MANILA, Philippines - The Supreme Court (SC) grilled Philippine Long Distance Telephone Company's (PLDT) lawyer on the telephone giant's position that Filipinos still control the company in spite of foreigners owning 64 percent of its common shares.
PLDT lawyer Victor Lazatin told the high court during Wednesday's oral arguments at the Supreme Court compound in Baguio City that in spite of this figure, the management of the company still rests with Filipinos since only 2 out of the 14 members of the PLDT Board of Directors are foreigners.
With PLDT's admission that only 36 percent of its common shares is owned by Filipinos, Chief Justice Renato Corona asked Lazatin to explain the relationship between majority ownership and management control.
In response, Lazatin said: "In a corporation you have the stockholders who are the beneficiaries of the dividends and you have the Board of Directors who have management control."
Associate Justice Jose Perez, however, pointed out that even if majority of the members of the PLDT Board of Directors are Filipinos, they may still be overruled by the foreign owners of the non-voting, preferred shares allowed to vote in major corporate decisions.
PLDT sought a reconsideration of the high court's ruling last June 28, 2011 that defined the term "capital" in Sec. 11, Art. XII of the Constitution as shares of stocks entitled to vote, or common shares, and not as total outstanding capital stock. The ruling also directed the SEC to determine whether PLDT committed a violation on the constitutional provision which limits foreign ownership of domestic public utilities to 40 percent, applying this definition of the term "capital."
Associate Justice Antonio Carpio, who penned the decision, pointed out that since the 1935 Constitution up to the 1987 Constitution, at least 60 percent of a public utility's voting stock must be owned by citizens of the Philippines.
Associate Justice Presbitero Velasco, Jr., who dissented in the June 28, 2011 ruling, said restricting the term "capital" to voting shares did not guarantee that all of the telephone firm's non-voting shares may not be owned by foreigners.
"In the process, they (foreigners) may have the majority in the outstanding stocks as a whole," Velasco pointed out.
For her part, Associate Justice Teresita Leonardo-De Castro told Lazatin that if PLDT's definition of "capital" was adopted, which refers to all types of shares, voting and nonvoting, common and preferred, all voting shares may go to the foreigners.
Lazatin, however, said applying the high court's definition of "capital" posed a "possible problem."
"You can just imagine.. for national industries, we can issue preferred shares to foreigners because we said non-voting is not capital," he said.
Lazatin further argued that this definition would "discourage foreign investments and expose the Philippine government to investment suits."
"It will affect so many industries, it is not just PLDT that will be affected," he said.
Lazatin also pointed out that petitioner Wilson Gamboa did not sue PLDT nor the Securities and Exchange Commission (SEC), but the telephone firm's officials and former SEC chair Fe Barin, in their personal capacity.
The oral arguments will continue on June 26. The high court will invite amici curiae (friends of the court) Bernardo Villegas and Joaquin Bernas, members of the 1986 Constitutional Commission which drafted the 1987 Constitution.