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Gov’t funding utilization rises slightly to 78% at end-July

CASH USAGE by government agencies rose slightly to 78% in the seven months to July, the Department of Budget and Management (DBM) said.
The utilization ratio was calculated against the Notice of Cash Allocations (NCAs) worth P2.033 trillion at the end of July, of which P1.59 trillion was disbursed.
The year-earlier utilization rate was 77.3%.
An NCA is a cash authority issued quarterly by the DBM to central, regional and provincial offices and operating units to cover their cash requirements.
The agencies have until the end of the third quarter to fully disburse funds allocated to them before they lapse and turn into savings.
The Congress of the Philippines had the highest utilization ratio among national government offices at the end of July at 87%, followed by the Department of Public Works and Highways at 85%.
Utilization by state universities and colleges and the Department of National Defense was at 81%.
Other executive offices such as the Anti-Money Laundering Council, Commission on Higher Education, and the Housing and Land Use Regulatory Board, among others, had the lowest utilization rates, averaging 39%.
The National Economic and Development Agency and the Department of Energy followed with usage rates of 49% and 58%, respectively.
Government-owned and controlled corporations and local government units meanwhile recorded utilization rates of 87% and 83%, respectively. — Elijah Joseph C. Tubayan

Much detail, little progress in US-China talks

BEIJING/WASHINGTON — U.S-China trade talks this week were heavy on details but short on progress as U.S. negotiators outlined cases of American firms harmed by Chinese practices and China argued it was meeting its WTO obligations, people familiar with contents of the discussions said.
The two days of talks in Washington led by mid-level officials did little to resolve a worsening trade spat between the world’s two biggest economies and ended on Thursday without a joint statement.
Washington separately held hearings during the week on another round of proposed tariffs on $200 billion worth of Chinese imports that appear increasingly likely to take effect in late September or early October.
And while factions on the U.S. side have given conflicting signals on how hard to press Beijing during the trade dispute, officials from the Treasury Department, which led the talks, and the U.S. Trade Representative, which has taken a harder line, were aligned in their messaging, the people said.
The talks took place as the two sides followed through on threatened tit-for-tat tariffs on $16 billion worth of the other’s goods. Beijing has filed a complaint with the World Trade Organization about the U.S. duties.
During the talks, Chinese negotiators repeatedly invoked what they said was Beijing’s compliance with WTO rules, an argument that did not impress the U.S. side.
One of the sources described the U.S. response as: “We’re not going to care about the WTO as you fuel overcapacity, wreck industries and steal IP (intellectual property). We’re not going to sit on our hands.”
All of the sources declined to be identified given the sensitivity of the matter.
Washington is demanding Beijing improve market access and intellectual property protections for U.S. companies, cut industrial subsidies and slash a $375 billion trade gap.
In a brief statement on Friday, China’s commerce ministry said both sides had a “constructive” and “candid” exchange over trade issues, and will stay in touch on the next steps.
U.S. officials, including President Donald Trump, had downplayed expectations for the talks.
No further talks have been announced.
Chinese negotiators brought up the lack of U.S. market access for items including Chinese cooked chicken, one of the exports that was agreed last year as part of a 100-day plan, demonstrating Beijing is still seeking some U.S. concessions in the talks.
“The Chinese are stuck in the mind-set that they want something in return. That’s not going to fly in Washington anymore,” another source briefed on the talks said.
U.S. negotiators brought up the case of Micron Technology, which was temporarily barred by a Chinese court in July from selling its main semiconductor products in China, citing violation of patents held by Taiwan’s United Microelectronics Corp (UMC).
In December, Micron had filed a civil lawsuit in California accusing UMC and its state-backed Chinese partner of stealing technology.
One of the people said the talks focused on systemic issues related to Washington’s “Section 301” probe into China’s intellectual property and technology transfer practices.
There was little, if any, focus on more purchases by China of U.S. commodities. During the previous round of talks, in June in Beijing, U.S. Commerce Secretary Wilbur Ross unsuccessfully sought to secure major Chinese purchases of U.S. soybeans and liquefied natural gas.
In an editorial late on Friday, the Global Times, a nationalist Chinese tabloid run by the ruling Communist Party’s People’s Daily, said it was clear that the two days of talks did not yield significant progress.
“An escalation in the US-China trade war is becoming obvious,” it said, citing U.S. congressional elections in November as a key reason for the tough U.S. stance.
“So far, neither side shows signs of extending the trade war to other areas. We hope that both sides can stick to the ‘rule’ and keep the trade issue within limits,” it said. — Reuters

Proposed amendments to the Corporation Code

THE buzz on the amendments to the tax laws has not wavered since last year. However, another important proposed change to our laws which deserves to be highlighted is the amendment of the Corporation Code. Senate Bill No. 1280 (SB 1280) “An Act Amending Batas Pambansa Blg. 68 or the Corporation Code of the Philippines,” has hurdled third reading at the Senate.
Some of the significant amendment in the Corporation Code provided in SB 1280 are as follows:
a. One Person Corporation. Under SB 1280, a single shareholder, who is an individual, a trust or an estate may form a one-person corporation (OPC). Currently in order to form a corporation, there should be at least five incorporators.
There is no minimum authorized capital stock requirement for the OPC but at least 25% of the authorized capital stock must be subscribed and in no case shall the paid-up capital be less than five thousand pesos.
A one-person corporation must carry the letters “OPC” either below or at the end of its corporate name.
In so far as corporate actions are concerned, meetings are not required. A written resolution, signed and dated by the single stockholder and recorded in the minutes book, is valid for any corporate act of the OPC.
b. Perpetual existence of corporations. Under SB 1280 a corporation shall have perpetual existence unless otherwise provided in the Certificate of Incorporation. This proposed amendment is a response to calls that a corporate term of 50 years under current rules is too short and runs counter to the belief that corporations are intended to survive beyond the lifetime of its incorporators.
One of the more significant amendments introduced by SB 1280 is the provision allowing applications for revival of the corporate existence. Under the proposed amendment, a corporation whose corporate life has expired is now allowed to apply for revival of corporate existence together with all the rights and privileges under its certificate of incorporation and subject to all the duties, debts and liabilities existing prior to the expiration of the term. This amendment is a response to numerous cases in the past where the SEC and the courts has consistently opined that corporation whose corporate term has expired can no longer be revived.
The executive and the judicial departments have both held that a corporation whose life has expired can no longer be revived even if the failure to amend the Articles of Incorporation to extend the corporate term was due to mere inadvertence or oversight. Thus, stakeholders have no other choice but to proceed to dissolution and liquidate the assets of the corporation.
In fact, the BIR recently issued Revenue Memorandum Circular No. 41-2018 stating that the TIN of a corporation whose corporate life has lapsed without being extended shall be used in the process of liquidation and winding up and even if the corporation re-registers with the SEC, a new TIN will be assigned to it. Hence, with the proposed amendment, the shareholders may now have the option to continue with their business and rectify the mistake without going directly to dissolution.
However, the provision of the Senate Bill does not specify the length of time since expiry for a company to qualify for revival. Does it mean that a corporation whose life has expired 10 years ago and has not liquidated may still apply for revival?
c. Requirements on corporate officers. Similar to current rules, a President, Treasurer and Corporate Secretary are required to be elected once the Board of Directors has formally organized. However, it is noted that under the proposed amendment the President and the Treasurer must now be both directors of the corporation and a residency requirement is now imposed on at least one of them. As of now, only the President is required to be a director with no residency requirement imposed. Moreover, as regards the qualification of the Corporate Secretary, under existing laws he must be a resident and citizen of the Philippines. However, under the proposed amendment, Filipino citizenship is no longer required.
d. Disqualifications of directors, trustees or officers. In the proposed law, an additional disqualification for person to be a director, trustee or officer, is conviction by final judgment of violation of the Securities Regulation Code and of crimes of fraud or deceit whether by a local or foreign court, within five years prior to his election or appointment.
e. Power of the SEC to call elections. Under SB 1280, the SEC may upon application of stockholder, member, or trustee and after verification of the failure to hold elections, summarily order the holding of elections. The SEC likewise has the power to issue orders on the time and date of the elections, designate a presiding officer, set a quorum requirement and designate record dates for the determination of the stockholders or members entitled to vote.
f. Emergency Board. In the event that a vacancy in the Board of Directors prevents the directors from constituting a quorum and immediate action is required to prevent grave substantial and irreparable loss or damage to the corporation, the remaining directors may fill up the vacancy from the existing officers of the Corporation. The term of the designated director shall cease upon the termination of the emergency or upon election of the replacement director, and his actions are limited to the necessary action needed due to the emergency.
g. Securities deposit requirement for foreign corporations. A securities deposit is required by the Corporation Code to protect creditors of foreign entities in case of future insolvency. At present, branch offices of foreign corporation which are given license to do business in the Philippines are required to submit securities deposits within 60 days from the issuance of the license. Additional securities are required to be submitted in the amount of at least 2% of the of the amount by which the licensee’s gross income for the year exceeds five million pesos. In the event SB 1280 becomes a law, the minimum amount of securities deposit that will be required to be submitted to the SEC is P500,000, which increased from P100,000 under the previous law. Moreover, as regards the additional securities deposit, the threshold for gross income which a licensee’s gross income shall exceed is P10 million.
The above are just a few of the noted proposed changes in the law, but overall, SB 1280 may have introduced some meaningful changes to our Corporation Code. It bears stressing that these changes may play an important part in improving the way of doing business in the Philippines. Let’s hope that this helps make our country more attractive to foreign investors.
 
Jennylyn V. Reyes is a manager of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.
Jen.Reyes@ph.gt.com
+63(2) 988-2288

Defense buildup

As far back as 1991, I was vocal about investing in our defense should the government decide to let go of the US bases on account of a provision in the 1987 Constitution mandating “no foreign troops on Philippine soil.” Up to that point the US was our defense shield, and if we were to give it up then we would have to be responsible for the country’s defense.
Well, one can say that due to intervening economic, financial and political crises stemming from internal and external factors that rocked the country from 1989-2012, the government was unable to invest in defense. We lost Mischief Reef to China in 1995; lost tens of billions of dollars to international poachers in our EEZ; lost our coral reefs to illegal fishing practices; lost our reefs and shoals now occupied by China that reclaimed them to build military forward operating bases.
In short, on account of our failure to invest in national security, our borders are porous that enable terrorists and criminals to ingress and egress at will; our sovereign rights in our EEZ has been compromised; we have limited control over our maritime domain; and we lack the means to back diplomacy with credible deterrence or enforcement. We behaved mindlessly for a long time like a rich bank without a security fence.
There were times though when we attempted to improve our defense posture. After Mischief Reef was stolen from us, then President Fidel V. Ramos caused the passage of the First AFP Modernization Act in 1995 where its core source of funds would be from the privatization of Fort Bonifacio. Its implementation was impeded by the 1997 Asian financial crisis that took several years to overcome.
By that time, it was President Joseph E. Estrada’s turn to continue where FVR left off but then he was ousted 2.5 years after he took office. Not much happened during then President GMA’s time again because of a global financial crisis that hit in 2007, and within the first two years of the PNoy presidency. However, after China occupied Scarborough Shoal in 2012, the government passed the Second AFP Modernization Act where P70 billion was earmarked for our defense buildup.
The AFP thereupon drew up its procurement plan spanning 15 years split in three 5-year horizons. The first horizon was completed in 2017. The AFP is now in its second horizon and so far, President Rodrigo Roa Duterte has approved almost P300 billion, or four times more, than the first horizon in his first two years in office. In fact, some items that fall under the third horizon are being accelerated to the second. Read between the lines.
What’s significant also is the approval of two vital national security documents — the National Security Policy and National Security Strategy — that PRRD approved last year and this year, respectively, to guide our national security sector during his term in office. It sets the tone for our defense planners and legislators to rationalize their procurement based on specific strategic guidelines. Sources of funds to pay for the defense buildup have also been identified to serve as the focal point for their deliberations.
No longer shall defense acquisitions be on the basis of unjustified wish lists, or driven by the budget or by suppliers. It will now be on the basis of what is or will be needed to adequately deter and defend our country based on a keen awareness of the current and future security environment. This brings us up to par with our security allies and partners who’ve applied this discipline long ago to rationalize their defense acquisitions and, more importantly, sustain their capital assets to maximize operational readiness and extend their life cycles to their fullest potentials. This is one area, however, that we still need to focus on.
That said, our sea-air buildup is crucial to deter or defend against external threats to our maritime domain and airspace. Submarines are critical to the equation as with a radar system that covers our entire EEZ; multi-role missile equipped frigates and corvettes; landing dock ships; unmanned air, surface and sub-surface combat vehicles; and multi-role helicopters. We’re lucky to have reliable suppliers in Israel, the US, South Korea and Indonesia, while Japan, Australia, France and Germany have been fully supportive of the Coast Guard’s buildup.
In the air, multi-role fighters to defend our airspace are crucial as with radar to detect hostile threats; ground attack and close support aircraft, manned and unmanned; and transports, rotary and fixed wing. All that are in the pipeline to include our land forces that are eyeing strategic land-based missile defense systems. South Korea has supplied us with 12 FA-50 fighter-trainers with ground attack capability. The US and Japan have supplied us with aircraft for Intelligence, Surveillance and Reconnaissance. And we’re considering multi-role fighters from the US, Sweden and Russia to fill up two squadrons.
I’m partial toward mobile land-based long-range shore-to-ship and surface-to-air standoff missile systems that cover our EEZ and airspace 360 degrees. Missile systems from the US (if we have access), Israel, Sweden, India and Russia are go-to supplier countries. They have what we need to provide strategic credible deterrence on land that could be complemented by naval platforms. The USA’s Tomahawk, India’s Brahmos, Sweden’s Rbs-15, Israel’s LORA and Russia’s S-400 are good examples of that.
I look forward to a joint service command and control (C2) system from the US that will provide information integration and dissemination to each of the AFP joint and service specific headquarters, greatly expanding their ability to form and maintain a national common operational picture. The system will provide command, control, communications, computers, intelligence, surveillance, target acquisition and reconnaissance capability. It will require a microwave communications backbone system with satellite communications capability.
Last but not least, we need to conduct a no-nonsense self-reliance program to build our own weapons and defense systems. National security is everyone’s responsibility and ideally carries no price tag. National unity is critical to its sustainment for a better Philippines for all Filipinos.
 
Rafael M. Alunan served in the cabinet of President Corazon C. Aquino as Secretary of Tourism, and in the cabinet of President Fidel V. Ramos as Secretary of Interior and Local Government.
rmalunan@gmail.com
map@map.org.ph
http://map.org.ph

The oversight functions of independent directors

THE corporate system of “Independent Directors” does not exist under the current version of the Corporation Code of the Philippines, where the aspect of “minority representation” is covered by the requirement of cumulative voting, which makes it mathematically possible for minority shareholders to pursue minority representation in the Board of Directors. This is understandable since the primary role of the Corporation Code (CC) since its enactment in 1980 is to be the “general enabling law” referred to in our Constitution by which private corporations of all types may be organized for private interests, covering all types of corporations, stock and nonstock, close or family-owned, and not merely limited to “publicly-held corporations” (PHCs).
In 2000, Congress promulgated the Securities Regulation Code (SRC), that provided for the statutory duties and obligations to report on company finances and operations, on dealings with equity acquisitions, as well as providing protection of stockholders through the institution of the “independent directors” for PHCs which it classifies into (a) “publicly-listed companies” (PLCs) whose shares are listed in the exchange; and (b) “public companies” (PCs), which are non-listed corporations with assets of at least P50 million and having 200 or more stockholders with at least 100 shares each.
In April 2002, the adoption of corporate governance principles and best practices specifically for the PHC sector formally commenced when the Securities and Exchange Commission (SEC) through Resolution No. 135, s. 2002, promulgated the original Code of Corporate Governance (“original CG Code”).
The original CG Code defined “Corporate Governance” as “a system whereby shareholders, creditors and other stakeholders … ensure that management enhances the value of the corporation as it competes in an increasingly global market place,” thereby ushering into our jurisdiction the application of the Stakeholder Theory, as it provided that every PHC director “assumes certain responsibilities to various constituencies or stakeholders, who have the right to expect that the institution is being run in a prudent and sound manner.” The original CG Code instituted within the corporate governance framework the role of independent directors, as well as the delineation between executive directors and non-executive directors.
The Code of Corporate Governance for Publicly-Listed Companies (“CG Code for PLCs”) formalized a more process-driven definition of “Corporate Governance” which retained the Stakeholder Theory within its framework, thus:
Corporate Governance — the system of stewardship and control to guide organizations in fulfilling their long-term economic, moral, legal and social obligations towards their stakeholders.
Corporate governance is a system of direction, feedback and control using regulations, performance standards and ethical guidelines to hold the Board and senior management accountable for ensuring ethical behavior — reconciling long-term customer satisfaction with shareholder value — to the benefit of all stakeholders and society.
Its purpose is to maximize the organization’s long-term success, creating sustainable value for its shareholders, stakeholders and the nation.
The paper revisits the oversight role of independent directors as they have evolved under the SRC and the SEC CG Codes, and assesses the efficacy of the fiduciary roles that independent directors play in the promotion of corporate governance within the PHC sector.
SAFEGUARDS AGAINST MAJORITY STOCKHOLDER OPPORTUNISM UNDER THE CC
There are provisions in the CC that provide statutory checks against corporate opportunism on the part of the directors/trustees, senior officers, and the controlling stockholders, which should be discussed in vetting the rationale for the system of independent directors in PHCs.
1. Minority Representation in the Board of Directors
The aspect of “minority representation” in the governing Board is covered by the system of cumulative voting for directors, that makes it mathematically possible for minority shareholders to pool their voting power to a pre-computed number of nominees to ensure that they would have minority representation in the Board of Directors. Consonant with such principle, the CC also provides that the majority stockholders have no power to remove, except for cause, a director elected by cumulative voting.
In the author’s work on PHILIPPINE CORPORATE LAW, he has commented on the cumulative voting system as follows:
“Cumulative voting is reckoned to be equitable since it allows stockholders the opportunity for representation on the Board of Directors in proportion to their holdings. Such minority representation is believed not to interfere with the principle of majority rule since the number of directors elected by each group will vary with its proportion of ownership. It is also believed that minority interests have a voice on the Board since stockholders and management often have different goals. Finally, it is believed that since corporate and securities laws generally create a balance of power in favor of insiders and controlling interest, some countervailing power in the hands of outside minority interest is desirable.
“On the other hand, the system of cumulative voting has been criticized by other sectors because it tends to promote partisan representation in the Board, which is inconsistent with the notion that a director properly represents all interest groups in the corporate setting. It is said to breed disharmony in the Board which dissipates the energies of management and leads to an atmosphere of uncertainty at the top level. Often, cumulative voting is used by persons who are motivated by narrow, selfish interests.”
Although the system of cumulative voting is mandatory for stock corporations, and cannot be taken-away by any provision in the articles of incorporation or by-laws, it does not always result in proper minority representation in the Board based on the following reasons:
First, minority representation in the Board would only happen when the minority stockholders have a sufficient pool of voting shares to be able to mathematically capture one seat in the Board. Since cumulative voting allows for proportional Board representation, then in a 5-man Board of Directors, a minority group would have to have at least voting power equivalent to 20% of the entire outstanding capital stock in order to capture one seat. The average float for PHC right now among PSE-listed companies is at 10%, which is sought to be raised to 20% by the SEC.
Secondly, it may be difficult, if not expensive, to do a process of proxy solicitation among a diverse and spread-out group of minority stockholders, who often have no financial motivation to exert additional efforts and expend additional resources to protect their small investments in the company, which cover the perennial costs of transaction and free rider dilemma.
Thirdly, directors elected through the system of cumulative voting by the minority stockholders may not have the qualifications of being independent of representing the other stakeholders of the PHC, since they are in the Board precisely upon the mandate of minority shareholders, an aspect of the agency problem.
For purposes of this paper, the most important consideration that has to be analyzed is that the system of cumulative voting under the CC may not always operate in tandem, and may in fact be in conflict, with the system of independent directors established under the SRC.
2. Minority Veto Power on Important Corporate Acts
Although the rule that “majority vote prevails in both Board and stockholders’ resolutions” remains the cornerstone of governance under the CC, in the following corporate acts or transactions, the minority stockholders, who are able to cast a negative vote that exceed one-third (1/3) of the entire voting power in the company, can prevent the majority vote from prevailing, thus:
(a) Amendment of the articles of incorporation;
(b) Increase or Decrease of the capital stock;
(c) Incurring or creating bonded indebtedness;
(d) Investment in non-primary purpose business or enterprise;
(e) Declaration of stock dividends (instead of cash or property dividends) from the unrestricted retained earnings;
(f) Having the corporate business managed by another corporation which has common shareholders or interlocking directors with the company to be managed;
(g) Merger or consolidation with another company.
The effectiveness of the minority shareholders’ veto power against the majority shareholders on the afore-enumerated strategic corporate actions is limited only to situations where the minority shareholders hold more than one-third (1/3) of the voting power in the company. Absent such minimum veto power, the protection granted by the CC to majority stockholders’ corporate opportunism would be allowing judicial review to correct conflict-of-interests or self-dealing transactions by the directors/trustees, senior officers, or controlling stockholders.
3. Judicial Review Mechanism Over Conflict-of-Interests Situations of the Board and Management
The CC provides the following checks on conflict-of-interest situations that allow for judicial review as a means to overcome corporate opportunism on the part of directors/trustees and officers of the company. The main mechanism of minority shareholders would be the common-law right of filing a derivative suit in behalf of the corporation against the self-dealing directors/trustees, officers and/or controlling stockholders.
a. Duty of Loyalty
The duty of loyalty that is imposed upon directors/trustees and officers requires that whenever they find themselves in a conflict-of-interest situation in pursuing the corporate affairs, then they must choose the interest of the corporation over their own interest, otherwise they become liable for breach of their fiduciary duty.
The CC provides that when a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a liability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.
The CC also provides that where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits which should belong to the corporation, he must account to the latter for all such profits by refunding the same, notwithstanding the fact that the director risked his own funds in the venture; unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock.
Our SC in Gokongwei, Jr. v. SEC, referred to the breach of the duty of loyalty as the “Doctrine of corporate opportunity,” thus: “The doctrine of ‘corporate opportunity’ is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rest fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection.”
Gokongwei, Jr. used the “Doctrine of corporate opportunity” as the legal basis to uphold a provision in the by-laws of San Miguel Corporation (SMC) disqualifying from membership in the Board of Directors of stockholders who owned competing businesses, thus: “It is obviously to prevent the creation of an opportunity for an officer or director of SMC, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of SMC and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where the two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns.”
b. Self-Dealing Safeguards
Under the CC, a contract of a company with one or more of its directors/trustees or officers is voidable at the option of the company acting through its Board, unless all the following conditions are present, thus:
(a) Presence of such director/trustee was not necessary to constitute a quorum in the board meeting approving such contract;
(b) Vote of such director or trustee was not necessary for the approval of the contract;
(c) Contract is fair and reasonable under the circumstances;
(d) In the case of an officer, contract had been previously authorized by the Board.
Where any of the first two conditions set forth above is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, in a meeting called for the purpose. However, in order that such ratificatory vote would be valid, it is required that there be full disclosure made of the adverse interest of the directors or trustees involved.
c. Contracts Between Corporations with Interlocking Directors
The CC also provides that, except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone.
The essence of the policy under the CC is that dealings between two corporations that have interlocking directors are not per se deemed fraudulent or voidable; however, if the interest of the interlocking directors in one corporation is merely nominal (less than 20% of the outstanding capital stock), he shall be subject to the same ratificatory vote required from stockholders and members, as in the case of dealings of directors, trustees and officers with their corporation.
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 Corporate Governance Committee of the Management Association of the Philippines (MAP), the former Chair of the Governance Commission for GOCCs and the Founding Partner of the Villanueva Gabionza & Dy Law Offices.
cvillanueva@vgslaw.com
map@map.org.ph
http://map.org.ph

The federalism discourse

IN a survey conducted by Pulse Asia last June, two out of three Filipinos do not agree that the 1987 Constitution should be revised at this time, although seven out of 10 admit having little to no knowledge at all about the 1987 Constitution.
In the same survey, six out of 10 Filipinos do not want federalism for now, and yet only three out of 10 admitted to having sufficient to a great deal of knowledge about the proposed federal system of government.
The Pulse Asia survey highlights even more the role of political education to ensure that public policy does not only reflect the discourse of policy elites but also the values and norms of citizens and actor policy actors. But what do we mean by discourse in the context of politics and public policy?
PUBLIC POLICY AS DISCOURSE
One of the most influential frameworks in policy making that emerged in the 1990s is Advocacy Coalition Framework or ACF. Developed by Sabatier and Jenkins-Smith, ACF is useful in making sense of complex policymaking systems characterized by the presence of multiple levels of government, intensely politicized disputes, different mix of actors, limited information, and high levels of uncertainty. Under such condition of policy making, it is assumed that it would take a considerable time for decisions to produce and measure outcomes.
Hence, instead of looking at institutions as the unit of analysis, ACF focuses on the role of ideas as an organizing logic in policy making. In a complex policy arena, actors are grouped according to advocacy coalitions. A coalition is based on an alliance formed based on shared common belief system or values about the problem and its causal assumptions. There are three types of beliefs: deep core, policy core, and secondary. The least susceptible to change is deep core, which is the actor’s fundamental philosophy.
To concretely differentiate the three types of beliefs, I will briefly interrogate the current federalism discourse in the Philippines.
The belief that the independence of all government units should be a constitutional choice, and hence federalism is necessary, is an example of deep core. The opposite of this is the belief that independence of government units should be a policy choice and a revised decentralization law is the required policy alternative. A deep core debate therefore centers on the principle of independence to the political units — whether that independence is inherent or bestowed — the former will necessitate a constitutional change while the latter will require a change of law.
The debate that centers on the proper distribution of power across units of government is not considered as deep core, but policy core. Article XII of the draft enumerates the distribution of powers of the government under a federal system. This article defines the relationship between the Federated Government and the Federal Regional Governments. These are policy positions that are more susceptive to changes, but still generally stable.
Finally, discussions that relate to the dividing of the Philippines into a number of federated regions refer to secondary beliefs, the last type of belief, usually the most malleable and easiest to change. In the last three years, we have seen how the number of proposed regions expanded and contracted, depending on whose version of the proposal one is reading.
COALITIONS IN THE PHILIPPINE FEDERALISM DISCOURSE
What is interesting about the ACF is its view that people engage in policy making to be able to translate their beliefs into action, and not simply personal material interests. Advocacy coalitions, therefore, remain stable over a long period of time because the alliance is one of ideas and values, and not for personal short-term policy fling gains.
It would be interesting to map out the various formal and informal actors in the federalism discourse in the Philippines in terms of their types of beliefs, and determine how deep and stable their alliances are. Are there more short-term policy fling coalitions than long-term policy partners, or perhaps a robust subsystem of midterm cohabiters?
Finally, I sense that most of the debates centered on the secondary and some on the policy core aspects. Debates that question the deep core beliefs of the various advocacy coalitions were scant, if at all, any.
Which brings me back to the Pulse Asia survey, where it revealed that majority of Filipinos have very little knowledge about federalism and the 1987 Constitution. This is very telling of the state of political education we have in the country. Democracy thrives when citizens can openly discuss, and approve or disapprove, the beliefs and subsequent actions to construct, through government, what they deem as a good society. When citizens do not know basic precepts and principles that underlie their current (the 1987 Constitution) and future (the Consultative Committee’s Federal Constitution draft) rights individually and collectively, then it would be dangerous for all of us to undertake such major systemic alteration.
The Consultative Committee formally turned over to President Duterte its draft of the proposed constitution last July 9. It is not too late to engage in a debate where the deep core beliefs of the advocacy coalitions are interrogated. It is only when we understand what is truly meaningful for us as Filipinos that the federalism debate can truly become a federalism discourse.
 
Anne Lan Kagahastian Candelaria, PhD, is currently the Associate Dean for Graduate Programs of the Ateneo de Manila University. She is also a faculty member of the Department of Political Science in the same university and a United Board for Christian Higher Education in Asia Fellow for 2018-2019. Anne’s teaching, research, policy engagements and consultancy work focused on education governance, public policy, decentralization, and citizenship education. Her advocacy is to make education a more meaningful experience for the Filipino learners through democratic governance of schools and a bottom-up construction of curricula.

A sense of direction

By Tony Samson
A SENSE of direction was discovered to be built into the brain. This was the research work of three scientists working separately for which in 2014, they were awarded the Nobel Prize for medicine. John O’Keefe and a husband and wife team, Edvard and May-Britte Moser, proved that one part of the brain serves as a mapping system that allowed a person to navigate and manage to go from one place to another, and also to recognize places he had already been to.
This GPS of the brain also ensures that in a crowd of flight arrivals, people are able to walk through, stopping, swerving (excuse me), and slowing down so as not to bump into each other, except on purpose — sorry, miss I thought that was my neck pillow. This navigational ability is somehow absent in persons with Alzheimer’s syndrome or dementia, who then feel lost, unable to know where they are or where they need to be, even if it’s to get home.
The mental geographical positioning system (sometimes aided by a phone app) is able to find the way from one office to another. But how long it will take to get to a destination has to be calculated and thus passed on to the calculating part of the brain, which assesses the effect of traffic.
From here, the information may travel to the seat of emotion, where road rage resides. This part of the brain is known to make a driver speak loudly through the windshield to the driver in front of him, as if he can actually hear the loud invective — the light has turned green, Bozo. This may be followed by instructions to the hand to lean hard on the car horn for a few seconds, and release some adrenaline. Thus navigational attributes of the brain start a chain reaction beyond a sense of direction.
Organizations too maneuver through financial paths and regulatory crannies. Do they also possess mapping systems in their brains?
This is what planning sessions try to answer. A corporate crisis arising from new competition, disruptive technology, or simple complacency at the top, tries to focus management on where it needs to go. A facilitator is hired to herd executives into an off-site location to answer questions. They need to determine a set of objectives and strategies to get there, after defining what business the company is in. (You are not a pork rind retailer, but a promoter of an alternative lifestyle.) The captain of the ship needs a compass to see if it has lost its way. Or whether it needs to start a new journey, maybe with a new navigator.
A sense of direction and spatial awareness are essential. When one has to meet a friend at a new place, it is important to know where he is — I’m near the washroom to the left of the mall as you enter. This same navigational skill is required when looking for where you parked your car at the mall. A poorly functioning GPS may require taking a phone photo of the parking slot, and maybe the stores at the exit to the parking floor — but which floor was that?
One’s place in the social pecking order may require location skills too. Social climbers have a very developed sense of who is higher and requires liposuction flattery. They often manage to hoist themselves up tied to the coattails of bosses, until there’s a regime change. Even here the switching mechanism of the brain kicks in to recognize the new coat.
A sense of direction is critical. Still, nature’s GPS is limited to physical locations. It is no help to other navigational questions of life — why am I here? Where am I going with my life? Does this relationship have any direction? Is this the right way to go? Philosophical questions such as these may involve other parts of the brain, as well as other organs.
Navigational skills are part of one’s survival instincts. The tricky question has to do with purpose: not where one is going, but why he needs to go there. Life after all needs a sense of direction.
 
Tony Samson is Chairman and CEO, TOUCH xda
ar.samson@yahoo.com

Korea downs PHL in QF

By Michael Angelo S. Murillo, Senior Reporter

SOUTH KOREA defeats the Philippines, 91-82, in their quarterfinal match on Monday at the Gelora Bung Karno Basketball Hall in Jakarta, Indonesia. — ASIAN GAMES WEBSITE

SOUTH KOREA advanced to the semifinals of the basketball competition at the 18th Asian Games in Indonesia after defeating the Philippines, 91-82, in their quarterfinal matchup at the Gelora Bung Karno Basketball Hall in Jakarta on Monday.
Boosted by solid work on the rebounding department, particularly on the offensive end, to complement its steady outside shooting, Korea proved to be a handful for the Philippines late in the game to run away with the victory and advance to the final four of the tournament while relegating the Philippines to the consolation battle.
The Koreans jump-started things with a 9-2 blast in the first three minutes of the opening quarter, extending their lead to 10 points, 17-7, at the 4:42 mark thanks to naturalized player Ricardo Ratliffe.
But the Philippines got its footing for the remainder of the frame with Christian Standhardinger and Stanley Pringle towing their team to a narrower deficit, 22-18, at the end of the first 10 minutes.
The Filipinos picked up where they left off at the end of the first quarter, firing their way to open the second quarter behind Paul Lee, Jordan Clarkson and Mr. Standhardinger.
They overtook the Koreans, 25-24, with 6:30 left on the clock.
Korea though went on a 5-0 blast in the next minute to seize back the lead, 29-25.
Instead of folding, however, the Philippines took on the challenge, stepping up its game on both ends to fight back, going on a 12-2 run to build its biggest lead of the first half of six points, 37-31, with 3:37 left in the half.
The Koreans tried to fight back but the Filipinos would hold them off, taking a two-point advantage, 44-42, by the halftime break.
At the beginning of the third period, the Philippines started things by outgunning its opponent, 10-4, to stretch its lead to eight points, 54-42, by the 7:06 mark.
But another fight back by the Koreans saw it retake the lead, 64-62, with 1:27 remaining before a triple by Mr. Clarkson gave the advantage back to the Philippines, 65-64, heading into the fourth quarter.
Able to get some momentum, Korea rode it to get it going at the start of the fourth quarter.
Mr. Ratliffe, Junbeom Jeon and Sunhyung Kim were catalysts as Korea ran with an 86-74 lead with 2:38 left in the game.
The Philippines scrambled to make its way back but only managed to come within nine points, 89-80, with 41 ticks to go before bowing out.
Mr. Ratliffe, who had stints in the Philippine Basketball Association as a reinforcement, led Korea with a solid double-double of 30 points and 15 rebounds.
Mr. Kim and Ilyoung Heo each had 17 points while Seounghyun Lee finished with 11.
For the Philippines it was Mr. Clarkson who top-scored with 25 points with Messrs. Standhardinger and Pringle adding 16 and 14 points, respectively.
“We were just not comfortable with the zone. Even Jordan (Clarkson) had problems with the zone. They just zoned us all game long and we just could adjust on time. Korea played well especially in the fourth period but our players gave a great effort and I could not have asked for more from them,” said Philippine coach Yeng Guiao after the game.
The PBA-backed Philippine team now hopes to improve on its seventh place finish in the 2014 Asian Games in the consolation battle.

Serena, Nadal begin US Open campaigns

NEW YORK — Serena Williams launches her bid for a record-equalling 24th Grand Slam title on Monday, sharing the Arthur Ashe Stadium stage with defending men’s champion Rafael Nadal in a blockbuster US Open opening night.
The two superstars, who own 40 Grand Slam titles between them, headline an opening day that sees eight former US Open champions in action.
Williams counts six US Open titles among her 23 Grand Slams, and with one more she will equal Margaret Court’s all-time record for major titles.
But the US superstar is something of an unknown quantity as she seeks her first Slam title since the birth of daughter Olympia last September.
“I can just continue to strive,” says Williams, the 17th seed who called it “interesting” to be tipped as a favorite to win her first US Open title since 2014.
She’s shown flashes of the old brilliance since her return in March, reaching the final at Wimbledon only to fall to Germany’s Angelique Kerber.
Williams opens her campaign against Poland’s Magda Linette, the world number 60 whose first career match against the imposing American will thrust her into the glare of the Ashe stadium lights on a night when organizers are pulling out all the stops in celebration of the 50th anniversary of the US Open.
Defending men’s champion Nadal, ranked number one in the world and seeking a second Slam title of the season after yet another Roland Garros triumph, faces an emotional duel with old friend and Davis Cup teammate David Ferrer.
“It will be a special meeting,” said Nadal, well aware that the slumping Ferrer will call time on his career at the end of the year.
Nadal was looking forward to playing in front of the boisterous New York fans.
“I always had a great connection with the crowd here,” he said. “The crowd brings me to another level of energy. That’s something that I enjoy.”
Ashe stadium will be rocking after a pre-match ceremony to honor past US Open champions and a musical set headlined by Kelly Clarkson, with entertainer Maxwell tapped to perform the national anthem.
The festivities won’t be confined to the main court either as the new Louis Armstrong Stadium hosts a night twin-bill featuring former world number one Victoria Azarenka and 2009 US Open champion Juan Martin del Potro.
Azarenka, runner-up to Williams in Flushing Meadows in 2012 and 2013, is unseeded as she, too, seeks to return to the top after time off to have a baby. She faces Slovakia’s Viktoria Kuzmova while del Potro, seeded third behind Nadal and No. 2 Roger Federer, takes on American qualifier Donald Young.
Murray, still on the road back from a hip injury and downplaying his chances in his first Grand Slam in over a year, takes on Aussie James Duckworth in an Armstrong day match while Wawrinka, further along in his return from knee surgery, opens the action on Ashe against eighth-seeded Grigor Dimitrov.
It’s a nightmare scenario for Dimitrov, who was seeded sixth when he lost to Wawrinka in the first round at Wimbledon.
Venus Williams, whose seven Grand Slam titles include two US Opens, faces a tough afternoon opener on Ashe against former champion Svetlana Kuznetsova of Russia.
Women’s world number one Simona Halep launches the dayside action on Armstrong against Estonian Kaia Kanepi, a quarterfinalist last year, while defending women’s champion Sloane Stephens, seeded third, plays Russian Evgeniya Rodina.
Stephens endured a sharp drop in form after her maiden Slam victory here last year. She halted the skid with a victory in Miami, then reached finals at Roland Garros and in Montreal — losing both to Halep.

A successful initial Asian Games foray for Filipino-Japanese golfer Yuka Saso

MADE her Asian Games debut for the Philippines, Filipino-Japanese Yuka Saso had it auspicious as she bagged the second gold for the country in the ongoing continental sporting meet on Sunday.
Holding her nerve in the final round of the golf competition at the 18th Asian Games in Indonesia at the Pondok Indah Golf and Country Club course, 17-year-old Saso sank a pressure-laden eagle putt from 10 feet on the par-five 19th to thrust herself to the top and win gold.
With identical three-under 33s in the front nine, Ms. Saso wound up with a four-round tally of 275, three shots better than second-running Liu Wenbo of China, who slumped to a 73 to settle for the silver with a 278 aggregate.
Ms. Saso’s teammate Bianca Panganiban made it a double podium finish for the Philippines on the greens on Sunday as she latched on the individual bronze medal with a combined 72-hole score of 279.
The podium finish of Misses Saso and Panganiban also allowed the Philippine women’s golf team, which also included Louis Kay Go, to bag the team championship trophy with a four-round output of 554, ahead of South Korea (557), which finished with the silver, and China (558) with the bronze.
Unsurprisingly, Ms. Saso was very happy to have made it a successful initial foray in the Asian Games for the Philippines, underscoring how her and their team’s hard work paid dividends.
“I feel very happy. I really don’t know what to say. My experience here the whole week has been wonderful,” said Ms. Saso after their gold conquest.
“I just never lost faith in myself and I never doubted this team from the beginning. We are all fighters and we really fought hard for our country,” she added.
Ms. Saso’s and Team Philippines’ gold medals were in addition to the country’s medal haul after that of weightlifter Hidilyn Diaz won on Aug. 21.
Ms. Panganiban’s bronze, meanwhile, was the 10th for the Philippines after those won by the taekwondo poomsae men’s and women’s teams, taekwondo jin Pauline Lopez, wushu’s Agatha Wong and Divine Wally, BMX cyclist Daniel Caluag, jiu-jitsu’s Meggie Ochoa, and pencak silat’s Jeffrey Rhey Loon and Dines Dumaan. — Michael Angelo S. Murillo

Crypto tycoons are about to learn how rich they really are

Some of the world’s biggest cryptocurrency tycoons are about to find out how much they’re really worth.
The secretive bosses of Bitmain Technologies Ltd., Canaan Inc. and Ebang International Holdings Inc. — three of the largest makers of cryptocurrency mining gear — are all facing the prospect of public-market scrutiny for the first time as they pursue stock listings in Hong Kong. Bitfury, another industry heavyweight, is open to the idea of an initial public offering, though it doesn’t yet have any concrete plans.
If they proceed, the share sales will represent a major test of whether the fortunes amassed by the likes of Bitmain’s Jihan Wu, Canaan’s Zhang Nangeng and Ebang’s Hu Dong are sustainable, or destined to fizzle. While all three companies enjoyed breakneck growth as Bitcoin soared 15-fold last year, the cryptocurrency and most of its peers have lost more than half their value in 2018 amid mounting regulatory scrutiny and concerns over exchange security flaws and market manipulation.
The risk is that a lengthy bear market will erode demand for the companies’ specialized computer chips, which miners use to verify virtual currency transactions in a race for crypto-denominated rewards. Bitmain, Canaan and Ebang are trying to adapt their technology for use in other fields such as artificial intelligence, but they’ve yet to prove that the new applications are scalable. Publicly traded shares would offer a real-time gauge of how investors view their prospects.
“These IPOs will be a litmus test,” said Rohit Kulkarni, a managing director for private investment research at SharesPost.
Given the limited public information on the financial results of crypto-mining gear makers and the other assets owned by their founders, pre-IPO estimates of their net worth involve a significant amount of guesswork. The projections in the following table incorporate information from exchange filings, interviews and data compiled by Bloomberg. Valuation multiples were derived from publicly traded chipmakers such as Nvidia Corp. and MediaTek Inc.
Bitmain, the industry’s dominant player, is planning an IPO that could raise as much as $3 billion, people with knowledge of the matter said this month. Wu, the company’s controversial 32-year-old leader, said in an interview that he and co-founder Micree Zhan together owned about 60 percent of the business, and that it booked $2.5 billion of revenue last year.
In addition to selling mining gear, Bitmain also operates some of the world’s biggest mining collectives, in which members combine their processing capacity and split the rewards. It’s unclear whether that part of Bitmain’s business would be included in a share sale.
Bitfury recorded $450 million of revenue in the 12 months through March, according to a spokesman. Chief Executive Officer Valery Vavilov and co-founder Valery Nebesny share a majority stake in the company, Vavilov said in an email interview.
Three founders of Canaan — Zhang, Liu Xiangfu and Li Jiaxuan — each control stakes of around 17 percent in their company, while Hu and his family own 68 percent of Ebang, according to exchange fillings. Canaan and Ebang have already filed preliminary applications to list shares in Hong Kong, though the timing of the IPOs is unclear and the companies aren’t obligated to pursue them.
Bitmain and Bitfury declined to comment, while Canaan and Ebang didn’t respond to requests for comment.
Declining cryptocurrency prices may be one reason why the mining companies are selling shares now, so that existing owners can “capture some of the gains they’ve made from growing the business to this point,” said Gil Luria, director of institutional equity research at D.A. Davidson & Co. in Portland, Oregon.
Bitcoin was little changed at about $6,700 as of 5:08 a.m. in Hong Kong on Monday. It’s down 53 percent this year.
The offerings may appeal to money managers who are bullish on crypto but want to avoid the risks that come with holding virtual currencies, including unwieldy custodial arrangements, Luria added.
“It’s like buying shovels and Levis jeans during the gold rush,” he said. “These are real companies generating a decent amount of revenue.”
The stocks would also offer investors exposure to the growth of artificial intelligence, said Kevin Wang, a Hong Kong-based analyst who covers semiconductor companies for Mizuho Securities. The application-specific integrated circuits, or ASICs, designed by Bitmain and its peers for crypto miners are useful for the heavy workloads associated with some forms of AI, such as machine learning.
The companies’ AI ambitions may partly explain their decisions to pursue IPOs rather than initial coin offerings, which have been banned in China and some other countries. The Chinese government is a major backer of AI technology. Still, the decision to shun ICOs may irk some cryptocurrency purists, especially considering that some of the mining-gear companies have benefited from the proliferation of tokens generated by the ICO boom.
For potential stock investors, cutthroat competition in the crypto mining industry may be just as large a risk as falling virtual currency prices. Concern that Bitmain is losing its technological edge prompted Sanford C. Bernstein & Co. analysts to warn in an Aug. 22 report that the company may need to take a major writedown on its inventory.
“It’s a very competitive space,” Luria said. — Bloomberg

Pencak silat, karate add bronze medals to haul

THE PHILIPPINES added bronze medals to its total medal haul at the 18th Asian Games in Indonesia on Monday with pencak silat and karate athletes winding up on the podium.
Cherry Mae Regalado nabbed the bronze in the women’s single division of pencak silat while karatedo athlete Junna Tsukii placed third in the women’s -50kg event.
Ms. Regalado finished with 444 points to finish third in her event behind Puspa Arumsari of host Indonesia (467) and Singapore’s Nurzuhairah Mohammad Yazid (445).
The bronze was the third for the Philippines from the sport of pencak silat, a traditional Indonesian martial arts form, after those by teammates Jeffrey Rhey Loon and Dines Dumaan on Sunday.
Ms. Tsukii, meanwhile, gave the first medal from karate after toppling Thailand’s Paweena Raksachart, 4-1, in the women’s -50kg semifinal.
The two bronze medals padded the Philippines’ total haul to three gold and 12 bronze medals, good for 16th place in the medal standings as of 6:30 p.m. on Monday.
IMPRESSED WITH SU
Meanwhile in Jakarta, Su Bingtian’s Asian Games gold in the 100 meters on Sunday came as little surprise to many, including athletics boss Sebastian Coe, long admirer of the pint-sized Chinese sprinter.
The 28-year-old streaked to victory in a competition record of 9.92 seconds in Jakarta at the weekend, missing the continental record by the tiniest of fractions.
Su edged out Nigeria-born Qatari Tosin Ogunode — younger brother of Femi Ogunode, with whom the Chinese star shares the continental best of 9.91 — on a night when six African-born athletes bagged six track and field golds at Asia’s showcase sports event.
Ryota Yamagata — part of the 4x100m Japan team that took silver behind Usain Bolt’s Jamaica at the 2016 Rio Olympics, took bronze, underlining Coe’s confidence in the future of Asian sprinting.
“You could argue Japan and China are two of the most improved athletics nations over the last six or seven years,” the Briton said in an interview with news agencies.
“For me it’s very clear — they’re making very good progress. If we’d been sitting here a decade ago, talking about potential here for a China athlete to run 9.8, you’d have probably taken quite long odds on that.”
Coe, president of track and field’s governing International Association of Athletics Federation, pointed to China’s willingness to embrace overseas coaches after years of fostering suspicion of state-sponsored doping.
“If you look at the Chinese federation, they’ve been quite global,” said Coe. “They’ve recognised there are gaps in their own coaching structures and said ‘Hey, let’s bring that talent to the table.’
“It’s a pragmatic approach. There’s been a greater clarity around the importance of coaching.” — Michael Angelo S. Murillo with reports from AFP

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