or appointed as directors or officers of listed or public companies.
There is a high price to pay for violating the stockholders’ right to inspect or examine the books or records of their corporation.
