MANILA, Philippines – Fact or fiction: A publicly listed company and a government bank shared three interlocking directors. The government bank, headed by one director, sells its shares of the company to the second director, who in turn sells the same shares to the third director. Soon after the first sale, share prices of the mining company shoots up. The senate investigates the deal for insider trading. However, the conclusion has yet to come.
Another item to mull over: a commercial bank was closed a few years ago because it became insolvent and was unable to service its depositors’ withdrawals. It was rehabilitated and opened under new ownership and management. Two months ago, the same bank was once again closed for the same reason: insolvency. It was reported that the supervising body that examined the bank did not find any indication of fraud or negligence. Why, then, did the bank close and who are the culprits?
The previous two situations may sound like they would make a great premise for a John Grisham legal thriller, but former Management Association of the Philippines (MAP) President Evelyn Singson says to her audience at the launch of the Shareholders’ Association of the Philippines (SharePHIL): “If some of you thought that none of the above is fiction, you are one hundred percent correct.”
These situations are unfortunately real. And these and their hybrids continue to be repeated in many companies and associations around the country, with the usual victims being non-management or minority shareholders. “Unless something is done to create a body whose sole focus is to service investors, to protect them and help them protect themselves, they remain the powerless victims of abusive practices,” asserts Singson.
On a more optimistic note, Singson shares it helps a lot that the national government has placed the fight against corruption and moral decay on top of its agenda. “Luckily, times are changing,” she says, “because the country is seeing the emergence of people and organizations taking a stand for good governance, advocating universally accepted practices of public accountability, financial reforms, and new accounting standards for disclosure and transparency.”
Protecting Shareholders’ Rights
Last June 27, Singson and a group of active investors introduced SharePHIL, an organization whose mission is to organize a body that would represent the long-neglected and unorganized sector of the investment community—the small shareholders.
According to the group, the absence of such an association is the reason the World Bank rates the Philippines as among the bottom-liners in countries ranked mature in terms of good governance; and that this is the reason the country’s capital market strays behind those of our neighbors. “Our markets have remained thin and relatively speculative because we do not offer the shareholder protection mechanism that fund managers and long-term investors are looking for before they commit larger funds our way,” Singson says.
A general lack of trust and investor knowledge also explains why only a fledgling one percent of the more than 90 million Filipino population is investing. Securities Investors Association Singapore (SIAS) President and CEO David Gerald, who attended as Guest Speaker at the SharePHIL launch, shares that there is great potential to develop the country’s capital market, as well as address the Philippines’ most pressing concern—poverty. “The more people learn how to invest, the faster your poverty level will reduce. And to eradicate poverty, you must empower your citizens to make wealth-building decisions. Investor education will help pump prime the economy with new investors,” he shares.
Shareholder Activism In The Boardroom
While some may automatically assume that SharePHIL’s launch was triggered by problems in the PSE, SharePHIL President Atty. Rosario Bernaldo asserts otherwise; the organization was created because an association of investors was the one missing element in the country’s rating measures for good governance.
“We have several organizations that deal with corporate governance, but the focus is at the organization level or from the issuer point of view,” says Bernaldo. “To complete the components of good governance in the Philippine capital market, we felt that we should take the initiative to form SharePHIL and hopefully make it grow into a very potent organization, not of an adversarial nature but a more supportive and collaborative nature.”
Gerald, who founded SIAS in 1999 to successfully contest the freezing of shares owned by 172,000 Singaporean investors in Malaysian companies by the Malaysian Government, agrees and shares the importance of a new brand of shareholder activism: “You have to work with [listed] companies in the boardroom, and not in the courtroom. If you work with them in the boardroom, you get a win-win solution, as opposed to the style of [shareholder] activism in the West. In Asia, you don’t sue someone and then hope to be his friend; in the U.S., you can sue and have a beer after. In Singapore, it doesn’t work that way, and in the Philippines it’s the same culture. Instead, SharePHIL must work in tandem with the PSE and the Board of Directors of companies to build capital markets.”
Dr. Jesus P. Estanislao, the current chair of the Institute of Corporate Directors, further affirms this direction. “Governance,” he says, “is about sharing and participation. SharePHIL is about taking all shareholders, big and small, to share fairly in the many business and economic opportunities in the Philippines. SharePHIL will be the platform to teach minority shareholders to demand that a company’s management and Board of Directors be more accountable for their actions, and this bodes well for corporate governance in the Philippines.”