PRCI as ‘test case’

The recent decision by the Makati Regional Trial Court slapping a permanent injunction against the Malaysian-led majority directors of the Philippine Racing Club Inc. (PRCI) is being hailed as a victory of sorts for the bid to reform the local corporate sector.

In that decision, the trial court stopped the Malaysian-led group from consummating the purchase of corporate shell with an authorized capitalization of a mere P25 million for a whopping P400 million plus. It also halted an attempt by the same group to swap the title to the P10-billion 26-hectare historic Sta. Ana racetrack with shares in that corporate shell.

The court’s decision to slap a permanent injunction is based on a very simple reason: the twin moves by the Malaysian-led majority lacked an element essential in all corporate transactions – plain and simple, good old transparency.

The gist of the decision is that the very crucial decision that affects the very bread and butter of the racing club was not sufficiently discussed and explained.

It will be recalled that transparency on the part of the Malaysian-led majority was what the Filipino minority shareholders were asking for. The majority directors which include Wincorp’s Santiago Cua Sr. or Cua Sing Huan to the Chinese community and his sons: Santiago Jr., Solomon and Simeon, and the famous (or “infamous” according to Thais) Datuk Surin Upatkoon, responded merely by branding the Filipinos a “noisy minority”.

The condescending term is outdated in the light of the aggressive reforms now taking place in the Philippine corporate sector, especially among so-called publicly listed companies such as PRCI.

Not known to many, corporate sector reforms are sweeping many parts of the world. And the Philippine reforms have been the object of scrutiny by many international agencies, including the World Bank and the Asian Development Bank (ADB). Both agencies strongly point out that minority shareholder rights are a focal area for such reforms.  

In fact, the ADB study of corporate sector reforms in five Asian countries including the Philippines advocates “shareholder activism”. In essence, this means active participation in the decisions made by the board of directors and active checks and balances.

The concept of “shareholder activism” appears to have been borne out of the Asian financial crisis of the late 90s. According to the ADB, it is important that minority shareholders exercise this form of “activism” in view of the many critical decisions made by corporate boards regarding, say, investments of corporate funds.

In fact, the ADB study equated the loss or diminution of investment value due to poor board decisions as “expropriation” of minority shareholders’ property. Perhaps this was what the court was preventing when it slapped the preliminary injunction against the Cua-Upatkoon group. The court probably feared that the swap of the title of the P10-billion Sta. Ana racetrack with shares in the P25-million JTH Davies Holdings shares, if it does not work out, would be tantamount to virtual “expropriation”.

Every shareholder of PRCI, whether minority or majority, owns a piece of that P10-billion property. To put that property out of the shareholder’s reach without his or her consent could be viewed as “expropriation” from the eyes of corporate sector reform initiatives.

As things stand today, the PRCI row could very well be the “test case” of corporate sector reforms. The judicial wisdom emanating from the legal action instituted by the Filipino “noisy minority” could very well be the driving force that would bring the sector out of the medieval ages and into the modern world.

And PRCI’s Filipino “noisy minority” could very well be the country’s first recognized “activist shareholders”, emulating the spirit being promoted by corporate sector reform initiatives.

The ADB study says there is a vital role for so-called independent directors in this whole sphere of corporate reforms. The appropriate role is to be the “balancing act” between majority and minority shareholders. But the study suggests that the independent director should help protect the rights of minority shareholders.

If our recollection is correct, the PRCI independent director is former defense chief Renato de Villa. We wonder if the erstwhile presidential aspirant appreciates his vital role in this reformist atmosphere in the corporate sector.

There is no reason why the Cua-Upatkoon group should not uphold the tenets of transparency. If they truly believe that the purchase of the P25-million JTH Davies for P400 million plus is a defensible proposition, then they should let the minority shareholders listen to the argument. Same with the proposed swap of the P10-billion property with shares in the P25-million firm.

And speaking of transparency, the Cua-Upatkoon group might wish to divulge the identity of the individuals or groups who bought the 30 percent out of the 98 percent in JTH Davies holdings owned by PRCI.

Whichever way one looks at it, that individual or group is hoping to cash in on the prospective swap of JTH Davies shares with the title to the P10-billion Sta. Ana racetrack. Let’s see if the shadowy buyer/s could escape the eyes of aggressive corporate sector reform initiatives in the Philippines.

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