MAP Insights

Cesar Villanueva

CG Principle of “Fair and Equitable Treatment of All Shareholders”

written by Atty. Cesar L. Villanueva - July 6, 2021

Principle 13 of the Corporate Governance (CG) Code for Publicly-Listed-Companies (PLCs) provides that “The company should treat all shareholders fairly and equitably, and also recognize, protect and facilitate the exercise of their rights.” There are five (5) Recommendations under Principle 13, namely:

(a) RECOMMENDATION 13.1: Promoting Basic Shareholder Rights;
(b) RECOMMENDATION 13.2: Promoting Active Shareholder Participation in Shareholders’ Meetings by Proper Sending of Notices;
(c) RECOMMENDATION 13.3: Disclosing Results of Exercise Shareholders’ Voting and Minutes of Shareholders’ Meeting;
(d) RECOMMENDATION 13.4: Making Available Alternative Dispute Mechanism for Intra-Corporate Disputes;
(e) RECOMMENDATION 13.5: Establishment of an Investor Relations Office;

Frankly, the Recommendations under Principle 13 were championed by the INSTITUTE FOR CORPORATE DIRECTORS (ICD) since compliance therewith increased the overall ratings of Philippine PLCs in the ASEAN CG SCORECARD. When revisions to the old Corporation Code were being deliberated in Congress, both the SEC and the ICD championed the inclusion into the amendments to the old Corporation Code of the Recommendations under Principle 13. As it turned out, all recommendations, except the last one, found themselves expressed in the statutory language of the Revised Corporation Code of the Philippines (RCCP).

Respect of Basic Shareholders’ Rights

Recommendation 13.1 of the CG Code for PLCs provides that “The Board should ensure that basic shareholder rights are disclosed in the Manual on Corporate Governance and on the company’s website.” In the Explanation to Recommendation 13.1, the following shareholders’ rights are enumerated, which were not provided for under the old Corporation Code, thus:

• Dividend Policies;
• Right to Propose the Holding of Meetings and to Include Agenda Items Ahead of the Scheduled Annual and Special Shareholders’ Meeting;
• Right to Nominate Candidates to the Board of Directors;
• Nomination Process; and
• Voting Procedures That Would Govern the Annual and Special Shareholders’ Meeting

The RCCP instituted, or at least in some instances accommodated, within its provisions the above-enumerated CG best-practices in the following manner:

(a) SECTION 49: Formally recognizing that:
(i) “A stockholder or member may propose the holding of a special meeting and items to be included in the agenda; and
(ii) “A director, trustee, stockholder, or member may propose any other matter for inclusion in the agenda at any regular meeting of stockholders or members.”

(b) SECTION 23: Formally recognizing that “Except when the exclusive right is reserved for holders of founders’ shares … each stockholder or member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications set forth in this Code.”

(c) SECTION 49: Mandating that at the annual meeting of the stockholders or members, “the board of directors or trustees shall endeavor to present to stockholders or members the following:”

(i) “An explanation of the dividend policy and the fact of payment of dividends or the reasons for nonpayment thereof;”
(ii) “A members’ list for non-stock corporations and, for stock corporations, material information on the current stockholders, and their voting rights;”
(iii) “The profiles of directors nominated or seeking election or reelection.”

(d) SECTION 23: Providing that in the election of directors or trustees:
(i) Shareholders or members may be present either in person or through a written proxy, but may also vote through remote communication or in absentia when so authorized in the bylaws or by a majority of the Board of Directors; and
(ii) A shareholder or member who participates through remote communication or in absentia, shall be deemed present for purposes of quorum.

(e) SECTION 49: By formally providing that—
(i) “The right to vote of stockholders or members may be exercised in person, through a proxy, or when so authorized in the bylaws, through remote communication or in absentia; and
(ii) The SEC shall issue the rules and regulations governing participation and voting through remote communication or in absentia, taking into account the company’s scale, number of shareholders or members, structure, and other factors consistent with the protection and promotion of shareholders’ or members’ meetings.

It should be noted that the “endeavor clause” for directors or trustees under Section 49 could be transformed into mandatory undertaking simply by the SEC formally adopting them as CG obligation of directors or trustees to comply with at the annual shareholders’ or members’ meetings, and rendering non-fulfillment of such disclosure obligation subject to administrative sanction under Section 158 of the RCCP.

Notice of Stockholders’ Meetings

Recommendation 13.2 of the CG Code for PLCs provides that “The Board should encourage active shareholder participation by sending the Notice of Annual and Special Stockholders’ Meeting with sufficient and relevant information at least 28 days before the meeting.”

Section 49 of the RCCP instituted the CG practices embodied under Recommendation 13.2 by introducing the following rules:

(a) Regular Meetings: Written notice of regular meetings shall be sent to all stockholders or members of record:
(i) Through electronic mail or such other manner as the SEC shall allow under its guidelines; and
(ii) At least twenty-one (21) days prior to the meeting, unless a different period is required in the bylaws, law, or regulation;

(b) Special Meetings: Written notices of special meetings of the stockholders or members shall be sent at least one (1) week prior to the meeting, unless a different period is provide in the bylaws, law or regulation;

(c) Waiver of Notice: Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member: Provided:
(i) General waivers of notice in the articles of incorporation or the bylaws shall not be allowed; and
(ii) Attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

(d) Closing the Stock and Transfer Book: Unless the bylaws provide for a longer period, the stock and transfer book or membership book shall be closed at least twenty (20) days for regular meetings and seven (7) days for special meetings before the scheduled date of the meeting.

(e) Postponement of Meeting: In case of postponement of stockholders’ or members’ regular meetings, written notice thereof and the reason therefor shall be sent to all stockholders or members of record at least two (2) weeks prior to the date of the meeting, unless a different period is required under the bylaws, law or regulation.

In turn, Section 50 of the RCCP introduced new items that must be contained, included or attached to every notice of meetings of stockholders or members, thus:

(a) Minimum Contents: Notice of meetings shall be sent through the means of communication provided in the bylaws, which noticed shall state the (i) time, (ii) place and (iii) purpose of the meetings;

(b) Accompanying Documents: Each notice of meeting shall further be accompanied by the following:
(i) The agenda for the meeting;
(ii) A proxy form that shall be submitted to the corporate secretary within a reasonable time prior to the meeting;
(iii) When attendance, participation, and voting are allowed by remote communication or in absentia, the requirements and procedures to be followed when a stockholder or member elects either option; and
(iv) When the meeting is for the election of directors or trustees, the requirements and procedure for nomination and election.

The SEC issued on 21 February 2020, SEC Memorandum Circular No. 3-2020 providing for the following rules on Notice of Regular Meetings of the Stockholders/Members, thus:

(1) Making it a must and not subject to another period that may be provided in the bylaws: “Written notice of regular meeting shall be sent to all stockholders/ members of record at least twenty-one (21) days prior to the date of the meeting.”
(2) In case of postponement of stockholders’/members’ regular meetings, written notice thereof and the reason therefor shall be sent to all stockholders/ members of record at least two (2) weeks prior to the date of the meeting as originally scheduled. The stockholders/members of record shall be notified of the new schedule of the regular meeting in accordance with the immediately preceding paragraph.”
(3) The written notice must contain all information and deadlines relevant to the shareholders’/members’ participation in the meeting and exercise of the right to vote remotely (in absentia or through proxy).”

The most important consideration for SEC’s issuance of Memorandum Circular No. 3-2020 was to subject violation of the provisions thereof to its power to impose administrative sanctions, by providing therein: “If, after due notice and hearing, the Commission finds that any provision of this Memorandum Circular has been violated, the Commission may impose any or all of the sanctions provided under Section 158 of the RCCP.”

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP).

Atty. CESAR L. VILLANUEVA is Chair of MAP Corporate Governance Committee, Trustee of Institute of Corporate Directors (ICD), the first Chair of Governance Commission for GOCCs (GCG – August 2011 to June 2016), Dean of the Ateneo Law School (April 2004 to September 2011), and Founding Partner of Villanueva Gabionza & Dy Law Offices.