Mr. Valentino R. Palanca

February 20, 1996 Mr. Valentino R. Palanca House of Representatives Quezon City, Metro Manila S i r : This refers to your letter requesting comments on House Bill No. 5573, entitled: llcd "AN ACT GRANTING REPRESENTATION OF CONSUMER GROUP IN THE BOARD OF DIRECTORS OF THE MANILA ELECTRIC COMPANY, THE NATIONAL POWER CORPORATION, THE METROPOLITAN WATER SEWERAGE AUTHORITY, THE PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, AND ANY OTHER CORPORATION, GOVERNMENT OR PRIVATE, DISPENSING PUBLIC SERVICES, GIVING THEM ONE (1) SEAT IN THE BOARD OF DIRECTORS, AND OR OTHER PURPOSES." The intention of the Bill is laudable as it is one way to strengthen participative decision making from of grassroots. However, while we do not interpose objection on the proposal to grant representation of the consumer group in the Board of Directors of government owned corporation dispensing public services, giving them one (1) seat in the Board of Directors, we take exception to private corporations organized under the Corporation Code. The ownership of a "private corporation" belongs to the stockholders and that the Directors are mere representatives of the stockholders. It is because of this that Sections 23 and 24 of the Corporation Code require that every director must be elected by the stockholders of record from among themselves .Things taken up by the Board of Directors are management matters which require the exercise of judgment and discretion on behalf of the stockholders .Since, the function of the Board of Directors has a special character because of the peculiar position of a director as a corporate insider having access to special information not available to non-stockholders, it would be unwise for the Board to have members who are not owners of the corporation. It is quite understandable that the corporate stockholders or owners would not trust outsiders to come in and interfere in the management of the corporation. Thus, under existing law, a person who does not hold a legal title to a stock as per stock book of the corporation cannot be voted as a director. Allowing representation of consumer group in the Board of Directors of public service oriented businesses would naturally result in the sharing in the entire corporate management ,not only on the determination of service fees, and may thus shy away investors who have the financial capability to invest in said line of business. The matter of determining the proper service rate or fees is not really a problem as it is not merely a corporate management discretion. Questions pertaining to their propriety or reasonableness can be settled by the proper Government Agency which may impose restrictions or limitations when the public interest so requires after a public hearing wherein both the corporate management and the consumer group shall be represented. Accordingly, the Commission is inclined to think that the proposal to grant representation of consumer group in the Board of Directors in private corporations engaged in business of dispensing public services is not a sound corporate practice as it is not only unnecessary but also contrary to the corporate principle that the stockholders or owners of the corporation determine their representation in the Board of Directors. prcd Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Chairman