Helping investors protect themselvesBy Evelyn R. Singson
Philippine Daily Inquirer
(Lifted from the Inaugural Address of the author at the recent launch of SharePHIL, or Shareholders Association of the Philippines)
Let me engage you in a fact or fiction game. Can you tell me if in the course of your work life, you have encountered any of the following situations?
1. The CEO of a public company travels around the world on business meetings, with his family. The family only flies first class and avails only of top-of-the-line, most expensive facilities and amenities, compliments of the company.
2. Three companies had interlocking directors, all owning shares in one listed company. One director sells its shares in the listed company to the second director, who then turns around to sell this to the third director. Soon after the first sale, share prices of the listed company shoot up. The shares shoot up further after the second sale.
3. The controlling shareholder of a listed company negotiates to buy the asset of its financially distressed subsidiary, instead of offering this to the market. The price paid by the controlling shareholder was only 30 percent of what it could have fetched in the open market. The board approves the sale.
4. The powerful president of a listed company entered into a contract for the supply of very expensive equipment without seeking technical advice or even consulting with his technical team despite his lack of technical know-how. It turned out to be a disastrous mistake but no one was held accountable for the bad decision.
5. A company books a fictitious receivable worth several millions from a shareholder, without his knowledge and consent. This fictitious receivable appeared in the company’s audited financial statements to mask a Corporation Code violation. Seven years later, the receivable was quietly written off.
6. A commercial bank was closed a few years back because it became insolvent. It was rehabilitated and reopened under new ownership and under new management. A few years later, this same bank was again closed, exactly for the same reason it was closed the first time—insolvency. A newspaper even reported that the supervising body, which examined the bank, said that it purportedly did not find any indication of fraud or negligence in said bank. How can a bank close without any cause or culprits?
7. The board of directors of a homeowners’ association has been in power since the association was formed. Any effort of the homeowners to hold the board accountable for its actions has failed. The board holds proxies, never validated and examined, and every election resulted in the victory of the same board. The homeowners are aghast that this overstaying board awards contracts to themselves or their friends, pay themselves fat salaries and allowances, and hire excessive and expensive admin staff.
8. The company and its majority shareholders made a deal with each other to settle an obligation to a favored shareholder. To minimize the majority shareholders’ obligation, the parties passed on to the company most of the expenses related to the deal. As a result, the majority shareholders were relieved of the full burden of the expense by spreading this to all shareholders, including the minority shareholders who were never a party to the transaction.
If you guessed that none of the above is fiction, you are 100 percent right. Surely one or more of these are familiar to you. These situations and their hybrids continue to be repeated in many companies and associations around the country. The unknowing victims are the non-management or minority shareholders. If you were a shareholder of any of these companies, what recourse do you have? Unless something is done to create an entity whose sole focus is to serve these investors, to protect them and help them to protect themselves, then they will remain the powerless victims of abusive practices.
Times are changing, however, and we are seeing the emergence of people and organizations that are taking a stand for good governance, advocating universally accepted practices of public accountability, financial reforms, new accounting standards for disclosure, and transparency. It helps a lot that the national government has placed the fight against corruption and moral decay on the top of its agenda, signaling that it is time to do things the right way.
We are introducing the Shareholders’ Association of the Philippines, or SharePHIL, to the business community with the support of organizations whose mission is to improve governance in different sectors of Philippine society. We have our friends from the Institute of Corporate Directors (ICD) which aims to train independent directors of their duties and responsibilities, protecting the company’s interest first and foremost. We have the Management Association of the Philippines (MAP) whose members run the country’s top businesses, which continue to aim for principled leadership and utmost professionalism in management. There are many others, like the Institute for Solidarity in Asia (ISA), which motivates local government leaders to aspire for higher standards of public service. The Governance Council for Government Owned and Controlled Corporations is there to insure that government-run corporations do not abuse perks and benefits for selfish gains and to run them in accordance with their charters.
SharePHIL now joins their ranks to focus on organizing a body to represent the heretofore long-neglected and unorganized sector of the investment community-the small shareholders. This is a void that must be filled, a mission worth pursuing.
The absence of an association of investors actively looking after the interest of small investors, like those that exist in other countries such as Singapore, Australia, Korea and many more is one reason why the World Bank rates the Philippines as among the bottom liners in the ranking of countries measured in terms of good governance.
By virtue of this low ranking, our capital markets trail behind those of our neighbors. Our markets have remained thin and relatively speculative because we do not offer the shareholder protection mechanism which fund managers and long-term investors are looking for before they commit large investment funds our way.
SharePHIL wants to be the voice of the non-controlling shareholders who may feel voiceless and helpless in understanding or challenging certain acts and decisions of the companies they have invested in. SharePHIL desires to attract a wider base of investors into the market by earning their trust, by helping them make the right investment choices, by making them realize that they are not too small to matter, that their money deserves the same attention as big money. We want to achieve this, not by crossing swords with companies, but by being their partners in helping develop informed, educated and enlightened shareholders. Keeping minority shareholders informed and involved will prevent misunderstanding and feelings of exclusion that detracts from a transparent and more honest relationship. We want to be co-operators of the regulators, the stock exchange, companies, the investing public and we will work hand in hand with them in promoting the growth and development of the Philippine capital market. Through education and training, SharePHIL aims to encourage Filipinos to develop good savings habits, to invest funds for their future through proper financial tools and instruments, teach them to distinguish between good and bad investments, and to beware of scams and easy money schemes.
We, at SharePHIL, are confident that we can play this role and make a difference. We are convinced that progressive-minded companies will support us in this effort because we can help improve the quality of their shareholders and encourage more savers to invest in the market and in well-managed companies. We are committed and dedicated to deliver “FAITH” to the Investor, our acronym for our core values of Fairness, Accountability, Independence, Transparency and Honor. With your help and support, we hope to succeed.
(This article reflects the personal opinion of the author and does not reflect the official stand of the MAP. The author is former president of the MAP and chairperson of SharePHIL. She is the vice chairperson and president of Philippine Hoteliers, Inc. Feedback at firstname.lastname@example.org. For previous articles, visit map.org.ph.)
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