Stocks and shareholder voice

Managing for Society

Manila Times

March 14, 2005

It’s official. You can buy shares of SM Investment Corporation (SMIC) for P250 per share in the biggest initial public offering (IPO) in the stock market so far this year.

SMIC wants to improve its balance sheet and put SM malls and department stores in many more cities and provinces around the country. It needs billions of pesos to do this. Would you like to help it?

It’s well-known that in this country where countless poor die from hunger or even tainted maruya, a handful of families control big business; even the so-called publicly listed corporations. So why should we care if the Henry Sy family wants to get public investors into SMIC? This is, after all, the family that appeared on Time magazine’s cover as already among “the families that own Asia”.

I think that this IPO isn’t just a financial event. In many ways, it is an important social and national development event. Assuming a small investor can get any of the limited number of shares that will be sold to the public, after the big guys gobble up most of it, there are good reasons why Juan de la Cruz should look at this investment opportunity.

The corporate sector is one of the biggest contributors to the economy, with the share of value-added to GDP from the top 1000 corporations alone estimated to have grown from less than 20% in the 80s to more than 25% today. SMIC controls the SM malls and department stores as well as Banco de Oro. Retailing continues to be a strong sector in our economy because, thanks to the Sys and the Ayalas, Filipinos treat malls like family parks. Investing in SMIC can help build the economy.

The Corporation Code aims to make sure that corporations “are not merely entities established for private gain but effective partners of the National Government in spreading the benefits of capitalism for the social and economic development of the nation.” One way that this is done is through IPOs.

An IPO lets ordinary citizens share in the stakes as well as in the fruits of capitalism. It invites investors to help in building more valuable corporations. It supports entrepreneurs in offering products and services to more Filipinos. An IPO makes the stock market like one huge cooperative for development. Investing in SMIC can help make sure that more Filipinos earn wealth from the SM companies, aside from the Sy family. Corporations are too important to leave to a few families to control. This democratizes economic development.

Like in most democracies, though, some voices are smaller than others. If Juan de la Cruz buys shares of SMIC stock, he joins the company’s many minority shareholders. This means that the fate of his investment will almost completely be in the hands of the Sy family and their appointed managers.

Still, a conscientious shareholder gets to attend the annual meetings to ask a question or two to engage the board in creative discussion. How many more malls can Philippine cities and towns sustain? Is contractualization fair to workers? While the controlling family will not give up control, minority shareholders are guaranteed to have a voice.

Fairness, transparency and accountability are what corporate governance is all about. These can only be advanced if more citizens participate in publicly-listed corporations. Meaningful participation should go beyond paying the price of the stock, however. Shareholders must continuously ask corporate management the tough questions: What are you doing to produce returns for the investors? How are you making sure that the corporation continues to deliver valuable products and services to customers? How are you giving jobs and helping people build dignified lives? How are you strengthening the corporation as an institution so that it will stand the test of time?

Some say that money talks. In our country, money shouts. Sometimes, it’s the only language that big business understands. So, if you have the money, you might want to let your money do some talking. And make money in the process, too.