An equitable solution to end a boardroom war

The feud at the national scene among former allies of President Gloria Macapagal-Arroyo in the EDSA-2 People Power Revolution has taken new grounds and reached the corporate boardrooms as in the case of the on- going proxy war at Equitable PCIBank.

The history of this boardroom war among EDSA-2 allies of GMA at Equitable traces its roots as far back as the time of former President Joseph Estrada when this bank was still then headed by Makati Business Club (MBC) leader, Ricardo Romulo.

The Romulo-led Equitable, it would be recalled, supplied the evidence and witnesses led by bank official Clarissa Ocampo to the purported "Jose Velarde" account deposit supposedly owned under the alleged alias of the deposed President at the impeachment trial.

Fast forward to the present time, President Arroyo's senior adviser for international competitiveness Roberto R. Romulo, the younger brother of the now MBC chairman, has been ousted as independent director from the Equitable board for his alleged conflict of interest.

The Securities and Exchange Commission (SEC) ruled in favor of the complaint filed by Government Service Insurance System (GSIS) general manager and president Winston Garcia, who himself, despite being a highly controversial figure in the Arroyo administration, has remained untouched in his office.

The timing of the SEC ruling could not have come any better when it took place several days after the MBC chieftain declared their group’s support for the resignation calls against President Arroyo.

The problem of governance, that is corporate governance, has been raised against the Equitable board of directors led by chairman Antonio Go and his chief executive officer (CEO) Rene Buenaventura.

The government raised this problem against the Go-led, dominated Board at Equitable through the Social Security System (SSS) and the GSIS.

The two major government financial institutions (GFIs) together have a combined 38 percent stakeholdings in this private commercial bank.

Owning a majority stake, the SSS and GSIS were entitled to five board seats at the Equitable while the Go group which has 11 percent (through Equitable Development Corp.), also has five board seats.

Ironically, this set up does not live up to the bank’s name Equitable because in a corporation, board seats are allotted based on the number of shares of stakeholders.

This puts the government, as well as other shareholders, at a gross disadvantage because they do not get ample representation, not to mention management control of the bank to protect their investments at Equitable.

How the Go family were able to do this and have gotten away with it through the past five years was precisely the bone of contention in the tumultuous annual stockholders’ meeting at Equitable head office in Makati City last Tuesday.

The majority group led by SSS administrator Corazon dela Paz, Garcia, along with the Romualdez family’s Trans Middle East Equities Inc. (TMEQ) and other minority shareholders such as Henry Sy group, walked out of the meeting and conducted their "rump" session at the nearby Mandarin Oriental Hotel and elected their own board of directors.

Together, the majority bloc owned a combined total of 54.6 percent while the Go family and their proxies had a 39.3 percent stake.

The Go group has kept itself in power by voting a 10-percent bloc of shares commonly referred to as treasury shares. The bloc is equivalent to one board seat enough for the group to have five seats and keep control of the board.

These treasury shares were acquired in 1999 when Equitable merged with PCIBank under the account of EBC Investments Inc., a subsidiary of the bank although it is the bank itself that acquired them.

The Go group chose not to sell these treasury shares because it afforded them leverage in controlling the board of directors and management of the bank.

It is this situation that the GFIs and other shareholders are protesting because these treasury shares, by their very nature, cannot be voted for under the country’s corporate laws.

The GFIs naturally want to maximize share values by instituting good governance at the bank. But this they cannot do if they cannot even exercise credible control of the board which continues to be under the helm of Go.

As one of the millions of members of the SSS, I, for one, would support moves by the SSS chief to protect its investment exposure in this bank.

There are some key points in the arguments for good corporate governance at Equitable, most of which are really just commonsense.

This is no ordinary intra-corporate squabble among rich directors. GFI money is involved and thus, GSIS and SSS members like me are affected and therefore must be protected from any fallout from this boardroom war.

If at some point the GFIs want to sell out, they must do so with a reasonable return on investment, notwithstanding prevailing market conditions. This is the least they can do for their members.

Equitable PCIBank shares are currently trading at P50 per share, way below the price that the GFIs paid when they bought into the bank. So if the GFIs want a better price for their shares, something must be done to improve the performance of the bank.

A day after the tumultuous stockholders’ meeting, share prices of Equitable PCIBank went down a little bit to P49.50 which was a good sign that the market recognized the validity of the actions taken by the majority stakeholders.

What is important is to prevent perceptions or suspicions of mis-management of the bank that might cause uncertainties among depositors.

Latest reports indicate the feuding parties were, in fact, ready and willing to settle this intra-corporate dispute in an out-of-court settlement.

And I hope once this corporate feud drama is over, my mother who is an SSS pensioner since 1986, would finally receive her three-month delayed monthly pension of P3,000. My mother, who is turning 68 years old next month, has been complaining to me that she has not received any increase in her SSS pension since the Arroyo administration took over in 2001.

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