Veto powers for independent directors of listed firms sought

One of the country’s leading corporate legal experts is pushing to give independent directors of publicly-listed corporations veto powers in key board decisions to protect the interest of minority shareholders.

Lawyer Francis Lim, a senior partner of the ACCRA Law office and a member of both the Philippine bar and the New York bar, said the standard provisions in the Corporation Code designed to protect minority shareholders are not sufficient in practice because the high levels of ownership concentration deter the effective exercise by minority shareholders of their rights.

In a seminar on corporate governance sponsored by the Securities and Exchange Commission, Lim said the SEC should look at ways to further strengthen minority shareholder rights to prevent controlling shareholders from misappropriating the wealth of the company through risky investing and financing decisions.

To help ensure the representation of minority interests in the board, Lim suggested that all board decisions must have the imprimatur of the independent director in order for them be carried out. "For a corporate act of a listed company to be considered valid, a vote of an independent director must be required. In other words, even if majority of all board directors vote in favor of a corporate act, if an indep director does not vote then the act is not considered as approved. That may be one way of protecting minority shareholders," Lim said.

While minority shareholders can freely present their proposals during annual general meetings regardless of the number of their shareholdings, they can easily be outvoted by large controlling shareholders. As such, highly concentrated ownership makes the annual general shareholders meetings an ineffective venue for the exercise of rights by minority shareholders.

Prior studies has pointed out that minority shareholders tend to underinvest in information gathering and become passive participants in governance of the company. Small investors do not have a board representative or access to any mechanism other than the annual general meeting to participate in governance of the company.

He also proposed that minority shareholders be given management positions in a listed company to ensure that their rights are meaningfully represented and they are protected against self-dealing and insider trading. "It might be a good idea if we have minority shareholders participate in the management of a public company by allocating some management positions for minority stockholders," he said.