P48B and public corporations 

A few days ago, PLDT announced that it had discovered overspending of about P48 billion in capital expenditures over the past four years.

For a company that reported P182.1 billion in revenue for 2021, and P171.5 billion for 2020, this P48 billion overspending may not seem substantial.

To the ordinary Filipino though, an unplanned P48 billion expenditure is mind-boggling.

PLDT has been quick to assure everyone that its audit had so far found no fraudulent transactions, procurement anomalies, or loss of assets from the capital spending overruns, while emphasizing that its capital spending allowed it to achieve its performance goals.

What is concerning to the public is the fact that this huge overspending had gone undetected for four years, and PLDT, being aware of this, has revamped its management.

The price of PLDT stock (TEL) on Dec 1, 2022 was P1,699 per share. Its price on Dec 9, 2022 was P1,730 per share. On Dec 16, 2022, the day of the overspending announcement, the share price dropped to P1,478 per share, 14.56 percent down from its high on Dec 9. The share price could be expected to drop further as the investing public awaits clarity on the matter. (Source: www.edge.pse.com.ph)

The Philippine Stock Exchange (PSE) has announced that it will investigate trading activity on shares of PLDT after regulators noticed heavy selling of the stock before the P48-billion anomaly was announced and made public by the company.

It is significant that PLDT is a company vested with public interest and is listed on the Philippine Stock Exchange.

The purpose of classifying certain corporations as to be vested with public interest is for the protection of the interests of shareholders, creditors, third party suppliers, the corporation’s own staff and employees and the public in general. On the other hand, publicly listed companies are just those companies whose shares of stock are traded in an exchange.

Section 22 of the Revised Corporation Code [Republic Act No. 11232] identifies the following corporations to be vested with public interest.

1. Those whose securities are registered with the SEC such as those who have issued bonds to the public

2. Publicly listed companies

3. Those with assets of at least P50 million and having 200 or more stockholders, each holding at least 100 shares of a class of its equity shares
Section 17.2 of the Securities Regulation Code [Republic Act No. 8799]

4. Banks and quasi-banks, non-stock savings and loan associations, pawnshops, corporations engaged in money service business, preneed, trust and insurance companies, and other financial intermediaries

5. Other corporations as may be determined by the SEC, after taking into account relevant factors, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors

The SEC has classified a Financial Institution Strategic Transfers Corporation (FISTC) as vested with public interest. This is a company that acquires bad and non-performing loans from banks and other financial institutions.

All publicly listed corporations are corporations vested with public interest. However, not all corporations vested with public interest are publicly listed.

The Revised Corporation Code contains protective provisions for the protection and interest of shareholders of corporations many of which are for the protection of minority shareholders. Some of these provisions are voting rights, right to participate, inspection of corporate books, accounts and records, right to receive dividends, appraisal right, pre-emptive right and right of first refusal, when existing.

In addition to this, there are other provisions specific to corporations vested with public interest.

1. Modes of voting –stockholders are given the right to vote remotely or in absentia even in the absence of a relevant provision in the bylaws of the corporation vested with public interest. Notices to the meeting should contain the advice that such voting mode is available and indicate the requirements that stockholders must fulfill to avail themselves of voting via remote communication or in absentia. [Sec. 23, RCC]

2. Independent director – The board of corporations vested with public interest are required to have independent directors constituting at least twenty percent of the board. [Sec. 22, RCC]

An independent director is independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.

3. No-par value shares – Only shares with par value are allowed to be issued. [Sec. 6, RCC]

4. Compensation report – A director or trustee compensation report and an appraisal or performance report shall be submitted annually. [Sec. 177, RCC]

5. Independent transfer agent – Corporations that transfer or trade stocks in secondary markets, may be required by the SEC to engage the services of an independent stock transfer agent which allows for faster disbursement of dividends, more efficient transfer of shares of stocks, and proper identification of shareholders for meetings. [Sec. 73, RCC]

6. Stricter voting requirements for material contracts or related party transactions – For material contracts and related party transactions, there is a 2/3 voting requirement of the entire board membership with majority of the independent directors voting in favor. If this requirement is not followed, the material related party transaction is not valid and cannot be ratified by the stockholders even if the contract is fair and reasonable. [Sec. 31, RCC]

7. The compliance officer – Corporations vested with public interest must also elect a Compliance Officer. Accordingly, aside from the mandated corporate officer positions of President, Treasurer, and Corporate Secretary, the company must also elect a Compliance Officer. [Sec. 24, RCC]

The compliance officer must have a rank of vice-president because this rank will give the position enough authority and importance within the corporate structure as a compliance officer is not answerable to the board nor any director or officer but to the corporation and its stockholders.

The duty of the compliance officer is to see to it that the corporation is not held liable for administrative or criminal penalties or civil liabilities by monitoring, reviewing, evaluating and ensuring compliance by the corporation, its directors and officers, with all laws, rules and regulations.

In addition, a compliance officer has the following duties under the Code of Corporate Governance for Publicly Listed Corporations:

a. Ensures proper on-boarding of new directors
b. Reports to the board any violation and recommends appropriate disciplinary action
c. Ensures the integrity and accuracy of all documentary submissions to regulators
d. Appears before the SEC when summoned
e. Collaborates with other departments to address compliance issues subject of investigation
f. Identifies compliance issues and how to resolve these
g. Ensures the attendance of board members and key officers to relevant trainings
h. Performs such other duties and responsibilities as required by the board and the SEC

With the internal audit being conducted by PLDT and the investigation of the PSE, there will be more information about this matter in the coming days or weeks. One thing is for sure though, the compliance officer of PLDT is in an unenviable position during this time.

(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, a Professor at the MLQU School of Law, and an Arbitrator of the Construction Industry Arbitration Commission of the Philippines. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)