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Sugar production estimate cut amid reduced tonnage, rising yields

THE Sugar Regulatory Administration (SRA) reduced its estimate for sugar production for the crop year 2018-2019 to 2.079 million metric tons (MMT) from 2.225 MMT previously, with gross tonnage declining while favorable weather produced higher yields.
“As of week ending Jan. 27, we are still almost as the same level as last year. What we don’t know is how long the milling period will last. Apparently, we have hit the peak of the milling season. Usually, when you have a long period of fair weather, it is easier for our farmers from the mountains to bring their cane to the sugar central. Assuming the milling season will be the same as last year, then we might hit the target but if the milling season is fairly short, then we might come out with a new crop estimate,” Emilio Bernardino L. Yulo, SRA Board Member Planters’ Representative, told BusinessWorld on the sideline of the Sugarcane Stakeholders’ Summit held in Quezon City on Monday.
“The original estimate was at 2.225 million metric tons. I think the SRA is about to release (an estimate of) 2.079 million MT,” Mr. Yulo added.
According to SRA data, raw sugar production for January during crop year 2017-2018 hit 256,336 MT. Total output for crop year 2017-2018 was 2.1 million MT.
“On the ground, our planters are experiencing reduced tonnages but higher purity. That’s brought about by weather conditions. Luzon and Visayas are down, but Mindanao is up,” Mr. Yulo said.
Meanwhile, SRA Board Member and Millers’ Representative Roland B. Beltran said that sugar production has significantly decreased over the years, and the industry is on its way to recovery after being affected by importation of high fructose corn syrup.
“We lost a lot of plantation area for many reasons. One of the reasons is the competition with banana plantations offering good deals [starting] five to six years ago,” Mr. Beltran said in a separate interview.
Mr. Beltran said that Budget Secretary Benjamin E. Diokno’s proposal to liberalize sugar imports will further reduce the production of sugar in the Philippines. Mr. Beltran pointed out that SRA has specific importation programs to address demand that cannot be filled by domestic sugar production.
“If we flood the market with imported sugar, the intention is to drive down the prices including mill gate prices, who would still plant sugar cane if they are incurring losses?” Mr. Beltran said.
“On the part of SRA, our programs for importation are timely… demand increased after high-fructose corn syrup imports were restricted,” Mr. Beltran added.
Mr. Beltran said that a two-day summit is being planned to identify the industry’s problems, and come up with recommendations to specific government agencies.
“After this summit, all the problems will be identified. We will come up with recommendations. What we are trying to achieve in this summit is to have an updated sugarcane industry roadmap,” Mr. Beltran said.
On the other hand, Mr. Yulo said that importers used to be required to supply a portion of their shipments to the food industry.
“We had an important program specific for the industrial users… In the old SRA, if you had an importation program, you had to give part of it to producers. That’s no longer done today. We have practically given up everything. What more can they ask?,” Mr. Yulo said.
Sugar Order (SO) No. 10 for crop year 2017-2018 called for the importation of 200,000 MT of sugar. SO No. 2 meanwhile called for the importation of 150,000 MT of sugar for crop year 2018-2019.
Mr. Yulo called on the Department of Trade and Industry (DTI) to address high retail prices, amid a push for a liberalized sugar industry by business groups and some economic managers.
“Why doesn’t DTI come in strong against those retailers selling at P60 (per kilo)? This is a consumer issue. This is no longer a regulatory issue. They can go as low as P55 or even P54, but how come they are allowing retailers, even supermarkets here in Metro Manila, to sell at P60 and we are being unfairly blamed for these prices?”
“If the DTI can prove that producers are at fault for high prices, we will allow them to import,” Mr. Yulo added. — Reicelene Joy N. Ignacio

Gordon reports out bill reducing national gov’t take from ecozone tax

SENATOR Richard J. Gordon, who chairs the chamber’s committee on government corporations and public enterprises, sponsored to the plenary a bill seeking to increase the powers of the Bases Conversion Development Authority (BCDA).
Senate Bill No. 2207 amends the charter of BCDA under Republic Act 7277, as amended by R.A. No. 9400 and revises the allocation of income on taxes earned within the Subic Special Economic Zone and Clark Special Economic Zone.
Currently, businesses within the country’s economic zones enjoy a 5% gross income earned tax in lieu of all other national and local taxes.
Under the bill, the collections from the 5% tax on gross income earned by business enterprises within the Subic Special Economic Zone will shared out as follows: 2% to the national government, 1% to the Subic Bay Metropolitan Authority (SBMA) and 2% to the SBM for distribution to the local government units (LGUs).
At present, the national government gets 3% from the gross income tax collection from the Subic Special Economic Zones, and the SBMA receives 2% for distribution to the LGUs.
Meanwhile, 1% of the 5% gross income tax earned in the Clark and other Special Economic Zones (CSEZ) will be remitted to the national government, 1% to the provincial government, 1% to municipalities or cities, and 2% to the governing body of the [CSEZ].
Under the law, the allocation of gross income tax earned in the CSEZ are as follows: 3% to the national government and 2% to the municipality or city where the business is located.
“With this bill, we revitalize and spread the blessings of the Subic experience to neighboring communities who are willing to share the same culture of hard work, the same vision of prosperity and development, and the same willingness to work hard to make it happen,” Mr. Gordon said in a statement on Monday.
“We also hope to further strengthen Subic’s equally successful neighbor, Clark Special Economic Zone by expanding its scope and fine-tuning policies that will further its growth,”he added.
The bill also seeks to expand the territory of the Subic and Clark economic zones.
The bill also requires the SBMA Board of Directors to provide a Master Plan for the phased expansion of the freeport zone every two years in Olongapo City, Zambales and Dinalupihan, Hermosa and Morong, Bataan.
Under the bill the SBMA will also be given additional power to inspect and register leisure ships and pleasure yachts as well as to create an ecology center to issue environmental compliance certificates for non-environmentally critical projects.
Other proposed powers also allow SBMA to reclaim land within the special economic zones and to undertake and regulate the operations of land transportation, toll roads, shipping, port terminal services, and other related businesses. — Camille A. Aguinaldo

PHL sweet potato farmers need access to more tech

THE International Potato Center (CIP) said the sweet potato industry in the Philippines is not pushing out processing technology to the farm level and in many cases has insufficient linkages between the producers and markets.
“There are lot of technologies there. There are organizations with developing technologies, available in the Philippines and elsewhere. But the thing is how it will reach farmers? We are looking at that gap and how we can fill up that gap,” CIP Asia Regional Director Samarendu Mohanty said in an interview on Thursday, on the sidelines of the Opportunities for a Climate-Smart Food System in the Philippines Regional Policy Forum held in the Ortigas district of Pasig City.
“There are different technologies but farmers don’t have any clue,” Mr. Mohanty said.
“We are trying to identify who the trusted agencies are where farmers can get the information,” Mr. Mohanty said.
Mr. Mohanty said when climate change effects are becoming evident, a shift in the planting calendar is necessary. He said sweet potatoes are resilient crops that can survive floods, and are recommended for planting during the rainy season, while the dry season can be devoted to other crops.
“Kamote, or sweet potato, is a very resilient crop. It can survive typhoons and floods. (Farmers are) saying sweet potato can be very profitable. There are farmers who are making millions of pesos selling sweet potato. The problem is when you look at the Philippines, sweet potato production has been declining. It used to be 250,000 hectares in 1980. Now, it’s less than 80,000 hectares,” Mr. Mohanty said.
Mr. Mohanty said that a sweet potato farmer, on average, can earn around P100,000 from one hectare of land in 100 days.
“The best way is for the government to link the farmers to the market. There’s demand. More growth is coming from the processing industry. Farmers are saying they don’t have the linkages to go into processing. If they can get some value-addition, they can also make more money,” according to Mr. Mohanty.
CIP Senior Research Associate Arma Bertuso said that Philippines is not also capable of exporting sweet potatoes due to its low production.
“When we had this round table discussion way back 2016, we also invited companies from the food industry. They said that our supply of kamote is not enough. There is need for kamote but at the same time, because this is an archipelagic country,” Ms. Bertuso said.
“Even if there is plenty of supply in Eastern Visayas, how do you get it to Manila? Who will shoulder the cost?” Ms. Bertuso added.
Mr. Mohanty, on the other hand, said that there is a need to tap local government units (LGUs) to facilitate loan programs and spread information to farmers with regard to processing technology and market linkages.
According to CIP, more than 105 million tons (MT) of sweet potato is produced globally, with 95% produced in developing countries, with the crop considered a valuable source of vitamins A, B, C and E. — Reicelene Joy N. Ignacio

House to review Iloilo flood control projects during campaign period

SPEAKER Gloria Macapagal-Arroyo is set to convene the Oversight Committee on Disaster Management over the Congress break to look into the implementation of the flood control projects in Iloilo City.
Ms. Arroyo had committed to ensure the chamber will exercise its oversight function even during the campaign period.
“I don’t want to get in the way of their campaign. If I don’t find anyone who is not running or running unopposed, I will chair it myself,” the Speaker said in a statement Monday, following her visit to the city.
The Speaker has been holding oversight committee meetings to review in particular laws and projects implemented during her term as President, such as the NGC Housing and Roll-On, Roll-Off (RORO) transport system.
In 2003, Ms. Arroyo initiated a P5.5- billion flood control project in Jaro, Iloilo. It was completed in 2011.
The project nearly did not go ahead after the National Economic and Development Authority (NEDA) rejected the proposal.
“I am an economist. I knew the project’s importance to the people of Iloilo City and so I overturned the NEDA. I am glad that it has so much positive change in Iloilo City and its people,” she said.
The project included the construction of the Jaro Floodway, improvement of the Tigum and Aganan Rivers as well as the Jaro River mouth, Iloilo River and Upper Ingore Creek.
In addition, the oversight committee will also look into the flooding in Passi City, Iloilo. — Charmaine A. Tadalan

Health insurance buyers given 15-day period to read fine print

THE Insurance Commission (IC) is requiring all insurers to give a “free-look” period for health insurance policies to allow clients to decide whether to proceed with the contract.
In a statement sent to reporters on Monday, the IC said Insurance Commissioner Dennis B. Funa has instructed all insurers to give a 15-day free-look period for health insurance policies with a duration of more than six months.
On the other hand, policies with a duration of six months or less are required to have a five-day free-look period.
A free-look period is the amount of time given to a policyholder to decide whether to continue with the contract or not. This gives the policyholders some time to review the policy if it meets their needs.
“It is that window of time given to policyholders to read the policy provisions, understand the inclusions and exclusions, and if he or she has purchased the right product,” Mr. Funa said.
Once a policyholder receives the new health insurance policy, the free-look period begins. If the client decides to discontinue the policy, the customer can get back all premiums paid.
“A free-look period protects a customer if he/she feels that the policy document is not what he/she signed up for and protects the insuring public from dangers of misselling,” Mr. Funa added.
Asked for comment, the Philippine Life Insurance Association, Inc. (PLIA) welcomed the IC regulation, saying it will safeguard the interests of customers.
“The free look period is a good consumer protection mechanism that provides an opportunity to validate the terms and features of the product as presented during the sales process,” PLIA General Manager George C. Mina told BusinessWorld in a text message.
He added that the grace period will allow the policyholder to get to know the fine print, and avail of the remedy should the client disagree with the contract’s terms or provisions.
“It is a welcome safeguard to protect the interest of the customer especially for medical products that involve inherent limitations on pre-existing conditions.”
Likewise, health maintenance organizations are also directed to incorporate a similar free-look period in all health maintenance contracts. — Karl Angelo N. Vidal

How much are we supposed to pay under the amnesty tax?

A tax amnesty is an opportunity to start over with a clean slate. Taxpayers with ongoing audits would consider this an opportunity to settle deficiency taxes more efficiently. An audit, even for taxpayers who are compliant, is costly and stressful. To quantify the degree of relief on offer, some tax accountants and managers have computed the savings that can be realized and even prepared position papers to argue the benefits of availing of a tax amnesty, noting that they outweigh the costs.
With legislation transmitted to the Office of the President on Jan. 17, the proposed Tax Amnesty Act (TAA) will either be vetoed, signed or lapsed into law within the next couple of weeks. Assuming it will become law, in whole or in part, the Bureau of Internal Revenue (BIR) must issue implementing rules and regulations (IRR) within 90 days from its effectivity. Taxpayers can avail of the tax amnesty within one year from effectivity of the IRR, except for estate tax amnesty where taxpayers will be given two years to avail.
While we await the signing of the proposed TAA, we can prepare initial computations based on the provisions of the proposed TAA. The TAA covers estate tax, general tax amnesty, and tax amnesty on delinquencies.
For those availing of the general tax amnesty, the proposed TAA provides an option to the taxpayer to pay amnesty tax of either 2% based on total assets or 5% based on net worth as of Dec. 31, 2017. If the computed net worth is negative, the taxpayer may still avail of the benefits of tax amnesty, and pay the minimum amnesty tax of between P75,000 and P1 million.
It might be easy to compute for the 2% and 5% based on the audited financial statement of the taxpayer. However, there are peculiarities on how to compute for the value of assets and liabilities under the proposed TAA. In this regard, some taxpayers planning to avail of the tax amnesty have raised the following questions:

1. Do assets cover all of those in or out of the Philippines, whether or not used in trade or business?

Many foreign individuals and corporations are concerned whether assets outside the Philippines are to be included in the Statement of Total Assets (STA) or Statement of Assets, Liabilities and Net Worth (SALN).
Some expatriates note that most of their foreign assets were purchased from income earned prior to their assignment to the Philippines. In filling out the STA, should the expat identify the assets purchased from income sourced only in the Philippines?
Considering that only citizens and domestic corporations are taxed on their worldwide income, aliens and foreign corporations do not generally declare their foreign assets to the Philippine government. Are we to assume that the same rules will be followed in preparing the STA or the SALN?
On the other hand, are married individuals required to file a joint STA or SALN? If a spouse is availing of the tax amnesty, is he required to declare the assets and/or liabilities of the non-availing spouse or only the assets that are under his name?

2. Real properties shall be accompanied by a description of their classification, exact location, and valued at acquisition cost if acquired by purchase, or the zonal valuation of fair market value as shown in the schedule of values of the provincial, city or municipal assessors at the time of inheritance or donation, whichever is higher if acquired through inheritance or donation.

This means that a taxpayer who bought land at P100 per square meter in 1990s, but with a fair market value (FMV) of P10,000 per square meter in 2017, would happily declare the land in his STA or SALN, thinking he will save a lot of tax. However, he may think otherwise if he came to know that the manufacturing plant or the office built on such land is also valued at cost even though such building is nearly fully depreciated.
The same is true with inherited or donated land and/or buildings. Under the TAA, the said real properties are to be declared based on zonal or FMV at the time of inheritance and/or donation, and not the book value or FMV as of Dec. 31, 2017. As an additional concern for those inherited/donated buildings, the schedule of values of the provincial/city/municipal assessors do not necessarily contain the FMV for all types of buildings. Will the BIR’s IRR provide an alternative source of FMV in this case?

3. Personal property, other than money, shall be accompanied by a specific description of the kind and number of assets, or other investments, indicating the acquisition cost less the accumulated depreciation or amortization.

Corporations with significant receivables might ask whether the allowance for bad debts can be used to reduce the expected receivables. A similar question arises with inventories — can the allowance for damage or decline in value due to obsolescence be deducted from the value of the inventories?

4. Inherited shares of stock are valued at FMV, and assets/cash denominated in foreign currency are converted to pesos at the date of STA or SALN.

This is a tricky provision which requires that the above assets held as of Dec. 31, 2017 are valued at book as of a later date, i.e. date of the STA or SALN, which may result in lower or higher values.

5. All existing liabilities, which are legitimate and enforceable, disclosing or indicating clearly the name and address of the creditor and the amount of corresponding liability.

With the requirement that the name of the creditor be specifically stated, the question arises of whether estimated and/or provisions for future obligations, such as contingencies for warranty or repairs and maintenance to customers, although included in the financial statement of the taxpayer, may be included as liabilities for SALN purposes.
The above calculation clearly shows that asset or net worth in the financial statement may not be the same asset or net worth computed for purposes of tax amnesty. These questions will probably be addressed by the BIR in the implementing rules and regulations for the TAA. While we wait for a clearer interpretation on how the assets and liabilities will be valued or stated, taxpayers thinking of availing of the tax amnesty need to start diligently preparing the STA or SALN based on the proposed tax amnesty act.
 
Marie Fe F. Dangiwan is a senior manager of the Tax Advisory and Compliance Division of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.
Mariefe.Fawagan@ph.gt.com
+63(2) 988-2288.

Solar para sa pulitika, Rice Tariffication para sa masa

The cronyist “Solar para sa Bayan Corporation” (SPBC) franchise bill (HB 8179) was magically passed by the House of Representatives despite opposition by many groups in the energy sector. Among the oppositors is the Developers of Renewable Energy for AdvanceMent, Inc. (DREAM), the umbrella organization of all RE associations in the Philippines.
As I did in my letter to Sen. Grace Poe, arguing for the junking of HB 8179, DREAM said the bill is unconstitutional and should not be passed. In particular, (1) it violates the equal protection clause under Article III, Section 1 of the 1987 Constitution. The proposed SPBC franchise has no substantial distinction with other generators that will not be granted a similar franchise. (2) It violates the fundamental right to due process of law under the Constitution. And (3) it violates the proscription against unfair competition.
Nonetheless, a Senate Committee Report 659 was passed last week, February 7, 2019, and some outlandish provisions from the original bill have been tamed. Among the changes is that the operational coverage “in any… areas throughout the Philippines” has been limited to only 13 provinces.
Note three things here: (1) SPBC claims it is competitive yet it requires a Congressional franchise and a franchise by nature is a monopoly, (2) EPIRA law of 2001 has unbundled energy components and players are classified as transmission, generation, distribution, supply companies; SPBC is a generation, distribution and supply company rolled into one, and (3) first time that a franchise will have implementing rules and regulations (IRR).
BusinessWorld reported (“Court challenge looms for Solar Para Sa Bayan franchise,” February 08, 2019) that the Coalition for Rural Electrification (CoRE) warned that such a franchise bill may not hold up to a court challenge. Good. It is shameless that this bill was rushed at the House and the Senate where a member is the mother of the company owner as we all know. If it becomes law, the measure should be called as Solar para sa Pulitika Corp.
Meanwhile, on another front, there is a last-minute lobby by various protectionist groups who insist that expensive rice is good for the country and the poor. They oppose SB 1998 or the Rice Tariffication bill, removing quantitative restrictions (QR) and replacing it with a 35% tariff rate on imported rice from ASEAN, and 40% or higher on imported rice outside of ASEAN.
The protectionists’ main argument is that rice liberalization will lead to the demise of the local rice industry as there will be a huge influx of imported rice from our neighbors.
This is outright disinformation, deception and lie. Even if we wanted to import one-half or even one-fourth of our domestic rice consumption, it is not possible, it is not going to happen.
Data from the UN Food and Agriculture Organization (FAO) show that Philippine rice production has been steadily rising and the average productivity per hectare has also been rising, from only 2.2 tons per hectare in 1980 to 4.0 in 2017.
The two big rice exporters in the world, Thailand and Vietnam, have actually experienced a declining or low expansion in rice output. Thailand’s output declined from 35.7 M tons in 2010 to 33.4 M tons in 2017. Over the same period, Vietnam’s output increased a little from 40 to 42.8 M tons.
Myanmar and Cambodia can be the next group of rice exporters but they also have a rising demand and population (see table).
Rice, Paddy Production (million tons) and Yield (tons per hectare) in East Asia
So the Philippines’ rice importation will be limited and restricted even if it wants to import more and there will be no such demise in the local rice industry. Rice trade liberalization should proceed, and NFA’s distortionist monopoly of power to regulate rice imports should be removed.
The 35% tariff is actually high. Why should a P30/kilo potential landed price of rice from ASEAN neighbors be made P40.50/kilo to many poor Philippine households? That 35% should go down through time, down to zero for rice imports from ASEAN.
 
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers
minimalgovernment@gmail.com

Corporate Governance Paradigm under the Corporation Code of the Philippines

The Corporation Code contains its own set of “corporate governance (CG) principles,” which can be summarized into the following general statements:

a. The size and composition of the Board of Directors can only be based on provisions contained in the Articles of Incorporation or the By-Laws.

b. Other than in those cases specifically provided by law, any qualification or disqualification pertaining to the members of the Board of Directors shall be valid only when expressly provided in the articles or by-laws.

c. Boards of Directors have no power by mere exercise of their Business Judgment, to provide for their own qualifications and disqualifications.

d. Outside of specific statutory empowerment, the power to elect, compensate, discipline, and remove any member of the Board of Directors is vested with the stockholders.

Board composition must be of optimum size
Section 14(6) of the Corporation Code expressly requires to be contained in the articles of incorporation of every corporation a provision that “The number of directors or trustees shall not be less than five (5) nor more than fifteen (15).” This statutory directive ensures that the size of the Board of any stock and for-profit corporation is one that is within “optimum range,” so as not to be so small to be ineffective, but not too large to be unwieldy and inefficient. You can evaluate the importance of the CG principle that “the Board must be of optimum size” when you compare the provisions of the Corporation Code with respect to non-stock corporations that are allowed to have board sizes of more than fifteen (15) members.
That the Board of Directors for stock corporations should be within the optimum size of not less than five (5) and not more than fifteen (15) members is a statutory mandate which cannot be overcome even by contrary provisions in the articles of incorporation and/or the by-laws of any stock corporation, much less by formal resolutions of the Board of Directors. It constitutes part of what is considered to be “good governance principle” under the Corporation Code.
Manner of election, qualifications and disqualifications of the Directors must be set out in the by-laws; not within the board’s business judgment
Section 47(5) of the Corporation Code provides that, “Subject to the provisions of the Constitution, this Code, other special laws, and the articles of incorporation, a private corporation may provide in its by- laws for … [t]he qualifications, duties and compensation of directors or trustees, officers and employees.” In turn, Section 47(7) allows to be provided in the by-laws “[t]he manner of election or appointment and the term of office of all officers other than directors or trustees.” Taken together, the two sections of the Corporation Code cover the principle that the manner of election, qualifications and disqualifications of the members of the Board of Directors can be legally provided only, outside of statutory provisions, in the by-laws of the corporation. Therefore, a key CG principle embodied with the provisions of the Corporation Code is that it is not within the business judgment power of the Board to provide for the composition, manner of election, qualifications or disqualification, outside of what is provided for by law, and the by-laws of the corporation.
Sections 23, 24, and 27 of the Corporation Code provide for the manner of election, term of office, and for the minimum statutory qualifications and disqualifications of directors, as follows:

(a) Members of the Board of Directors of a stock corporation shall “be elected from among the holders of stocks…who shall hold office for one (1) year and until their successors are elected and qualified”;

(b) Members of the Board of Directors of every stock corporation are to be elected through cumulative voting;

(c) Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation;

(d) Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director; and

(e) No person convicted by final judgment of an offense punishable by imprisonment for a period of exceeding six (6) years, or a violation of this Code, committed within five (5) years prior to the date of his election or appointment, shall qualify as a director of any corporation.

The CG principle of accountability that is embodied in the statutory requirement of an annual election of the members of the Board of Directors of stock corporations is best explained by the Supreme Court in its decision in Valle Verde Country Club, Inc. v. Africa, which held —
The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in that way can the directors’ continued accountability to the shareholders, and the legitimacy of their decisions that bind the corporation’s stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own.
It is therefore contrary to the good governance principles under the Corporation Code to have permanent directors in the Board. In Grace Christian High School v. Court of Appeals, our Supreme Court held that a by-law provision or company practice of giving a stockholder a permanent seat in the Board would be against the provisions of the Corporation Code which requires members of the board of corporations to be elected on an annual basis. Therefore, any provision in the articles of incorporation or by-laws which offends against policies found in the Corporation Code would be rendered unlawful and void by our courts. The importance of the annual voting of the members of the Board of Directors can be appreciated when compared with the provisions of the Corporation Code with respect to non-stock corporations that allow them by-law provisions to have staggered terms of three years.
Cumulative voting, which is a mandatory system of voting for directors in all stock corporations, ensures that minority stockholders have a reasonable chance of electing their nominees into the Board. It embodies the “CG principle” that the Board of Directors of every stock corporation, although it speaks and decides through the vote of the majority of its members, should have varied representation that allows the airing of the concerns and interests of the minority stockholders. The mandatory cumulative voting system in the election of the members of the Boards of Directors of companies under the Corporation Code therefore adheres to the current CG principle of “equitable treatment of shareholders.” Again, you can appreciate the centrality of the cumulative voting in the governance system for stock corporations, when compared to the provisions of the Corporation Code with respect to non-stock corporation where the default rule is straight voting for the members of the Board of Trustees.
The Corporation Code provisions on the manner of election, the qualifications and disqualifications for members of the Board of Directors ensure that only qualified persons occupy what is clearly a position of trust, and therefore adhere to the CG principle of competence. In Gokongwei, Jr. v. Securities and Exchange Commission, our Supreme Court recognized the principle that it is in the by-laws that the corporation may provide for additional qualifications and disqualifications for directors other than those found in statutory law, such as the power given under the then Section 21 of the Corporation Law (now Section 47 of the Corporation Code), thus:
In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its by-laws “the qualifications, duties and compensation of directors, officers and employees….” This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that “every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director….Section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualification of directors and is “highly prudent and in conformity with good practice.”
Section 16 of the Corporation Code provides that any amendment to the provisions of the articles of incorporation would be valid and effective only upon a resolution by the majority of the Board of Directors and ratified by at least two-thirds (2/3) of the outstanding capital stock, with the amendments to be thereafter approved by the SEC. In turn, Section 48 provides that any amendment of the by-laws would be valid and effective only upon a resolution by the majority of the Board of Directors and ratified by at least a majority of the outstanding capital stock. In essence, outside of statutory provisions on the matter, the composition of the Board of Directors and the qualifications and disqualifications of its members are governed by existing provisions in the articles of incorporation and by-laws, and cannot be changed simply by a formal resolution of the Board of Directors in the exercise of their business judgment.
It is therefore part of good governance paradigm under the Corporation Code that the composition, manner of election, the qualifications and disqualifications, and the compensation of members of the Board of Directors should be clear and transparent to current and future stockholders, and founded upon firm and stable bases (i.e., statutory rules, articles and by-laws provisions), and upon which nomination and election processes can be pursued. The Corporation Code seems to consider as “bad CG” that the Board would have the power to provide on its own business discretion, even by formal board resolutions, for its composition, to adopt additional qualifications and disqualifications, or even to provide for themselves remunerations.
The Corporation Code therefore embodies a bias against giving Boards of Directors the power to influence on who may sit on the board at any given time, by merely adopting resolutions that would qualify only their chosen candidates, or even to adopt new norms of disqualification that would ease out members who are opposed to their views. To tolerate such state of matters would allow the incumbent majority of the Board to wield greater influence on other members, and the threat of being “disqualified” out of the board, would such minority directors fall under the influence of the majority. Such state of things would be contrary to the public policy behind the cumulative voting system for stock corporations. It would also be contrary to what seems to be the current “CG policy” under the Corporation Code, that directors as individually elected members of the Board must be totally accountable only to the corporation and the stockholders, and not to the Board as the possessor of all corporate powers under the doctrine of centralized management.
The 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.
 
Cesar L. Villanueva is Chair of the MAP Corporate Governance Committee, the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs (GCG).
cvillanueva@vgslaw.com
map@map.org.ph
http://map.org.ph

Challenges to regional security: Territory and terrorism

The two major issues confronting Southeast Asia today are (a) the dispute between and among claimant states for the control of resources in the South China Sea and (b) the rising threat of armed extremist groups. These two issues are the major stimulus for the military buildup happening in the region today.
The dispute in the South China Sea over territorial sovereignty and maritime rights is complex and may even be among the most intractable international relations problems confronting the region. The fact that it is the first of its kind in history, and hence, no available road map nor precedent cases for how it should be managed or resolved makes the issue even more challenging. Add further the flavor of rising nationalism that is usually triggered among local populations when the perception of or actual usurpation of territory happens and you have a powder keg waiting for a trigger.
China’s uncompromising stance in asserting its nine-dash-line claim in the entire South China Sea (SCS) triggers the counter stance of the other claimants. The military buildup of South East Asian (SEA) states especially those involved in the SCS dispute was notable. This is due to the age-old dictum in realpolitik that “a capable and credible military would deter aggressive behavior from other states.”
Vietnam has and continues to acquire modern defense technologies from countries like Russia and India. It is in fact the only claimant state that maintains a significant military presence in the islands and features it claims in SCS. Indonesia has stepped up its military build-up, and instead of the usual inward-looking approach, it has begun asserting its presence both in SCS as well as in the Sulu Sea, especially during and after the Marawi siege in the Philippines in 2017. Sulu sea is believed to be the backdoor corridor used by foreign terrorist fighters (FTF) to enter the Philippines.
The Philippines also began to aggressively pursue its military modernization program that was lackadaisically pursued for two decades, after the 2012 standoff with China in Panatag/Scarborough Shoal. The confrontation was a stark wake-up call for the Philippine military on how severely behind its military capability is; it was also a realization that its Big Brother, the US may not be the “Big Bro” the military has expected it to be since it wavered to categorically declare that it has the Philippines’ back in times of need. And so, the Armed Forces of the Philippines (AFP) began to fast-track the capability buildup especially of its navy and air force. However, military modernization is always contingent on the economic development of the country, i.e. the bigger the income the Philippines generates means bigger budget for AFP modernization and vice versa.
The Philippine Constitution puts an additional limit — the military cannot be given the biggest share in the budget-pie since that share is reserved for the education sector. The military hence has to find alternative ways and means to generate additional funds to purchase its equipment and weapon system. The Philippine military is among the weakest in SEA in terms of materiel.
Moreover, an additional challenge for the AFP is the fact that it remains tied to the internal security operations against domestic armed threat groups. The Philippines is currently in various stages of the peace process with different armed groups. While government anticipates a peaceful settlement and conclusion with Bangsamoro groups, the MILF and MNLF, violent armed groups(VAG) and terrorist groups continue to proliferate in the same operational space as the MILF and MNLF, creating a situation where germination and cross pollination of ideas and grievance become possible. VAGs have proven to be resilient and dodgy as they continue to terrorize civilian population with bombings, despite the existence of martial law in the entire Mindanao area.
Armed extremism is a pressing issue not just in the Philippines but in Southeast Asia. In 2017, the Philippines and Thailand were ranked 12th and 16th respectively in the Global Terrorism Index 2017 published by the Institute for Economics and Peace. Terrorist cells continue to operate in Indonesia and Malaysia. The attempt by the ISIS affiliate Daulah Islamiya alliance (composed of Abu Sayyaf-Basilan, BIFF-Turaife Group, and Maute group), to have Marawi as its controlled territory jolted the rest of SEA since the attempt suggests significant presence of ISIS in the region. The fact that Southeast Asia is divided between land-locked areas with porous borders (insular) and states with vast shorelines and sea lanes (peninsular), provide effective shelter and mobility corridor for the ISIS groups to grow in the region.
What to do? Despite the military buildup of SEA states, they all pale in comparison with China’s military expenditure, with its defense spending quintupled over the last decade. The region hence must put its act together. A balanced and strategic approach is needed: For the South China Sea dispute, have a stronger call supported by different state regional groups, for a binding Code of Conduct, a moratorium on provocative activities, and greater cooperation between claimants.
Forge “people-to-people” cooperative relationships based on trust and confidence between and among the domestic populations of the states in dispute. Increase the multilateral cooperation and dialogue activities between and among states. ASEAN-sponsored training and dialogue can facilitate people-to-people cooperation; while bilateral and multilateral cooperative arrangements like the Philippine-Indonesia border agreement and the Trilateral Maritime Patrol Agreement among the Philippines, Malaysia and Indonesia to control cross-border trade as well as incidents of piracy and lawlessness in the Sulu sea are good examples of these.
And finally, we need to have more dialogue spaces where interested and concerned parties can have candid and open discussions on issues.
 
Jennifer Santiago Oreta is currently the Director of the Ateneo de Manila University-Initiative for Southeast Asian Studies (AISEAS).
joreta@ateneo.edu

How should HR gain business acumen?

By Raju Mandhyan
I WOULD like to hit the ground running with this piece. I can do that because I am a former, hard core, businessperson who has moved into the field of people development.
The topic first, in my memory, came up with Professor Zayda Marquez at De La Salle-College of Saint Benilde. The question was why should human resource personnel have business acumen? Twenty years later, the same question is still raised. And, I am thinking to myself because the easiest and the most prudent measure of success in any endeavor, any enterprise, or any social responsibility organization is money. I am not saying it is the only measure but it is the prime and the most prudent measure.
Let’s get on with this and accept it as fact, as stark reality, and let us not sugarcoat it any more. I understand and deeply respect the principles of people, planet and profits but recognize that these are deeply intertwined and almost inseparable.
I have heard President Gerry Plana of the People Management Association of the Philippines bring up the need to build business acumen competencies among HR personnel many times. And it amazes me to realize that 20 years have passed since I first heard it from Professor Zayda Marquez and last heard it from President Gerry Plana.
The idea brewing in my mind is that we can take a hundred percent of our advocacies and turn them into a hundred percent of action! Just that, one hundred percent action!
Out there in the world, institutions like SHRM, AHRM and ATD have been voicing out similar opinions for decades. Of the hundreds of suggestions put out by them and the rest of the world, here are three quick ones of my choosing:

• Move Sales and Marketing Champions into the HR Function: Throw those that claim that they can sell ice to Eskimos into the pit where they have to sell people development ideas to the C-suite. We know HR people care, now let us see them pitch the idea of human care.

• Move the Numbers obsessed Financial wizards into the HR Function: Along the continuum of tasks against relationships and care, the Numbers people are on one extreme while Peoples people are on the opposite end. Let the twain meet and let the sparks fly. Where there will be fire, the businesses can cook a pot of progress and profits.

• And, finally, let people from HR spend time at the customer and client interface fronts. Let them get a taste of what it is to be constantly thinking in numbers, in commitments and being accountable to people other than those that surround and support you. Let them try sell ice to Eskimos.

Surely the trends that take form in industry begin to trickle down into the academe. At a recent People Management Association of the Philippines there was talk about how the numbers of student enrollees have dropped in the people management courses. Getting people development people into the fore-front of all businesses will add engine and energy not just to the function but also to the future of all human progress.
 
Raju Mandhyan is an author, coach and speaker.
www.mandhyan.com

Fuel Masters remain upbeat despite absorbing first loss

By Michael Angelo S. Murillo
Senior Reporter
THE BEST start in the Philippine Basketball Association of the Phoenix Pulse Fuel Masters came to an end on Sunday after they absorbed their first defeat in the ongoing Philippine Cup at the hands of the streaking Rain or Shine Elasto Painters, 98-94, in overtime.
After racking up five straight victories to open their campaign, the Fuel Masters tried to extend their winning streak but just could not get the breaks in the end in the tightly fought contest against the Elasto Painters (6-1), who, with the win, dislodged Phoenix from the top of the leaderboard.
While admitting the loss was a tough one for them, Phoenix coach Louie Alas said at 5-1 they do not have much to complain about and that they are still in good standing moving forward.
“The loss stings but we are at 5-1 and we cannot complain about that. We just have to improve on the next game and avoid losing two straight to stay on track of a top two finish in the elimination,” said Mr. Alas as he met members of media on his way out of the Smart Araneta Coliseum following their game on Sunday.
Against Rain or Shine, the Fuel Masters were kept at bay for much of the contest but showed resilience throughout to put themselves in a position to win in the end.
But in overtime the Elasto Painters just got the leverage to go on top, including a basket from Mark Borboran off a broken play with 12 seconds to go to ensure Rain or Shine got the win.
Last season’s rookie of the year Jason Perkins had a career-high 27 points for Phoenix to go along with nine rebounds.
Matthew Wright had 16 points, seven rebounds and five assists while Calvin Abueva also had 16 markers while pulling down 12 boards for the Fuel Masters.
Following last Sunday’s game, Phoenix and the league take a two-week break to give way to Gilas Pilipinas’ bid in the sixth and final window of the FIBA Basketball World Cup Asian Qualifiers.
It is a time off that the Fuel Masters will try make to make the most of to better themselves and prepare for the tougher challenges ahead, said Mr. Alas.
“That (break) has its pros and cons. Coming off a loss, of course, you want to get back right away. But on the other hand, it affords us time to assess what happened in this game and correct our mistakes,” the Phoenix coach said.
“We just have to keep improving, especially on defense. To win against the heavyweights you have to rely on stop after stop after stop. We have to learn doing that consistently,” added Mr. Alas.
Phoenix next plays on Feb. 27, the first play date after the break, against the Northport Batang Pier.

Embiid nets 37 as Sixers scorch Lakers

LOS ANGELES — Joel Embiid scored 37 points and grabbed 14 rebounds to lead the host Philadelphia 76ers to a 143-120 victory Sunday against the Los Angeles Lakers.
It was the 23rd game for Embiid this season with at least 30 points and 10 rebounds, the most such games by any Philadelphia player since Charles Barkley had 27 in 1987-88.
Tobias Harris added 22 points and JJ Redick had 21 for the Sixers, who won their second game in a row.
Kyle Kuzma led the Lakers with 39 points while JaVale McGee added 21 points and 13 rebounds. Brandon Ingram also had 19. LeBron James contributed 18 points, 10 rebounds, and nine assists.
Kuzma was electrifying in the first quarter with 23 points as L.A. pulled ahead 40-39. It was the most points scored in a single quarter for Kuzma in his brief career, and the most by any Laker since Kobe Bryant also had 23 in the first against the Memphis Grizzlies in March 2008.
Harris kept the Sixers close by hitting his first six shots and finishing with 14 points in the opening period.
The Sixers reeled off a late 17-2 run to take a 76-67 lead into the locker room at halftime. Embiid poured in 25 points by halftime as the Sixers surged ahead by nine.
Philadelphia’s new-look offense stayed hot throughout the third quarter as it built a 15-point advantage. Backup point guard T.J. McConnell knocked down a 3-pointer with 0.7 seconds remaining for a 109-94 lead.
Kuzma scored 10 straight L.A. points late in the third and was up to 37 for the game but the Lakers still trailed by 15.
Sixers reserve forward Mike Scott made back-to-back buckets early in the fourth as the Sixers moved ahead 116-96.
James hit a jumper and the Lakers got within 120-108 with 6:58 remaining.
Ben Simmons converted a pair of free throws, Furkan Korkmaz scored off an offensive rebound and a 7-0 spurt put the Sixers back ahead comfortably at 127-108.
It was more than enough of a cushion to win again at home.
DONCIC RALLIES MAVERICKS PAST TRAIL BLAZERS
Rookie sensation Luka Doncic is gaining the reputation as one of the league’s best clutch performers and he did it again Sunday with 28 points, five coming in the decisive final 2:27 to give the Dallas Mavericks a 102-101 comeback win against the visiting Portland Trail Blazers.
Doncic scored 13 points in the fourth quarter, a stanza in which Dallas trailed 96-81 with 10:43 to go in the game. Portland built that lead on Damian Lillard’s incredible 21-point third quarter, all of which came in the final 5:19 of the quarter after Dallas came back from a 10-point halftime deficit to tie the game at 67.
Lillard, who started the game two of 11 from the field but finished with 30 points on 10-of-23 shooting, made eight consecutive shots, including five 3-pointers for a 92-78 lead after three quarters, and it seemed the Trail Blazers were going to pick up a big road win with a date at Oklahoma City coming up Monday night.
But Doncic, who scored 13 of the final 19 points of the game, and his retooled Mavs consisting of three former bench role players in the starting lineup, had other plans.
Dallas increased its defensive intensity and held Portland scoreless for seven minutes of the fourth quarter and limited the Blazers to just nine points, marking the first time Portland lost this season in 34 games when it led after three quarters.
Newcomer Tim Hardaway Jr., acquired in the deal with the New York Knicks along Kristaps Porzingis, scored 24 points on nine-of-18 shooting. Dwight Powell had 13 points off the bench and Dorian Finney-Smith added 11 points and six rebounds.
Early on, the Trail Blazers’ bench sparked a 20-1 run and Jusuf Nurkic was having his way inside. He finished with 18 points and 10 rebounds, but fouled out with about three minutes to go in the fourth quarter.
Portland got little else from its starting lineup with CJ McCollum finishing with 14 points on 6-of-17 shooting. Maurice Harkless and Al-Farouq Aminu combined for just seven points on three-of-10 shooting.
MAGIC CRUISE PAST HAWKS FOR SECOND STRAIGHT ROAD WIN
Center Nikola Vucevic scored 19 points to lead seven Orlando players in double figures, and the Magic completed a back-to-back road sweep by drubbing the Atlanta Hawks 124-108 on Sunday.
Vucevic was eight of 13 from the field and added 12 rebounds. The Magic also got 18 points from Terrence Ross, 17 each from Jonathan Isaac and Evan Fournier, 14 points from D.J. Augustin and 12 from Aaron Gordon, who played despite a sore back, along with 10 from Wes Iwundu.
Augustin played a flawless floor game, handing out 10 assists and not committing a turnover.
The Magic, fresh from a 20-point win over the Eastern Conference-leading Milwaukee Bucks on Saturday, showed no lack of energy in the runaway win. Orlando shot 47.3% from the floor, threw in 13 3-pointers and won their second straight, their fourth victory in five games.
Orlando is now 12-10 in back-to-back sets. The Magic are 8-3 on the first game and 4-7 on the second game. It’s the first time Orlando has won back-to-back road games since April 2014.
It was the third straight loss for Atlanta, the second straight on its seven-game homestand. Atlanta dropped to 4-10 on back-to-backs. Atlanta has lost five straight home games.
Atlanta’s John Collins played despite a sore right knee and finished with 15 points and four rebounds. The Hawks also got 16 points from Alex Len, 15 points from Kevin Huerter and 13 points and seven assists from Trae Young. — Reuters

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