Investors’ Rights & Protection

SPEECH OF SEC CHAIR TERESITA HERBOSA, SharePHIL 1st GMM, August 30, 2012, Dusit Thani

Chair Evelyn Singson and President Rosario Bernaldo, officers and members of Sharephil, guests, ladies and gentlemen. Good afternoon. First of all, I would like to thank the Shareholders Association of the Philippines, Inc. (SharePHIL) for this opportunity to talk about “Investors Rights and Protection”.

The question I would like everyone to be able to answer after my talk is: Do Philippine laws on corporations and securities, and the SEC as the implementing and regulatory agency under these laws, adequately protect investors rights in the manner and degree that guarantees them F.A.I.T.H. or fairness, accountability, independence, transparency and honor? But first a -

CLARIFICATION

At the outset, who are the “investors” whose rights ought to be protected? Investors are sometimes interchanged with “public”. Particularly, when it comes to listed companies, investors are those who, through brokers and dealers, buy shares in the exchange. If they buy for the purpose of selling the shares after a relatively short period time in order to generate a profit from the transaction, they may be called investors but I doubt if they are really invested with interest in the operations or affairs of the companies whose shares they trade. Most likely, the primary and perhaps the only reason they chose those shares is that they anticipate their prices would go up so they can easily dispose at a gain sooner than later. Thus, there is the growing popularity of so-called high frequency trading among such investors.

On the other hand, the other kind of investors are those who invest for the long term. These investors seriously look into the finances of the companies they invest in,  exercise their rights as minority stockholders, zealously guard those rights, and expect that the shares they have acquired would go up in value not merely in price. While both kinds of investors do need protection under the law and constitute the public whose interests the SEC is mandated to protect, it is actually the latter kind of investors or the “minority stockholders”, I would like to think SharePHIL is more concerned about.

FAIRNESS

Under the Corporation Code, it takes only one (1) share to become a stockholder of a corporation and, more importantly “each share shall be equal in all respect to every other shares."1 Thus, according to the SEC, a minority stockholder, even if he is a holder of only one (1) share, is entitled to all rights of a stockholder, such as the right to vote such share, right to participate in the election of the Board of Directors, right to attend and vote in stockholders meeting approving certain corporate transactions, right to receive dividend in proportion to his holdings, right to inspect corporate books, and other rights ordinarily attached to such share.

Further, Section 24 of the Code provides that the stockholder “may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit.” Thus, even minority stockholders may combine their votes to be able to have board representation.

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