Creation of group to protect small stockholders proposed

The Securities and Exchange Commission (SEC) and the Capital Market Development Council (CMDC) are proposing the creation of an association of minority shareholders to ensure the protection of their rights.

The proposal is contained in the Philippine Corporate Governance Reform Program developed by CMDP’s task force on corporate governance headed by former Finance Secretary Jesus Estanislao.

The proposed association, Estanislao said, is also being supported by the Philippine Stock Exchange (PSE) which has already agreed in principle to contribute to the initial funding requirement.

Estanislao said the regulatory authorities were not considering international best practice to support such an association, including the possibility of setting aside a reasonable percentage of fees derived from transactions.

According to SEC Chairman Lilia R. Bautista, the proposal will be supported by the commission as part of its policy to ensure the equitable treatment of shareholders and prevention of discrimination against minority shareholders.

Aside from the creation of the association, the CMDP task force also proposes that all fiduciary investors make a regular disclosure of their investment policies since their primary responsibility is to protect the interests of their members.

This includes the Social Security System and the Government Service Insurance System, two institutions with huge investments in the stock market and with minority shareholdings in almost all the major issues at the PSE.

The CMDP said the GSIS and SSS should train their focus on protecting minority shareholders, particularly corporations in whose shares they have invested. "This role should be given a much higher priority over getting representation on the board of directors," Estanislao said.

The Corporate Governance Reform Program is being spearheaded by the CMDP which has already made representations to the SEC to include the code of corporate governance in the requirements for the registration of companies.

Although a blanket requirement applicable to all incorporated entities is not possible without amending the Corporation Code, Bautista said there are ways to impose this requirement initially on listed companies as well as corporations enjoying various government incentives.

The SEC is set to talk with the Board of Investments (BOI) to discuss the possibility of requiring BOI-registered companies to draw up and formalize their code of corporate governance as part of the mechanism to ensure that only deserving companies qualify for incentives. – Des Ferriols