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Duterte signals readiness to amend charter’s economic provisions only

PRESIDENT Rodrigo R. Duterte is now open to limiting Charter change to just economic provisions, noting that Congress is “taking too long” to act on it.
In his speech during the peace assembly for the ratification of the Republic Act No. 11054 or the Bangsamoro Organic Law (BOL) in Cotabato City last Friday, Jan. 18, Mr. Duterte signaled that he might just opt to seek a revision of the Constitution’s economic provisions.
“Much as we would like to change anything there…. We have been used to it. We are the people governed by elections and we elect leaders. The leaders must be the choice of the people. I am sure that with that — the fundamentals provided by the law and hopefully if we can amend the Constitution, not all, but a few of the economic provisions and some…” he said.
In a briefing on Monday, Jan. 21, Presidential Spokesperson Salvador S. Panelo said: “Well, you know the President is a very creative person. If he feels that one method is not practical or cannot be realized, he goes to another mode. What is important to him is that certain provisions in the Constitution must be amended and — that is a judgment call of the Congress.”
Mr. Panelo added that “perhaps… what the President is saying is that it takes too long for Congress to act on it,” noting that Mr. Duterte has been advocating for a revision of the Constitution since the start of his presidency.
“However, Congress hasn’t taken serious moves to make it a realization,” he also said.
Through Executive Order No. 10, Mr. Duterte created the consultative committee (ConCom) in Dec. 2016 that he tasked to review the 1987 Constitution and draft a Federal Constitution. In July last year, he approved ConCom’s draft and endorsed it to Congress.
However, the House of Representatives, under the leadership of Speaker Gloria Macapagal-Arroyo, came up with its own draft, which it approved on third and final reading last December.
Contrary to ConCom’s draft, which the President endorsed to Congress, the House’s version lifted the term limits of elective members of the legislative branch and the ban on political dynasties.
As for the provision on foreign investments, the House’s draft added two words as an amendment to the Article XII, Section 10 (paragraph 4) of the 1987 Constitution: “by law.”
Article XIV, Section 5 of The Resolution of Both Houses No. 15 reads: “The State shall, by law, regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities.”
Mr. Panelo said during the briefing that Mr. Duterte has always wanted to liberalize the country’s foreign direct investment policy. “He mentioned during the campaign about the entry of foreign investments; there are so many restrictions. He wants to liberalize that,” he said.
He also said that the lack of support from Congress for ConCom’s draft federal constitution “could be” a reason for Mr. Duterte’s change of mind.
“Could be,” he said, noting that the President was only “expressing an idea.”
“As he tells us he is fond of shaking the trees. So maybe he wants a reaction from those who would want to respond to his idea,” he added.
Ms. Arroyo has said that she is leaving the matter of charter change to the 18th Congress. For his part, Senate President Vicente C. Sotto III has also said that his chamber can no longer tackle constitutional amendments due to time constraints.
Asked if Mr. Duterte was addressing the 18th Congress in his remarks on the matter last Friday, Mr. Panelo told BusinessWorld in a phone message that the President was just “floating an idea.”
Sought for comment, British Chamber of Commerce Philippines (BCCP) chairman Chris Nelson said in a phone interview that he supports the idea.
“We fully support that. Like all the chambers, we have been an advocate of liberalizing foreign investment. We are pleased to hear that.”
“I’m sure that Congress is so busy with many things. But regardless of what is the process, we see that there is a need to increase our foreign direct investments,” he also said.
Mr. Nelson added that he is “optimistic” that this reform will be realized within the President’s term, because he has a “genuine desire” to realize his 10-point socioeconomic agenda.
In a phone message, American Chamber of Commerce of the Philippines, Inc. (AmCham) Senior Advisor John D. Forbes said: “We warmly welcome the president’s statement. There has been a majority consensus for almost 20 years to amend the foreign equity restrictions, which can lead to tens of billions of new investment. Getting the reform done has been the challenge. We believe this administration can do what others have others failed to do.”
Canadian Chamber of Commerce (CanCham) President Julian Payne said his group also welcomes Malacañang’s statement.
“This intent was stated in the initial 10-point economic program issued at the start of his Administration. FDI (foreign direct investment) has increased recently and we are confident that liberalizing the economic provisions will facilitate further significant increases that will stimulate more and sustain FDI. This will bring with it more jobs for Filipinos, more technology transfer, and more revenue for the government.”
He added: “And with a rapidly expanding economy, this will not be a zero-sum game crowding out domestic investment but instead a stimulant for increased domestic investment sharing the growth.”
The President, Mr. Panelo also said, is not yet giving up on federalism. “The President is optimistic because he knows federalism will help the development of this country. It’s a matter of I think time on the part of Congress to do it,” he said. — Arjay L. Balinbin

PHL, Japan sign loan deals for rail, flood-control projects

THE Philippine government has signed two new loan agreements yesterday worth roughly P98 billion, funded by Japan to cover the construction of a long-haul railway in Luzon and a flood management project covering the Pasig and Marikina rivers.
Finance Secretary Carlos G. Dominguez III signed the loan agreements with Shigenori Ogawa, director general of the Japan International Cooperation Agency (JICA) on Monday afternoon. This will support the first segment of the North-South Commuter Railway (NSCR) extension project and the fourth phase of the Pasig-Marikina River Channel Improvement Project.
JICA has lent P80.47 billion to the Philippines, representing the first tranche of the entire NSCR project funding expected to cost a total of P628.42 billion. Of this, about P488 billion will be co-financed by JICA and the Asian Development Bank while the government will put in about P140 billion.
The new line of the Philippine National Railways will extend train services from the Clark International Airport in Pampanga to Manila and all the way to Calamba, Laguna. The first tranche will support the construction of elevated structures, seven stations and a train depot, according to the Transportation department.
The ongoing construction of the Malolos-Tutuban line is also supported by JICA funding.
Mr. Dominguez said the NSCR is the biggest project so far under the “Build, Build, Build” program of the Duterte administration. The 147-kilometer (km) rail line will cut travel time from Northern to Southern Luzon to 1.5 hours from the current five hours by bus.
The railway segment is expected to be running by 2022, Transportation Undersecretary Timothy John R. Batan said during the signing ceremony yesterday at the DoF headquarters in Manila. This will involve partial operations from Clark to Blumentritt in Manila, while full service is slated by April 2023.
Mr. Batan added the 38-km Malolos-Tutuban segment will start construction next month, while the other stretch is expected to break ground by the third quarter.
JICA’s Mr. Ogawa said Japan is looking to help address “heavy traffic congestion” in Metro Manila, citing a recent JICA study that the gridlock is costing the country P3.5 billion per day.
On the other hand, the new phase of the Pasig-Marikina River Channel Improvement Project worth about P18 billion will build two floodgates in Cainta and Taytay, Rizal, and will also build new control gates along Manggahan Floodway using Japanese technology. It is scheduled to be completed by 2027, Mr. Dominguez added.
Both loans come with low interest rates, set at 0.1% per annum for non-consulting services and 0.01% for those involving consulting services. The loans are payable in 40 years with a 12-year grace period.
Mr. Dominguez noted that the loan deals were finalized within two months after the President’s approval of these projects, the fastest on record. This is also the third train line supported by JICA.
Also expected to be signed within the quarter is funding to develop road networks in conflict-affected areas in Mindanao.
Other big-ticket loans previously granted by Japan include P49.82 billion for the Metro Manila Subway linking Mindanao Avenue in Quezon City to the Ninoy Aquino International Airport in Parañaque, the P18.16-billion loan line for the rehabilitation of the Metro Rail Transit line 3, and the P2.1 billion supplemental loan for the Panglao International Airport project in Bohol. — Melissa Luz T. Lopez

Business groups urge Palace to sign the rice tariffication measure

NINE major business organizations pressed President Rodrigo R. Duterte to sign legislation on his desk liberalizing rice imports and imposing a series of tariffs on imported rice, as a means to ensure food is affordable for most of the population.
Citing the need to “balance the interests of both producers and consumers,” the business groups backed the legislation’s aim of allowing the private sector to import rice produced cheaply elsewhere in Southeast Asia at a 35% tariff, and relegating the National Food Authority (NFA) to procuring rice from domestic farmers to maintain a buffer stock.
The measure is expected to slash rice retail prices by P7 per kilogram and inflation by 0.7 percentage points. The Senate passed its version on third and final reading in November, while the House of Representatives approved its version of the bill in August.
The associations signing their name to the statement, as released by the Management Association of the Philippines (MAP), included the American Chamber of Commerce of the Philippines (AmCham), the Bankers Association of the Philippines (BAP), the Financial Executives Institute of the Philippines (FINEX), the Foundation For Economic Freedom (FEF), the Judicial Reform Initiative (JRI), the Makati Business Club (MBC), the Philippine Investment Funds Association (PIFA) and the Semiconductor And Electronics Industries in the Philippines, Inc. (SEIPI).
“We, the undersigned business and professional organizations, hereby strongly support ongoing efforts and measures of the administration to liberalize the economy and thereby unleash its full potential to ensure sustainable, robust and inclusive economic growth, while ensuring better quality of life for our people through affordable food,” they said in a statement.
Disruptions to the rice supply, among other factors, helped inflation peak at 6.7% for two months in late 2018, with poor consumers who depend on subsidized NFA rice having little choice but to buy rice from commercial sources.
“We urge the President to sign (the measure) into law. Upon enactment, the financial resources, management expertise, logistics support and extensive nationwide distribution system of the private sector will be harnessed to ensure food security, particularly of the most important food stable – rice,” they said.
The organizations called for “the sustained provision of essential support services and facilities – irrigation, better seedlings, modern growing and efficient harvesting technology, safe agricultural chemicals and post-harvest facilities — by the government to further assist the farm sector to be more productive and increase rural income.”

House approves bill abolishing Road Board

THE House of Representatives on Monday approved the measure which will abolish the Road Board on third and final reading.
With 180 affirmative votes and zero negative, the chamber approved an amended version of House Bill No. 7436, which was approved under the leadership of former Speaker Pantaleon D. Alvarez.
The final version of the Road Board abolition Bill provided that all funds collected will be remitted directly to the National Treasury under a special account in the General Fund.
The collection will be used to fund “the construction, upgrading, repair, and rehabilitation of roads, bridges and road drainage,” as stated in the bill.
It also provided that the implementing rules and regulations shall be promulgated by the Department of Budget and Management, the Department of Public Works and Highways and the Department of Transportation.
The bill formerly proposed to include the Department Environment and Natural Resources, in place of the DBM.
Further, it was provided that upon abolition of the Road Board, the DPWH was to absorb its employees, as needed. — Charmaine A. Tadalan

BI sees 2018 revenue at record P7.5 billion

THE Bureau of Immigration (BI) said its income levels were at a record level of over P7 billion in the 11 months to November.
In a statement, BI Commissioner Jaime H. Morente said that the bureau’s collections were at P7.03-billion as of November, exceeding the 2017 full-year total of P5.58-billion with one month to go in the year.
Mr. Morente said he expects 2018 revenue to exceed P7.5-billion.
“We expect our total income in 2018 to surpass P7.5 billion in 2018 after all revenue from our main office and field and satellite offices for December are added to the 11-month collection figure,” Mr. Morente said.
The commissioner attributed the rise of the bureau’s revenue to government programs which attracted foreigners to visit and do business in the country.
He also noted that the BI is modernizing its facilities and easing procedures, resulting in faster transactions.
“We have been strictly monitoring our collections not only in the main office but in our sub-port offices as well to ensure that all our revenues are remitted to the government coffers,” said BI Finance Chief Judith F. Ferrera.
Mr. Morente also added that BI’s annual revenue collections have bean beating records “over the last six years.”
“(F)rom only P2.7 billion in 2012, our yearly income has increased four-fold, thanks to the aggressive efforts of the government in marketing the Philippines as a prime tourist and investment destination to the international community,” he said. — Vann Marlo M. Villegas

Fund-raising through Initial Coin Offering

As interest in virtual currencies (VCs), blockchain technology, and initial coin offerings (ICOs) continue to heat up, governments around the world are evaluating the benefits and potential risks of these innovations while considering the regulatory issues surrounding them.
Recognizing that VCs have the potential to revolutionize the delivery of financial services while, at the same time, pose consumer protection and financial stability risks, as well as money laundering and terrorist financing risks, the Bangko Sentral ng Pilipinas (BSP) issued in 2017 a Circular providing guidelines to regulate VCs when used for the delivery of financial services. The BSP Circular focused on VCs as a means for making payments/remittances and required a VC exchange to obtain a Certificate of Registration to operate as a remittance and transfer company.
Following the lead of the BSP, the Securities and Exchange Commission (SEC) issued on Dec. 27, 2018, the proposed Rules and Regulations Governing ICOs (the “Proposed SEC Rules on ICO”), and invited banks, investment houses, the investing public, and other interest parties to submit their comments.
In broad terms, VC refers to a financial value recorded by electronic means, which may be used to pay for goods or services and which may be exchanged reciprocally. A coin is a unit of value employed as a means of exchange within the blockchain. For the Proposed SEC Rules, VC or coin does not include legal tender and electronic money. Also not included are grants of value as part of a rewards program, which cannot be exchanged for legal tender, bank credit, or any digital/crypto asset. Likewise, not included are digital representations of value used within an online game platform.
Under the Proposed SEC Rules, ICOs or token sales are “distributed ledger technology fund-raising operations involving the issuance of tokens in return for cash, other cryptocurrencies or other assets for the purpose of raising money or capital from the general public” to fund a venture, project, or other investment schemes. Once the project reaches a certain stage, “benefits to token holders may include: a) gains through profits or increase in the value of tokens which can be sold if the project is successful; b) voting or governance rights; or c) usage rights.”
The Proposed SEC Rules primarily govern the “conduct of ICOs wherein convertible security tokens are issued by start-ups and/or registered corporations organized in the Philippines, and non-resident foreign start-ups or corporations doing ICOs targeting Filipinos, through online platforms.” While VC or coin are broad terms, the Proposed SEC Rules apply specifically to convertible security tokens. Convertible meaning it is a VC that has an equivalent value in real currency and can be exchanged back and forth for real currency. Security tokens satisfy the definition of securities under the Securities Regulation Code (SRC) and related SEC rules. Security tokens can be in the form of payment tokens (used for the payment of goods and services or as a means of money/value transfer), utility tokens (grants the bearer access to a decentralized platform or service), and/or asset tokens (represent assets or rights thereto, such as a debt or equity claim on the issuer).
In terms of corporate structure, those that wish to conduct an ICO involving security tokens are required to register as a corporation. For non-resident foreign start-ups or corporations, their ability to register security tokens targeting Filipinos is subject to reciprocity and depends on the existence of information sharing arrangements. If the security tokens are already registered in another jurisdiction, the issuer can submit proof thereof and the regulatory framework applicable to it. In the absence of these requirements, the foreign issuer must establish a branch office in the Philippines.
Those who propose to conduct an ICO are required to comply with the following procedures:

1. Not later than 90 days before the pre-sale (i.e., token sale before the main crowd sale), submit to the SEC an initial request assessment with the required attachments for the SEC to determine if the token is security.

More important attachments include the detailed description of the ICO project; proposed whitepaper; and the legal opinion whether the tokens are securities. The description of the ICO project contains the business plan and feasibility of the proposed project. The important contents of the whitepaper include the hard cap (maximum amount of capital that the project aims to raise) and soft cap (minimum amount needed for the project to proceed); use of the proceeds; detailed description of the ICO tokens, such as price/value and the blockchain technology to be used; returns, rights, and other privileges of the tokens; description of the currency or other assets that will be received as payment for the tokens; and description of the investment risks.

2. Within 20 days from the receipt of the initial assessment request (extendible to another 20 days), the SEC determine if the tokens qualify as securities.

3. If the tokens are considered securities, the issuer must register the ICO not later than 45 days before the pre-sale period. For this purpose, the issuer must submit to the SEC a Registration Statement, including a Prospectus.

In addition to the information in the ICO project description and whitepaper, the Registration Statement includes: a) code audit report on the testing of the source code, Know Your Customer (KYC)/Anti-Money Laundering Act (AMLA) framework, and technology risk and security protocols; b) audited financial statements (AFS) with supplementary schedules dated within 135 days from the filing of the prospectus; and c) Manual on Corporate Governance.
More importantly, the issuer is required to contract an independent and reputable escrow agent for keeping the proceeds of the ICO, unless the issuer can prove to the SEC that other mechanisms will be used to satisfy the role of the escrow agent. A copy of the escrow agreement on the conditions and schedule of the release of the proceeds must also be submitted as part of the Registration Statement documents.

4. Upon submitting the complete Registration Statement, the SEC shall conduct an ocular inspection of the office of the issuer and operating system walkthrough of the ICO.

5. After the order of registration and permit to sell is issued, the issuer shall submit within 105 days after each fiscal year (starting from the year of issuance of the permit to sell) reportorial requirements, such as AFS, interim quarterly FS, and semi-annual report on the status of ICO project. The escrow agent is also required to submit a progress report.

While the BSP focused on VC as a means for delivering financial services and making payments/remittances, the SEC is taking a broader view by treating ICOs as an innovative way of raising funds using blockchain and cryptocurrency technology. Essentially, it can be gleaned from the Proposed Rules that the SEC is strongly inclined to consider ICOs as securities and to regulate them as such by requiring Issuers to secure a prior permit to sell and submit voluminous information designed to protect the investing public.
In addition to the United States and the United Kingdom, Singapore and Hong Kong have, in recent years, become hubs for ICOs, according to reports by Fintech News and Consultancy Asia. In a 2017 advisory, the Monetary Authority of Singapore (MAS) clarified that, while it does not regulate virtual currencies, it recognized that a digital token may fall within the definition of “security” under the Singapore Securities and Futures Act (SFA). In this case, issuers would be required to register a prospectus and secure a license before offering such tokens. Moreover, any platform doing secondary trading would have to be a MAS-approved exchange or market operator.
According to MAS, “if the use of a digital token relates to ownership of or interest over an issuer’s assets or property, it could be considered an offer of units in a collective investment scheme; or if the digital token represents a debt owed by an issuer, it may be considered a debenture. In either case, the token would be deemed “securities” under the SFA.
While MAS adopted a similar treatment, it took a more measured and flexible approach by issuing advisories to guide issuers and the investing public alike, instead of passing binding legislation that definitively characterized digital tokens solely as securities.
The Philippine SEC decidedly took a more conservative approach in deeming ICOs as securities and regulating them in a manner similar to initial public offerings (IPOs), even requiring the appointment of an escrow agent to safeguard ICO proceeds. However, there are notable differences between an IPO and an ICO. An ICO specifically caters to start-up projects, while an IPO proponent has to have a minimum track record. An IPO proponent relies on banks, underwriters, and financial advisors. An ICO issuer targets the investor directly and uses blockchain technology precisely to speed up transactions and bypass the usual procedures of banks or investment houses. Funds raised through an ICO are generally used for specific projects, while the proceeds of an IPO are used for the company’s long-term development.
The Philippine SEC clearly recognizes the potential of ICOs as a means to raise capital for start-ups and other small businesses, as well as increasing public participation in capital markets. It is hoped that they continue to monitor future developments in ICOs and be nimble and flexible enough to support innovations in this field by adjusting existing rules and regulations.
With the BSP and SEC at the forefront of formulating rules governing VCs and ICOs, the Bureau of Internal Revenue has demonstrated in recent issuances governing online retailing and ride-sharing services that it, too, can take the cue from other regulators in crafting rules that would address the tax implications of emerging transactions.
 
Tata Panlilio-Ong is a Director 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.
Tata.Panlilio@ph.gt.com
+63(2) 988-2288.

Some more musings on Philippine urbanization

Around four years ago, a friend would ask me questions as we go our way back home to Quezon City from our five-day immersion stay with a fisher-folk community in Calatagan, Batangas. As we struggled through urban traffic, my friend and I would keenly observe the peri-urban, built-up areas of Laguna, Cavite, and Batangas — three of the provinces constituting Calabarzon, which in the 1990s was imagined, and made to be an urban development beltway — and the arguably (hyper-)urban zones of the National Capital Region (NCR). Then he would ask, among other questions: Who lives in the gated (horizontal) communities and vertical developments that pepper the areas?
Such question, it must be noted, was raised by my friend in a combination of genuine curiosity and concealed frustration over how such developments have excluded, and also have endangered, the lives and livelihoods of some people, like those of our foster families in the immersion site. I remember answering as cautiously as possible, as I was relying more on personal knowledge and experience, and some anecdotal evidence.
Who lives in such developments? I remember telling my friend: Obviously, those who can afford it — the upper middle/upper class in general, perhaps including overseas Filipino (OFs), and/or overseas Filipino workers (OFWs). However, I also remember adding that residing in such properties is a different matter. Chances are a number of them were being rented out by the owners, for additional income. Several, especially those located in metropolitan Manila’s fringe, might be investments for future retirement. Some might be under the care of a hired caretaker, and only used occasionally, like during vacations, or special events.
These musings about urbanization and economic development I remembered as I traveled to Batangas last weekend to attend a friend’s wedding. Things seemed to get better; several developments — both vertical/condominium, and horizontal/gated communities — have been added, with parks, and markets going along with them. If it was any indication, vehicular traffic en route to Tagaytay coming from the Sta. Rosa exit of the South Luzon Expressway (SLEX) was close to bumper-to-bumper state. I kept on consulting the Waze app for alternative routes, as I was afraid of not making it in time for the ceremonies.
Indeed, urbanization has been a dynamic that has hugely, and quite rapidly, affected the Philippines. Recent estimates have shown that close to half of the Philippine population is now living in urban areas, and is expected to breach the 50% mark by year 2050. Such rapid urbanization, which is characteristic of urbanization dynamics in much of the developing world, is brought about not only by demographic means (i.e., the ‘natural’ increase in population of towns and/or cities), but also by conversion of land.
Urbanization, it must be noted, has been theorized to have a positive effect on economic development. Most recent data available from the Philippines attest to such positive relationship. Government data from 2010 point out that NCR, with 100% level of urbanization in 2010, contributed 35.8% of national GDP. Region IV-A, or Calabarzon, posted a second-best 19.1% share of national GDP in 2010, given its urbanization level of 53.01%. The Housing and Urban Development Coordinating Council’s (HUDCC’s) Habitat III: The Philippine National Report (2016) said further that stable economic growth rates experienced by the Philippines from 2012-2016 “was driven mainly by the urban sector,” with NCR contributing “one third of the total output,” and “the industry and services sectors contributing almost 90% to the country’s total GDP.”
However, this very same dynamics of urbanization has also contributed to the inequalities arguably evident in the Philippines’ urban areas, and their fringes. A 2014 Asian Development Bank (ADB) report mentioned that “cities in the Philippines are confronting urban problems such as congestion, overcrowding, poor quality of life, and rapidly growing poor urban communities.” HUDCC’s report elaborated further on several challenges hounding Philippine urban economic development, namely: mobilization of resources at the local level; concentration of unemployment in the most urbanized regions (NCR, Regions III, and IV); presence of “informal settlers who live in poverty, deprived of adequate income and decent living conditions”; and facilitation of a socially just, pro-poor financing for housing.
The HUDCC report elaborated on several strategies to address the issues and challenges presented. The Housing and Land Use Regulatory Board’s (HLURB’s) National Urban Development and Housing Framework (NUDHF) 2017-2022 reflects on as much. What indeed might be of primary importance, however, is the inclusion of the lens of “inclusive urbanization,” which, as the World Bank (2017) said, “requires an integrated multi-dimensional approach that addresses three key dimensions of inclusion — economic, spatial, and social.” Spatial inclusion constitutes “improved access to land, housing, infrastructure and basic services,” while economic inclusion “relates to addressing poverty and providing economic opportunities such as jobs, sources of livelihood, and access to finance.” Social inclusion, on the other hand, “relates to fundamental principles of equal rights and participation of the marginalized in the development process.” The realization of inclusive urbanization would necessitate institutional transformation among the public, and private sectors.
The foster families that adopted me and my friend would want to be included in the economic development urbanization supposedly brings. They would also want to improve their living spaces vis-à-vis urbanization, and to have their voices rendered effective. The same could be said for the others excluded by rapid urbanization. Inclusive urbanization is needed now, more than ever.
 
Gino Antonio P. Trinidad is currently a Doctor of Public Administration student of the UP National College of Public Administration and Governance (UP NCPAG). He is a member of the faculty of Ateneo’s Political Science Department. He obtained both his MA Global Politics and AB Political Science degrees from Ateneo de Manila University.

Evolving a culture of professional and self-regulatory boards for publicly held companies

In a previous article entitled “Fiduciary Duties of the Board of Directors and Management under SEC’s Codes of Corporate Governance,” we discussed how the corporate governance reforms undertaken by the Securities and Exchange Commission (SEC) in the sector of publicly held and publicly listed companies have expanded the duties and obligations placed upon the Board of Directors and Management and formally increased the constituencies they serve, beyond just the stockholders, thereby subjecting directors and senior officers to greater personal liabilities for misfeasance and nonfeasance in relation to such fiduciary duties and obligations. It is fitting, therefore, that in the face of such increased professional and personal responsibilities, SEC has, in tandem, increased the powers of administrative supervision of the Boards over their members to ensure that directors act with full transparency, responsibility and accountability, with the utmost degree of professionalism and effectiveness.
We discuss in this article how the Revised Code of Corporate Governance (“Revised CG Code”) and the Code of Corporate Governance for Public Listed Companies (“CG Code for PLCs”), have pursued the original agenda of the SEC since it first promulgated in 2002 the original Code of Corporate Governance (“Original CG Code”) to empower the Boards of Directors of publicly held companies to take a more dynamic stance in how they are constituted, in the manner by which they seek out and retain talents by providing, among others, for attractive compensation packages, and in how they should be able to instill within their ranks a high sense of independence, professionalism, responsibility and accountability.
In essence, we discuss how the SEC CG Codes have sought to pursue and evolve a system of “Professional Directorship” which provides to publicly held and publicly listed companies a set of very talented men and women, who endeavor, in their careers, responsible stewardship for the companies they serve and dispense a deep sense of “public service” in an important area of the private sector.
OPERATING CG PARADIGM UNDER EXISTING STATUTORY CODES
The technical term “Corporate Governance” (CG) is of recent vintage, yet its underlying principles are as old as Corporate Law itself, if given a contemporary twist to meet society’s changing demands. In the Philippine context, CG reforms seek to achieve three objectives:
First, to reiterate and place special emphasis on the doctrinal value of the corporate attribute of “Centralized Management,” which under Section 23 of the Corporation Code provides that outside of specified instances enumerated in the law where a ratificatory vote by stockholders is required, all corporate powers, all corporate property, and, thereby, the management and control of all the corporate business is granted directly by law, as an exercise by the State of its police power, to the Board of Directors, for the benefit of the stockholders.
Necessarily, the proprietary and management relationship established under the doctrine of centralized management set-up brings about a fiduciary relationship between the Board of Directors, on the one hand, and the stockholders, on the other hand, and creates a hierarchical set of duties and responsibilities on the Board as headed by the Chairman, and its sub-agent, the Management, which is headed by the CEO.
Second, CG principles adhere to the policy that when the business enterprise and operations of a corporation affect public interests, public safety and welfare, such corporation must behave in a socially acceptable way — to be a good corporate citizen. Consequently, CG principles seek to expand the coverage of the duties and responsibilities of the Boards of Directors of corporations vested with public interest, to apply beyond their stockholders, and to include all parties who are affected by their operations — termed as the “stakeholders.” The stakeholders of publicly held companies thereof are beginning to be recognized to have both social and legal standing to demand from the Boards and Management to operate the company, taking their interests into consideration in the exercise of their business judgment.
Third, CG principles operate under the credo that Boards of Directors of companies whose business enterprise are deemed to be vested with public interests have a heightened set of duties and responsibilities to society, and in turn vigilant stakeholders in such companies would constitute the strongest incentive for their Boards to adhere to good governance principles. Good governance principles seek to promote the corporate virtues of “transparency,” “accountability,” “responsibility,” “competence,” and “independence,” as well as to operationalize such CG principles through “a system of direction, feedback, and control, using regulations, performance standards, and ethical guidelines to hold the members of the Board and Management accountable for ensuring ethical behavior — reconciling long-term customer satisfaction with shareholder value — to the benefit of all stakeholders and society.”
In order to fully understand how the Original CG Code, the Revised CG Code, and the CG Code for PLCs seek to effect a fundamental shift in the effecting the CG pillars of transparency, accountability, responsibility, competence, and independence, it is best to review the statutory principles provided by the Corporation Code, the Securities Regulation Code and related jurisprudence relating to what is now referred to as “CG.”
1. CG PRINCIPLES UNDER THE SECURITIES REGULATION CODE
The Securities Regulation Code (SRC) was promulgated with specific coverage over publicly-held companies (PHCs), with the avowed purposes to: promote the development of the capital market; establish a socially-conscious free market that regulates itself; enhance democratization of wealth by encouraging the widest participation of ownership in enterprises; and protect investors and ensure full and fair disclosure about securities. Publicly-held companies therefore are deemed to be companies “vested with public interests” since they affect the investments and savings of the public, and fall within the realm of the State’s police power to regulate for the public good.
The SRC promotes the CG pillars of transparency and accountability within the PHC sector by providing the following mandatory requirements, violations of which are subject to administrative and/or civil sanctions, and criminal penalties, thus:

(a) No securities shall be issued, sold, or distributed, or even offered for sale or distribution, without prior registration with the SEC that would constitute public records by which investors would be able to make an informed decision on making an investment into PHCs;

(b) Imposes mandatory reports on the operations of PHCs, changes in their business enterprises, or changes in the equity control over such PHCs; and

(c) Protects shareholders’ interests by providing mandatory tender offers, regulating proxy solicitations, and prohibiting and punishing manipulative practices and insider trading.

On the other hand, the Securities Regulation Code promotes the CG pillar of “independence” by mandating the system of “Independent Directors” on all publicly held companies. Evaluation of the system of independent directors has already been covered by an earlier article entitled “Revisiting the Efficacy of the Oversight Functions of Independent Directors for PLCs.” What needs to be emphasized in this paper is the fact that the imposition of independent directors on publicly-held companies is an exercise of the State’s coercive police power against the proprietary rights of the majority or controlling stockholders to elect their own nominees to manage the company’s affairs. Since our Legislature is the policy determining body in our system of government, then it can be seen that the current provisions of the SRC on the number and qualifications of independent directors in publicly held companies constitute the current State policy on the matter as to promote the CG principle of “independence.”
Another CG hallmark of the Securities Regulation Code is providing for a system of “Self-Regulatory Organizations” (SRO) among the key players in our securities markets, like stock exchanges, associations of brokers, dealers and agents, and other securities-related organizations. The outstanding feature of a securities-related associations being granted “SRO status” is that they are able to operate with greater independence from SEC’s regulatory powers, when they are organized and operated in a manner that:

(a) They become responsible for administration and enforcement of relevant provisions of SRC, its IRR, their own rules, as necessary and appropriate for the protection of investors and public interests;

(b) With full powers to: (i) deny membership, barring any person from becoming associated with their members; and (ii) discipline their members and persons associated with their members under fair procedures.

The system of “SRO” promotes the CG pillar of “responsibility” within the PHC Sector by encouraging the key players in the securities market to properly organize themselves into appropriate associations to be able to police their own ranks. The SRO system operates within a framework that recognizes that responsible market players, rather than a government agency, are in a better position to determine and meet the challenges imposed by the market, and to develop a culture of good CG compliance within the market.
(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 the vice chair of the CG Committee of the MAP, 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

Public transport mess and traffic congestion

There are many factors to frequent heavy traffic congestion in Metro Manila and other big cities in the provinces. This short article will narrow it down to five factors.
1. INCONVENIENT AND SOMETIMES UNSAFE PUBLIC TRANSPORTATION
People who live in many villages in Quezon City, Las Piñas and other cities and going to the big commercial and business districts (CBDs) in Makati, Taguig/BGC or Mandaluyong/Ortigas, taking public transportation means multiple rides: (1) tricycle from house to main roads, (2) jeep or bus to train station, (3) MRT or LRT ride, and (4) jeep or long walk to office or meeting places. Going back home, up to eight rides and people are already very tired coming home.
Snatchers and other criminals, sexual molesters can occur in any of those rides or while walking between those six to eight rides. And it is worse during the rainy season.
The solution is to drive their cars or motorcycles. People would rather brave the heavy traffic plus expensive parking fees than endure those multiple rides. Or take transport network vehicle services (TNVS) like Grab or any of its nine competitors now, or a regular taxi.
Below are official data from the Land Transportation Office (LTO). The total registered vehicles include government, diplomatic and for hire vehicles (77,241; 2,837; and 970,427 respectively, in 2017).
Registered Vehicles, New and Renewal
There are so many motorcycles and tricycles, 6.2 million in 2017 and probably 7.4 million in 2018. But there are not too many buses, only 34.8 million in 2017.
There are many unregistered vehicles like the “colorum” jeepneys, taxi and buses, and unregistered motorcycles and tricycles like those used by many policemen who drive motorcycles with no plate.
Now there are many point-to-point (P2P) buses with more routes, true. But people still need to ride tricycles or TNVS, taxi, etc. from their house to the P2P bus stations, so some people would still prefer to drive their cars.
2. EXPENSIVE “JEEPNEY MODERNIZATION”
The noisy and often ugly tricycles and jeepneys will soon be replaced by e-trikes and e-jeeps. Silent, no direct pollution, cool. But their cost is high, up to P1.8 million for e-jeeps and P0.6 million for e-trikes. Charging stations are limited too. By November 2018, only about 1,000 e-jeepneys have rolled out, around 169,000 old jeepneys need to be replaced before the end of transition period in 2020. and
3. OLD MRT, UNUSED NEW TRAINS
In the first 40 days of 2018, the Department of Transportation (DoTr) recorded a total of 33 MRT3 glitches, with imperiled passengers having to walk on rail tracks to get off. In addition, only 8-9 trains were running per day in February vs the minimum target of 15 working trains per day. Then the Dalian trains, of which out of 48 unused trains in 2017, only two were deployed as of December 2018.
4. FAILED, DELAYED DOTR PROJECTS DUE TO POLICY CHANGES
The Commission on Audit (CoA) report for 2017 showed that DoTr was unable to fully implement P46.6 billion out of P58.9 billion of funded projects due to frequent policy changes by political leaders and economic managers. Affected were 153 out of 159 DoTr projects like the Cebu Bus Rapid Transit, LRT Line 2 east extension, and LRT Line 1 north extension common station.
5. BUREAUCRACIES IN TNVS
As this column has discussed in previous articles, there are lots of bureaucracies and requirements from the LTFRB before existing TNVS can expand, which reduces the supply of cars and drivers. And there are bureaucracies from the PCC before failing and losing TNVS and TNCs can exit the country. Even exiting from business can cost huge money, so potential big players from abroad would be hesitant to come and do business here.
The bigger the number of inconvenient public transportation like tricycles and jeepneys, the bigger the demand for private cars, which contributes to frequent traffic congestion. Even those “clean” e-trikes are still low-passenger tricycles. We need less of them, not more.
We need more modern public transportation like efficient MRT/LRT, aircon buses and vans, and reliable TNVS. These reduce the need for private car use. And these investments require less bureaucracy, permits and business taxes, not more.
 
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.
minimalgovernment@gmail.com

Do satisfaction rating surveys provide useful information?

During episodes of DZMM TeleRadyo’s special on senatorial candidates, the station’s field reporters asked ordinary folks in the streets who they would vote for senator. Many said they would vote for candidates who can provide jobs or access to housing while many others said they would choose candidates who can enforce the law. A few said they would choose candidates who would extend assistance if and when they have to deal with government offices or when confronted by law.
The general impression that the answers give is that people vote for candidates who can be counted to help them meet their basic needs. In short, the voters seek patrons. Competence of a candidate in creating laws or improving existing ones, the primary duty of a senator, is not a consideration in their choice of candidates. The implication is that most of the respondents of DZMM’s field reporters do not know what the responsibilities and duties of a senator are.
That brings up Social Weather Stations’ survey on the satisfaction rating of Senate President Tito Sotto. The Fourth Quarter 2018 social weather survey conducted last December found 72% satisfied and 11% dissatisfied with Mr. Sotto. The resulting net satisfaction rating is a “very good” +61 for the Senate President.
I do not know what those who are satisfied with the senator based their answers on. I do not even know what they are satisfied with, his performance as senator or as Senate president. SWS did not ask its 1,500 respondents why they feel the way they do about him.
The question asked the respondents in the survey was: “Please tell me how satisfied or dissatisfied you are with the performance of Vicente ‘’Tito’’ Sotto III, Senate President. Are you very satisfied, somewhat satisfied, undecided if satisfied or dissatisfied, somewhat dissatisfied, very dissatisfied, or you have not ever heard or read anything about Vicente Sotto III?
Alfred Whitehead wrote in The Art of Asking Questions that “language is always ambiguous as to the exact proposition which it indicates.” The ambiguity occurs because each individual interprets the question from the interviewee’s viewpoint. As a result, the interviewee’s interpretation of the question is his own and may be significantly different from another person’s understanding.
When it comes to national or political issues, the frame of reference is likely to be characteristic of sub-groups of Philippine society — socioeconomic classes, geographical clusters, educational brackets, etc. Robert L. Kahn and Charles F. Cannel wrote in The Dynamics of Interviewing that to determine the frame of reference of a respondent in a public opinion survey, the respondent is asked why he feels the way he does about a topic in order to make explicit the frame of reference from which he answered the question.
Respondents of the December survey of SWS may have judged the performance of Mr. Sotto, whether as senator or as Senate president, on the basis of his ability to have been a good patron to them, as the respondents of the DZMM RadyoPatrol ambush interviews perceive the role of a senator to be.
The 1,500 respondents of the SWS survey are supposed to be representative of all sub-groups of the 54.4 million registered voters. According to the Philippine Statistics Authority, the Philippine population breaks down into 1% AB, 9% C, 60% D, and 30% E. If the 1,500 respondents in the December survey are representative of the voting population, then only 15 respondents come from the socioeconomic class AB, 135 from Class C, and 1,350 from among those belonging to the socioeconomic classes D and E.
It can be safely said that based on their circumstances in life, the highest educational attainment of the 1,350 respondents from the Lower Classes would be 2nd Year High School. Their access to information pertaining to governance cannot be through the print media as they would rather buy food than buy a newspaper. Their main source of information regarding the national and local governments must be the broadcast media as they need not own a radio or television set. There is always someone in their neighborhood who lets neighbors listen or watch what is being aired on his set.
It can be assumed that the overwhelming majority of the respondents of the December SWS surveys perceive the role of a senator the same way the DZMM Teleradyo interviewees do. It would not be far-fetched to conclude that SWS survey respondents perceive elected officials, from president to barangay captain as potential patrons.
As the SWS survey respondents are supposed to be represented of the entire voting population, then it can be said the overwhelming majority of voters vote for candidates who are likely potential patrons. That is why movie actors like the Ramon Revillas, father and son, Joseph Estrada, and Lito Lapid are elected again and again because they appeared in their movies as “heroes” of the downtrodden and the poor.
Ramon Revilla, Sr. portrayed Nardong Putik and Joseph Estrada played Asiong Salonga, villains in real life, but presented as Robin Hoods in movies. Drama actors Cesar Montano and Richard Gomez failed in their bid for the Senate because they were not seen by their millions of movie fans as “champions of the oppressed and the poor.”
Senator Sotto gets elected again and again not because he is seen as a champion of the common tao but because he relieves the masa of their anxieties with his toilet humor.
Senatorial aspirant Bong Go, seen the past three years by the public as the Presidential butler, now projects himself as the champion of the lowly and the disadvantaged, as his commercials aired repeatedly during the TV coverage of the Pacquiao-Broner fight showed.
Senatorial hopeful Ronald “Bato” de la Rosa chose to project himself not as a champion but as the butler of a champion. He was seen during the weigh-in of Manny and after the fight itself carrying the championship belt of Manny. He even heaved Manny on his shoulders like a doting father hoisting his toddler son. And to think he graduated from the Philippine Military Academy and was a couple of years the chief of the National Police.
That an image of a champion wins votes is a conclusion of mine drawn by logic, not from statistics. The tagline in the SWS logo says: Statistics for Advocacy. I ask what can be advocated out of the statistics SWS prodigiously pours out regularly. What can be advocated by the statistics that people are satisfied with President Duterte without corollary statistics on why people are satisfied with the President? What can be advocated by the statistics showing people are satisfied with Chief Justice Lucas Bersamin?
 
Oscar P. Lagman, Jr. is a member of Manindigan! a cause-oriented group of businessmen, professionals, and academics.
oplagman@yahoo.com

Peso plunges on China

THE PESO dropped due to slower Chinese economic growth.

THE PESO plunged further against the dollar to a one-month low yesterday, dragged by renewed concerns of a global growth slowdown due to slower Chinese economic growth.
The local currency ended Monday’s session at P52.80 versus the greenback, dropping 28.5 centavos from its P52.515 finish last Friday. This is the peso’s lowest finish in a month or since it closed at P52.86 against the US currency on Dec. 21.
The peso opened the session weaker at P52.60 versus the dollar, already its best showing for the day. Meanwhile, it traded to as low as P52.81-a-dollar intraday.
Dollars traded surged to $1.006 billion from the $807.22 million that changed hands the previous session.
A foreign exchange trader attributed the weakening of the peso to the fourth-quarter Chinese gross domestic product (GDP) growth report, which came in softer than the previous quarter.
China’s GDP growth for the fourth quarter stood at 6.4% year-on-year, slightly slower than the 6.5% in the July-September period. For the full year, the Chinese economy grew 6.6%, marking the slowest pace in 28 years, which came at a time of a continuing trade spat with the United States, its largest trading partner.
However, another trader said the disappointing Chinese economic report did not have any effect on the peso-dollar movement yesterday as it was already factored in during the previous trading sessions.
“We saw the same story. The dollar continued to rally, given that we continued to break the resistance levels and that the dollar remains supported…by the continued optimism from the trade talks,” the trader said in a phone interview.
For today, the second trader expects the peso to trade between P52.70 and P53, while the other gave a P52.70-P52.90 range.
“The peso might depreciate further on speculations of a possible second Brexit referendum,” the first trader noted. — K.A.N. Vidal

Shares drop on cautiousness ahead of GDP report

By Arra B. Francia, Reporter
LOCAL EQUITIES tumbled on Monday as investors adopted a wait-and-see mode ahead of the release of 2018 economic growth figures this week.
The bellwether Philippine Stock Exchange index (PSEi) retreated 0.49% or 39.66 points to close at 8,007.46 yesterday, managing to close above the 8,000 mark despite falling back to the 7,900 level intraday.
The broader all-shares index likewise slipped 0.12% or 5.92 points to 4,799.
“I think the market right now is on a sideways movement as it is clinging on to the 8,000 level. (There is also) lackluster volume and value due to Philippine GDP (gross domestic product) data which will be out on Thursday which took investors on a wait- and-see mode,” Philstocks Financial, Inc. Research Associate Piper Chaucer E. Tan said via text.
A BusinessWorld poll of 16 analysts yielded an estimate of 6.3% for both the fourth quarter and full-year 2018 GDP growth figures. The annual estimate is below 2017’s actual pace of 6.7%, and misses the revised 6.5-6.9% target set by the government for 2018.
The Philippine Statistics Authority will release official GDP numbers on Jan. 24, Thursday.
“The lack of positive catalysts can also be a factor on why markets edged lower,” Mr. Tan said.
Papa Securities Corp. Sales Associate Gabriel Jose F. Perez, meanwhile, attributed the drop to the movement of foreign funds for most of the day.
“Initial weakness may have come from some profit taking as net foreign selling was present for most of the day. This only reversed to the minimal inflow of P52 million at the close after the buy-up,” Mr. Perez said in an e-mail.
Even though foreign investors held their net buying position at the end of the day, it was at a measly P52.93 million compared to the previous session’s net inflow of P1.30 billion.
All sectoral indices ended in negative territory, except for the property counter which gained 0.77% or 31.03 points to close at 4,048.38.
Meanwhile, services plunged 1.8% or 28.08 points to 1,532.05, followed by financials which dropped 0.88% or 16.05 points to 1,799.58. Mining and oil shed 0.73% or 64.40 points to 8,757.37; holding firms slumped 0.51% or 41.11 points to 7,962.08; while industrials dipped 0.2% or 23.49 points to close the session at 11,627.36.
Some 1.98 billion issues valued at P5.67 billion switched hands, slimmer than Friday’s P8.44 billion.
Decliners swamped advancers, 114 to 86, while 45 names were unchanged.
The PSEi failed to mirror the positivity in Wall Street’s major indices on Friday, where the Dow Jones Industrial Average jumped 1.38% or 336.25 points to 24,706.35. The S&P 500 index rose 1.32% or 34.75 points to 2,670.71, while the Nasdaq Composite index firmed up 1.03% or 72.77 points to 7,157.23.

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