Not for the faint-hearted

Two readers, probably lawyers, dared me to demonstrate my thesis last Sunday that, absent grave abuse of discretion, the judiciary should refrain from deciding economic and business issues that are best left to the political branches of government, especially the Executive Department. After all, our people look up to the President, ably assisted by his economic team, to alleviate poverty and promote their well-being.

Not legal or logical. Here is my response. The Supreme Court’s decision in Gamboa v. Teves (June 28, 2011) observed that the par value of PLDT voting or common shares is only P5, yet they each earned P70 in 2009. In contrast, the non-voting or preferred shares have a par value of P10, but they earned “a measly P1 per share… In other words, preferred shares have twice the par value of common shares but… (earned) only 1/70 of the dividends of common shares.”

Then, it concluded, “This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares (mostly owned by Filipinos) but with the common shares (mostly owned by aliens), blatantly violating the constitutional requirement of 60 percent…  Filipino beneficial ownership in a public utility.”

The uninitiated in business may find the foregoing discussion logical. But I respectfully submit that it is neither legal nor logical. It is not legal because the Constitution does not speak of dividends. Nowhere does it talk of how much each kind of shares should earn. The Charter speaks only of control of a corporation engaged in public utilities, not of “beneficial ownership.”

It is not logical because it ignored the market value of the shares and their rate of returns. The decision itself noted that “the PLDT common shares with a par value of P5 have a current stock market value of P2,328 per share, while the PLDT preferred shares with a par value of P10 per share have a current stock market value ranging from… P10.92 to P11.06 per share.”

Real financial benefits. However, it failed to use this critical information in computing the actual and real financial benefits. Look, on the basis of the facts given by the Court, an investor needs about P11 to buy a PLDT preferred share, which would earn P1. Here, the rate of return on the investment is nine percent. On the other hand, to acquire a common share, an investor must pay P2,328 yet earn only P70 or only about three percent.

On this basis, preferred shares earn three times more than the common shares. So, it is neither logical nor correct to say that “beneficial ownership” in PLDT rests with foreigners just because they hold more common shares than Filipinos.

Clearly, the par values of shares are not determinative of their real worth or earning potential. Investors buy shares depending on their appetite for risks, not on the shares’ par values. Conservatives want preferred shares because they are less risky and their earnings, like bank deposits, are fixed. The adventurous choose common shares because they could potentially be worth much more. Or much less, if the company flops.

While common shares may yield smaller dividends, they can – in time – increase their market value. Sometimes, a company strikes oil, or perfects its high tech products. When this happens, the market value of common shares exponentially grows while the yields of preferred shares remain fixed.

A classic example of exponential growth is Microsoft, which made Bill Gates the richest American. Another example. In 2001, PLDT’s net income was about P3.4 billion; its common shares had a market price of P417. Then, led by Manuel V. Pangilinan and his gung ho Filipino management team, it expanded into high-risk but high-reward wireless digital cell phone technology. In just four years, in 2005, its net income exponentially soared 10 times to P34 billion. And kept growing since then. In 2010, its net income was P40 billion and its common shares’ market price rose to P2,554.

Of course, in bad times, common shares could collapse and reduce billionaires to paupers, as has happened here in 1997, and in the United States in 2008.

But then, that’s what business is all about. It is about taking and managing risks, not about legislating profits or promulgating decisions on economic benefits. It is not for the faint-hearted or for jurists to intrude into unnecessarily.

* * *

New ombudslady. The longest and most thunderous ovation during President Aquino’s Sona reverberated when P-Noy announced the appointment of Justice Conchita Carpio Morales as the new ombudsman. I think this was a tribute to both the President and the retired magistrate.

When we were still sitting in the Supreme Court, Justice Morales and I differed a few times, especially on economic issues. But I have never doubted her probity, integrity, independence and love of country. That is why I fully supported her appointment. Our people, I am sure, can look forward to a fair, objective and robust investigation and prosecution of graft under her watch.

* * *

Aksyon agad! After reading my column, Executive Secretary Paquito Ochoa immediately texted me last Sunday morning praising the OFW call center proposed by Air 21 boss Alberto Lina. He said he would contact Lina and “forge a formal arrangement” to set up the project. Once operational, the center can be called by OFWs anywhere in the world anytime, 24/7, free of charge. Secretary Ochoa’s instant response is exemplary. In contrast, I have yet to hear from the Department of Labor.

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