Democratic corporate governance

Managing for Society

Manila Times

August 4, 2009

The passing of a great democrat like Cory Aquino should make us all pause to take stock of what we take for granted because of her leadership and sacrifice. This is difficult to explain to my MBA students who cannot imagine the dark years of Martial Law when the media was controlled (Yes, my dear students, the headlines and TV news reports were cleared by government authorities.) and when having the “wrong” friends was enough reason to get one killed (Yes, my dear students, I had a student friend who was assassinated because some of his friends had communist links.)

We have certainly come a long way since then. Our democratic space is second to none, so much so that some have referred to our system as “demo-crazy.” Still, the fact that we take our democratic freedoms for granted today belies the radical nature of Cory’s democratic vision at the time she came into power. By significantly neutralizing the military’s political clout and delivering a constitution dedicated to the common good, she paved the way for us to continue the democratic project and build the country we deserve.

But the battle against the abuse of power that Cory pursued at the national level now needs to be fought at a more micro level, that of the corporation. Democratic theory fundamentally claims that individuals ought to have at least a representative voice in decisions that affect their lives and welfare. This principle is violated in most corporations in the country today.

The problem is that although the constitution calls on corporations to be accountable to the common good and to be sensitive to the social needs of citizens, our corporate system is largely patterned after the Anglo-American system, which gives primacy to the property rights of shareholders over other rights. As a result, the constitutional rights of employees to secure employment, just pay and humane working conditions are easily set aside to satisfy the profit goals of shareholders.

Not surprisingly, even while the GNP continues to grow fuelled significantly by corporate growth, the disparity between the rich and poor continues to grow as well. This is simply because there is little democratic space within the Philippine corporation. Common thinking assumes that many of the democratic rights of a Filipino end as soon as he or she is employed by a corporation. Then, his or her fate becomes subject to the whim of all-powerful shareholders.

The SEC partially responded to this anomaly when it released the Code of Corporate Governance in 2002, which upheld the right of various constituencies or stakeholders to expect that board directors would run the corporation in a “prudent and sound manner.” In a surprising reversal of policy, the SEC removed all references to stakeholders in the recent revision of the Code. The country’s corporate governance regime is now mainly shareholder-centered. This is a step backwards for the democratic project.

Contrast this with the corporate law of the US State of Connecticut, for example, which calls for directors to consider, alongside the interests of shareholders, “the interests of the corporation’s employees, customers, creditors and suppliers.” Or the German Code of Corporate Governance which aims to “promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German stock corporations.”

Are we radical enough to advance the democratic project to its logical conclusion in the corporate arena? Are there enough entrepreneurs who will use corporations to empower fellow Filipinos? I hope so. Only by pursuing Cory’s vision fully can we hope to assure every Filipino a dignified life.