"On the issue of Philippine Depositary Receipts"
(concluded from Monday)
Here is the conclusion of “Philippine Depositary Receipts: Mass Media’s Existing or Emerging Loophole To Constitutionally Mandated Full Filipino Ownership?”—a well written, scholarly treatise written by Lorenzo E. Delgado, editor-in-chief of The Bedan Review.
In defining full beneficial ownership, the Implementing Rules and Regulations of FIA itself requires that mere legal title is not enough to meet the required Filipino equity, which means that it is not sufficient that a share is registered in the name of a Filipino citizen or national, i.e. he shall also have full beneficial ownership of the share. If the voting right of a share held in the name of a Filipino citizen or national is assigned or transferred to an alien, that share is not be counted in the determination of the required Filipino equity.
In the same vein, if the dividends and other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted. Thus, if a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s voting power or disposing power belongs to a foreigner, then that “specific stock” will not be deemed as “beneficially owned” by a Filipino.
Therefore, what is required is not merely legal title but full beneficial ownership over the shares of stock, having the right to all the benefits accruing to the stockholder by virtue of the shares, i.e. dividends, which, if said shares underlies a PDR, said full beneficial ownership will be absent to the stockholder, considering that the holder of the PDR and not the stockholder will have the right to obtain the benefits accruing to the shares of stock regardless of lack of ownership over the same.
Foreign control in mass media corporations:
It is beyond cavil that there is a need to acknowledge existence of numerous corporate control-enhancing mechanisms, besides ownership of voting rights, that limits the proportion between the separate and distinct concepts of economic right to the cash flow of the corporation and the right to corporate control.
Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Ownership of voting shares or power alone without economic control of the company does not necessarily equate to corporate control. A shareholder’s agreement can effectively clip the voting power of a shareholder holding voting shares. In the same way, a voting right ceiling, which is “a restriction prohibiting shareholders to vote above a certain threshold irrespective of the number of voting shares they hold,” can limit the control that may be exerted by a person who owns voting stocks but who does not have a substantial economic interest over the company. So also does the use of financial derivatives with attached conditions to ensure the acquisition of corporate control separately from the ownership of voting shares, or the use of supermajority provisions in the bylaws and articles of incorporation or association.
Indeed, there are innumerable ways and means, both explicit and implicit, by which the control of a corporation can be attained and retained even with very limited voting shares, i.e.., there are a number of ways by which control can be disproportionately increased compared to ownership so long as economic rights over the majority of the assets and equity of the corporation are maintained.
Therefore, it is a corporate reality that control can exist regardless of ownership of voting shares. And to allow the issuance of PDRs by mass media corporations to foreigners subjects the mass media industry to foreign control, regardless of ownership of its shares, in utmost disregard of the intent of the constitution.
Foreigners can greatly control and influence corporate decision-making processes even if they do not have legal title to the shares. Non-stockholders or persons or entities that do not have shares of a subject corporation registered under their names can remain in effective control, albeit indirectly, of those with controlling interest by just having specific property rights (“use and title”) in equity given to them while the legal title of the property given to another.