Our country’s rich history tells us that any form of foreign intervention—whether in the area of policy-making, military exercise, or business and investment—is always a sensitive subject. It never fails to stir a debate.
On one hand, many believe that the Philippines is absolutely in better hands when Filipinos are at the helm of everything. Perhaps, this view is justified due to our collective paranoia in preventing colonialism from happening again. To this segment of our population, to be a true Filipino, one must believe in the hyperbole that it is better to see “a Philippines run like hell by Filipinos than one run like heaven by [foreigners].”
On the other hand, not a few espouse the idea that a real patriot is a person who welcomes every investor, whether Filipino or foreigner, who can contribute to the development of the Philippines. To this school of thought belongs to my friend, Dr. Bernie Villegas, who once wrote that opening the economy to more foreign capital is the patriotic thing to do if we are to liberate the masses from the bondage of poverty or, more bluntly, from “literally a hellish existence.”
The ambivalence of our nation’s take on foreign investments was made more evident after the Philippine Supreme Court decision dated 28 June 2012, and resolution dated 8 October 2012 in Gamboa v. Teves, G.R. No. 176579 were promulgated. Interested individuals (particularly lawyers and businessmen) interpreted the decision according to their personal conviction.
One side says that the Supreme Court in Gamboa pronounced, particularly in page 29 of the 8 October 2012 resolution (the Page 29 Statement), that the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.
For the other side, the Page 29 Statement is not controlling, but rather the dispositive portion of the decision, which states that “that the term ‘capital’ in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors…”
In effect, quite different from the apparent import of the Page 29 Statement—which lawyers of note described as obiter dictum, or a statement that is not necessary to the disposition of the issue in contention—the Supreme Court did not limit foreign ownership to all kinds of shares of stocks, other than the voting shares. In fact, they point out that the 8 October 2012 resolution of the Supreme Court, which denied the motions for reconsideration on the 28 June 2011 decision, added or modified nothing in the 28 June 2011 decision dispositive portion.
But when will this debate end?
On 20 May 2013, after more than six months of public hearings and study, the Securities and Exchange Commission issued a memorandum (SEC Memo No. 8-2013). It provides that the required percentage of Filipino ownership shall be applied to both (a) the total number of outstanding shares of stock entitled to vote in the election of directors; and, (b) the total number of outstanding shares of stocks, whether or not entitled to vote in the election of directors.
Note that, rather than merely complying with the dispositive portion of the Gamboa decisions which it could have chosen to do, the SEC added a second layer of safeguard to ensure compliance with the ownership requirements.
Letter (b) of Section 2 of SEC Memo No. 8-2013 is a bold but intelligent and practical interpretation of the Supreme Court’s pronouncement in Gamboa in the 8 October 2012 resolution.
In keeping with the spirit of Gamboa, the SEC is effectively saying that the ownership restriction must also affect the non-voting preferred shares as they, even if denied the right to vote in the election of directors, are entitled to vote on certain fundamental corporate matters, such as: amendment of articles of incorporation; increase and decrease of capital stock; incurring, creating or increasing bonded indebtedness; sale, lease, mortgage or other disposition of substantially all corporate assets; investment of funds in another business or corporation or for a purpose other than that which the corporation was organized; adoption, amendment or repeal of by-laws; merger and consolidation; and, dissolution of corporation.
With foreign direct investments (FDI) down by 8.5 percent in the first quarter of 2013 compared to the same period last year despite the gains made by the Aquino administration and our country’s laughable track record in attracting FDI among its Southeast Asian peers, the two-tiered test under SEC Memo No. 8-2013 appears to have struck a healthy balance between seemingly opposing considerations.
It complies with the operative portion of Gamboa and, at the same time remains mindful of the business and economic impact of this important state policy. It remains faithful to the constitutional objective to develop a national economy effectively controlled by Filipinos without being unduly restrictive to much-needed foreign investments, in line with the constitutional policy of expanding productivity as the key to raising the quality of life for all, especially the underprivileged.
In the final analysis, we as a nation should now find solace that our SEC has put in place regulatory parameters to help ensure that foreign ownership limits are faithfully observed, without erasing the Philippines from the map of global investments.
(The author, formerly president and CEO of the Philippine Stock Exchange, is now co-managing partner and head of Corporate and Special Projects Department of Accralaw. The views in this column are strictly his own. He may be contacted at francis.ed.lim@gmail.com)