Last Thursday, the Philippine government was thwarted in its determined bid to oust Eduardo “Danding” Cojuangco from his role as president and CEO of San Miguel Corp. A thorn in the side of the Arroyo presidency but a shrewd and competent steward of one of the world’s largest conglomerates – Clare Harman investigates the role of Cojuangco in the Philippines.
Eduardo Cojuangco is a virtual boomerang in the world of corporate power. Two presidencies could not throw him away fast enough, and yet he always comes back. The explanation for Cojuangco’s influence is simple enough; money. But why is the chairman and CEO of food and beverage manufacturing giant San Miguel Corp. so important to the government?
Wealthy businessman Cojuangco, known as “Pac-man” in corporate circles, has become an embarrassing thorn in the side of a new government determined to prove to the world that the Philippines is moving on from the alleged corruption that characterised the reign of President Joseph “Erap” Estrada. President Gloria Macapagal Arroyo was sworn in on 20 January, after Estrada fled amid huge military-backed demonstrations. One of her first public statements stressed that she would end the cronyism endemic at the highest level of government and industry. Together with finance secretary Alberto Romulo, Arroyo revealed that the corporate clean-up would begin in the San Miguel boardroom.
Rising to power during the reign of his close friend President Ferdinand Marcos (1966-1986), Cojuangco gained leadership of the country’s largest brewer and food group. But he was ousted alongside Marcos during the “people’s revolution” of 1986, when critics saw Cojuangco’s name as synonymous with the corruption of the last twenty years. Under the Marcos’ successor, Corazon Aquino, the Presidential Commission on Good Government (PCGG) confiscated the chairman’s 20% stake in SMC following allegations that he had purchased the shares using P9.6bn worth of taxes levied on coconut farmers by Marcos. He was later granted the voting rights for these shares in 1988, however. The PCGG also sequestered the Cojuangco-controlled United Coconut Planters Bank (UCPB), a company that owned a further 27% equity stake in SMC.
Twelve years later, with the accession of Estrada in July 1998, Cojuangco returned from his corporate exile and regained the chairmanship of San Miguel. Allegedly one of Estrada’s largest campaign contributors, he was given back his private stake of 20% by the new presidential administration following the resignation of chairman Andres Soriano III, who wanted “to give way to new management.” With Estrada’s unseating in January on corruption charges, the new government under Arroyo is desperate to prove that the remnants of corrupt government are being washed away.
The PCGG claims that since 1998, SMC has been “window-dressing” its financial results, and has made questionable investments worth millions of dollars in operations outside SMC’s core business. To address the alleged corruption of the past the government needs to instigate a board reshuffle, but currently only two San Miguel board members are allied with the Arroyo administration. The government is therefore focusing particular attention on replacing Cojuangco and five other Estrada-appointed San Miguel directors; Raul P. de Guzman, Espiridion D. Laxa, Allan L. Lee, Benjamin P. Paulino and Hermogenes L. Tantoco.
Tied to the stake
The power struggle revolves around Cojuangco’s shares in both SMC and UCPB, effectively frozen equity which amounts to a 47% stake in SMC. Last week the Supreme Court was called on to decide whether Cojuangco indeed owns 20% of SMC, or if, as Arroyo contends, the entire 47% stake rightfully belongs to the state. Shares translate into seats on the board, and if the government controls the 27% UCPB stake, it can also unseat the five directors appointed by former president Joseph Estrada and replace them with its own nominees. Without enough influence on the San Miguel board, Cojuangco’s days seemed numbered.
Less than two weeks ago, finance secretary Romulo told the world’s media the government had two foolproof plans in place to guarantee the end to Cojuangco’s dominance of the San Miguel Corporation on or before the 3 May shareholders’ meeting. Romulo announced that former Social Security System president Renato Valencia was a contender for Cojuangco’s succession and explained, “If we don’t have the numbers, we can’t unseat Cojuangco. But we are already going to courts and an Executive Order is being prepared. As far as I know, the President is supportive of these moves.”
As it happened, SMC’s government shareholders were told last Thursday (3 May) that they had missed the 30 January deadline for the submission of their five nominees to the company’s board. Romulo had not expected this date to be “a hard and fast rule.” He was evidently wrong. San Miguel’s shareholder spectators packed into the annual shareholders’ meeting, cheering as the votes were counted. After a gruelling five hours, which saw the PCGG lawyers pushing until the last minute to get their nominees elected to the SMC board, Cojuangco was re-elected chairman and his position confirmed for at least another year. The San Miguel management had succeeded in retaining control of the 15-member board. The five Estrada-appointed directors were also re-elected, representing the 27% stake of the UCPB.
Political and business savvy
Despite the political savvy that no doubt played a part in his dramatic victory last Thursday, it is important not to dismiss Cojuangco’s business ability. San Miguel investors and corporate analysts have both been impressed with the proficiency with which Cojuangco has steered the company. Last year, while other Philippine peers struggled, San Miguel posted a 25% increase in profits. Under his direction, the Philippine Coca-Cola bottling business sold three years previous was re-acquired and San Miguel’s foreign and distribution businesses were streamlined.
Following the meeting, the SMC chairman explained that while business strategy would follow a similar path, investors could expect the share price to rise with the resolution of the management issue. He explained that investors had been dissuaded from purchasing the stock aggressively in the light of the unsettled SMC boardroom, but that the meeting would provide some “stability.” In particular, his victory would boost the share price, because “if SMC becomes a government corporation […] a lot of foreign investors would not want to put money in the shares.” Cojuangco also revealed that a 10% stock dividend will be payable on July 6 and predicted that SMC profits would grow by a further 10% over the course of this year.
Fanciful, but not forgotten
Despite being thwarted in her high profile bid to oust Cojuangco, Arroyo declared that the battle for control is not over. Government allegations have intensified concerning the levels of corruption and questionable business practice within San Miguel, and Arroyo publicly demonstrated her determination by declaring a “state of rebellion” last week when Estrada’s supporters staged a violent backlash when he was jailed. Some critics believe this crackdown is an attempt to hijack the general election next Monday (14 May).
PCGG commissioner Ruben Carranza maintained that the five Estrada-appointed directors could be compelled to resign without a court order. He commented that the events at the AGM merely laid the basis for taking the case to court. Sources have revealed that Cojuangco is mulling an amicable settlement, offering the government one additional seat on the SMC board. In the light of last week’s defeat, the government’s aspiration to strip the Philippines’ largest food and drinks company of its chairman may seem a little fanciful. But it has not been forgotten.
By Clare Harman, just-food.com editorial team