Nudging corporate business to be more inclusive

Benito L. Teehankee

BusinessWorld

April 16, 2015

The NEDA’s 5th and penultimate Millennium Development Goals (MDG) report (http://www.neda.gov.ph/?p=3767) is packed with important information. It reports that the poverty incidence among Filipinos went down from 34% in 1991 to 25% in 2012. While this means that hitting the target of 17% by 2015 is unlikely, it does show that the country has made progress – even if the pace has been extremely slow.

The report’s analysis of why progress in the poverty front has been slow is revealing. It’s really all about jobs. Economic growth has not resulted in lower unemployment, with the unemployment rate hovering around 7% since 2011. Businesses have simply not been creating enough jobs.

At a deeper level, the quality of jobs is an even bigger issue. The NEDA reports a working poor population of 22.4% in 2006, an increase from 20.5% in 2003. In other words, more people who actually have jobs don’t even make enough to get their families out of poverty. Not only does the country need more jobs; it needs better quality ones.

But the government hasn’t been passive about this issue. In fact, I’ve seen encouraging progress recently, aimed at nudging the corporate sector to be more inclusive as it achieves quite impressive growth. The PSE index has broken the 8000 level. Investors who bought into index funds a year ago at around 6600 are now holding a value of 8100, or a return of more than 22%!

The first nudge came from the Securities and Exchange Commission (SEC), when it issued Memorandum Circular No. 9 in May 2014 amending the Code of Corporate Governance and mandating that publicly listed corporations (PLCs) be mindful of stakeholders other than stockholders when they run their businesses. The SEC listed stakeholders in the most inclusive manner possible by including, among others, customers, employees, suppliers, financiers, government, and the community in which the business operates.

The revised Code requires PLCs to revise their Manuals of Corporate Governance to reflect this inclusive principle. The revised manuals are available on the websites of the PLCs for everyone to see. For example, the Manual of SM Investments Corporation (http://www.sminvestments.com/sites/default/files/REVISED%20

MANUAL%20ON%20CORPORATE%20GOVERNANCE%20-%203042015.docx.pdf)

states, “It is the Board’s responsibility to foster the long-term success of the corporation, and to sustain its competitiveness and profitability in a manner consistent with its corporate objectives and the best interests of its stockholders and other stakeholders.” (Disclosure: I own SMIC stock.)

We all need to monitor how PLCs will innovate to operationalize their declared inclusive orientation, especially in consistently providing quality jobs and a larger share of the fruits of growth with employees in the whole value chain. This will be one of the most important steps in improving inclusive business growth in the country.

For example, companies can teach sales personnel how to go out of their way to meet customer needs and thereby create value for both the customer and the company. This way, companies will not even think of replacing them every five months; in fact, they would do well to compensate them more for the added value they bring to the company.

Meanwhile, another nudge has come from an important source. In a speech he recently gave to the leaders and members of the Federation of Filipino Chinese Chambers of Commerce and Industry (FFCCCII), President Benigno Aquino III made a special appeal: “Today, on your 60th anniversary, allow me to pose an even greater challenge to all of you: to take an even bigger part in nation-building by truly investing in our people… Giving Filipinos jobs and better income will be good for businesses because it will enhance their buying power ….”

The appeal is direct, timely, and completely expected from this president. The former Congressman from Tarlac filed a profit-sharing bill for employees repeatedly for three terms and filed it again when he was a Senator. Now he is asking the Filipino-Chinese businessmen, among the wealthiest in the country, to share more. This is remarkable consistency.

President Aquino continued his appeal to the Filipino-Chinese business leaders: “I ask you to consider this because above and beyond the economic benefits, such an initiative would cement your legacy as a group that truly uplifts our countrymen – and at the same time takes a starring role in affirming the Philippines’ stature as a formidable contender in the global marketplace.” If indeed this dominant group of Philippine corporate business leaders responds to the President’s call for patriotism and nobility, this may well be his greatest legacy.

Dr. Benito L. Teehankee is an associate professor at the Ramon V. Del Rosario College of Business of De La Salle University, chairman of the CSR Committee of the Management Association of the Philippines, and chairman of the Shareholders Association of the Philippines.

Email: benito.teehankee@dlsu.edu.ph