De Facto Control : Applying Game Theory to the Law on Corporate Nationality

The nationality of stockholders holding majority voting rights can determine a corporation's capacity to engage in partially nationalized economic activities. However, minority stockholders can hold a degree of voting power higher than what their shareholding size might suggest. This makes it possible for a foreign minority stockholder to have “effective control” of a “Philippine national” which passes the Control Test. This paper seeks to reexamine the basic premise that the absolute voting weight reflects actual voting power, and proposes a new way to measure control. Applying the concept of a voting power index in cooperative game theory, a stricter form of the Control Test emerges. Each corporate structure should be analyzed based on multiple factors that determine the true nature of voting power, namely: (i) the number of stockholders, (ii) the minimum votes required to pass a stockholder resolution, (iii) the amount of voting rights held by one stockholder in relation to other stockholders, (iv) the possibility of forming a coalition of stockholders, (v) the number of times that a stockholder can be a swing voter, and (vi) the size of the public float. The latter section of this paper applies this more rigorous test to the Gamboa v. Teves and Narra Nickel Mining v. Redmont Consolidated Mines Corporation rulings to demonstrate how it more accurately measures effective control