Bautista Picazo Buyco Tan & Fider

March 13, 1991 Bautista Picazo Buyco Tan & Fider 5th Floor, WIP Building 349 Sen. Gil J. Puyat Ave. Makati, Metro Manila Gentlemen : This refers to your letter of March 7, 1991 requesting opinion on the following queries: prcd 1. Can the Board of Directors of a parent company validly authorize the Chairman of the Board of Directors to vote all the shares of stock of the parent company in its subsidiaries and to grant said Chairman the full discretion to designate the individual nominees to be voted for and elected into the Board of Directors of the subsidiaries as representative of the parent company, provided that said nominees are given qualifying shares? 2. Pursuant to such Board Resolution of the parent company, can the Chairman, at the respective election of directors of its various subsidiaries, validly vote all the shareholdings of the parent company in each subsidiary, in favor exclusively for the individual nominees selected by him, and therefore not allocate any of said votes proportionately in favor of the candidates coming from minority group? The board of directors of a corporation is entrusted with the management of its business and property for the benefit of all the stockholders and occupy the position of trustees for the collective body of stockholders in respect to such business. It is the duty of the Board to administer the corporate affairs for the common benefit of all the stockholders and exercise best care, skill and judgment in the management of the corporation business solely in the interest of the corporation. (3 Fletcher, Cyc. Corps., Sec. 638 at 142-143, 1975 Rev. Vol.) "All powers directly conferred by statute, or impliedly granted by necessity must be exercised by the directors who are constituted by the law as the agency for the doing of corporate acts." (Ballantine on Corporations, sec. 42, at 119) Shareholders entrust their investments in the corporate business to the management of the board of directors, thus, establishing a fiduciary relationship between them. Accordingly, in reply to your first query, the board of directors of a parent company determines its representation in the board of directors of its subsidiaries. The shares standing in the name of another corporation may be voted by such officer, agent, or proxy holder as the by-laws of the other corporation may prescribe. In the absence of such a determination, they may be voted by the chairman of the board, president, or any vice-president of such other corporation or by any other person authorized to do so by the chairman of the board, president, or any vice-president of such other corporation. (1-A Ballantine & Sterling, sec. 171.07, par. 1, at 9-38). In all cases, however, voting thereon shall be made under the ultimate direction of the board. Anent your second query, please be advised that minority stockholders cannot demand as a matter of right for proportionate representation in the board of directors of the subsidiaries. It is the sole prerogative and discretion of the board of directors of a parent or holding corporation to choose its nominees in the board of directors of its subsidiary. However, the dealings of the parent and its directors with the subsidiary will be subjected to rigorous scrutiny, and where their interests are adverse, they may be under a burden to prove not only the good faith of the transaction but also its fairness. (Ballantine on Corporations, sec. 141 citing Pepper v. Litton, 308 U.S. 295, 60 Sup. Ct. 234, 245, 84 L Ed. 281; etc.). The fiduciary obligations is designed not only for the protection of the minority shareholders but for the creditors as well. "But the fiduciary thereof will not be employed merely to enable a minority to dictate corporate policies . . . "(Ballantine, supra, sec. 141 at 326-328) LexLib Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner