Corporate growth for whom?

4 and 11 Jun 2007 - Managing For Society, The Manila Times

The financial indicators from the corporate sector of the country have been quite impressive in recent years. BizNews Asia reported that the ten most profitable corporations of 2005 together netted P219 billion compared to P86 billion in 2004 -- an increase of more than 150%! The Philippine Stock Exchange reports that the stock market return last year as measured by the PSEi was higher than 40%, an impressive increase from the -30% the index registered in 2000. The PSE also reports that total market capitalization has grown from under P3 trillion in 2000 to more than P7 trillion by the end of 2006.

The recent years’ rosy corporate numbers combine with media reportage to romanticize corporate wealth in the

public imagination. Time magazine’s cover of February 23, 2004 showed Henry Sy and his children with the

banner “The Families that Own Asia”, implying, almost subliminally, that the corporate wealthy can indeed

“own” a country or even a region. The recent announcement by Forbes magazine of the country’s wealthiest, namely, Henry Sy ($2.6 billion), Jaime Zobel de Ayala and family ($2.6 billion) and Lucio Tan ($2.3 billion), shows the link between corporate control and tremendous levels of personal wealth.

The pressing question is: Why is the growing corporate wealth not benefiting the average Filipino? Based on the National Statistics Office’s (NSO) Family Income and Expenditure Survey, the country’s income gap increased from 31.6% in 1997 to 31.8% in 2000. This means that in 2000, the income of those below the poverty threshold would have to increase by 31.8% to surpass the poverty threshold. The latest government statistics still places the poverty level at around 30%.

Most writers on corporate governance would not see a problem in this situation. They would reason that the stock market is simply rewarding the efficient allocation of financial resources by equity owners to their most valuable uses, that is, to the corporations which are best able to meet the demands of the market and to produce the best profitability. Besides, the reasoning continues, ordinary people benefit when corporations expand their range of quality products at ever cheaper prices.

This is a narrow and misleading view. In the first place, the stock market directly benefits only a small fraction of the country’s citizens, perhaps around 10,000, by some estimates. Secondly, this view erroneously reduces a person’s welfare to his ability to purchase consumption goods. Human welfare cannot be reduced to consumption in the same way that human dignity cannot be reduced to the ability to purchase the latest cell phone. Corporations must play a deeper and more significant role if these are to improve the lives of ordinary Filipinos: these must provide decent work which gives fair and living wages, security of tenure, adequate social protection and meaningful participation. Unfortunately, the trend towards minimum wage violations, contractualization and union membership reductions among many corporations is leading to deteriorating quality of work lives for many corporate employees.

What does Catholic Social Teaching say about corporations and human dignity?

As entities existing in a predominantly Catholic country, Philippine corporations can be usefully guided towards becoming more humanistic social institutions by the teachings of the Church. Catholic Social Teaching (simply referred to as CST) refers to the formal teachings of the Catholic Church on social and economic issues as expressed in papal and conciliar documents. The major documents of modern CST include a number of open letters from the Popes – papal encylicals. The first CST encyclical is generally considered to be Pope Leo XIII’s Rerum Novarum (“Of New Things”) which was issued in 1891. The Pope argued, among others, for family living wage as a response to the rampant poverty of the day despite growing industrialization. The Pope explained that “…working for gain is creditable, not shameful, to a man, since it enables him to earn an honorable livelihood; but to misuse men as though they were things in the pursuit of gain, or to value them solely for their physical powers -- that is truly shameful and inhuman.” A hundred years later, Pope John Paul II issued the encyclical Centesimus Annus

(“One Hundred Years”) to argue against the creeping consumeristic greed in the new knowledge economy. He

acknowledged “the legitimate role of profit as an indication that a business is functioning well” but cautioned that “it is possible for the financial accounts to be in order, and yet for the people — who make up the firm's most valuable asset — to be humiliated and their dignity offended.”

As the quotes above show, CST has always emphasized that the pursuit of business profit can be a good thing as long as it does not lead to the dehumanization of people. Unfortunately, the tendency to deprive employees of adequate compensation and to promote unbridled consumption exists in many Philippine corporations even today. According to CST, these practices are to be avoided. Instead, the needs of human development should be the focus of businesses. Pope John Paul II clarified the purpose of the business firm as “not simply to make a profit, but is to be found in its very existence as a community of persons who in various ways are endeavouring to satisfy their basic needs, and who form a particular group at the service of the whole of society.”

In the early 80s, the Bishops-Businessmen’s Conference on Human Development argued similarly when it developed its Code of Ethics for Business which asserted that “the modern manager must be a strategist for human development, and … the business is to build an enterprise oriented to the development of man.”

Helen Alford and Michael Naughton, in their book “Managing as If Faith Mattered”, explained that integral human development within businesses should consider physical, cognitive, emotional, aesthetic, social, moral and spiritual aspects. Using their framework, I like to represent a person as a flower, with the center of the flower representing essential material goods, and seven petals representing each aspect of human development. A flower cannot be said to be fully developed if some of its petals are stunted or are missing altogether. It would be good for corporate managers to regular evaluate how their employees are developing as human beings. After all, persons are not simply replaceable commodities in the corporate books.

The role of the corporation in the 1987 Philippine Constitution

The CST expectation that corporations be mindful of the needs of human development and the common good are

completely consistent with the expectations of the Philippine Constitution and that of the Corporation Code. The fundamental law, in fact, mentions the common good no less than 7 times! In particular, the article on National Economy and Patrimony states, with emphases added, that: “The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”

Thus, while the right to private property of corporate shareholders is fully recognized, such a right is not absolute. It is always subordinate to the mandate for all economic entities, such as corporations, to support the development of all and to share with others their just share of the fruits of production. Certainly, high on the list of people whose development the corporation should support and who should share in the fruits of production are its own employees.

How can corporations be more humanistic?

There are a number of ways Philippine businesses can be more attuned to CST while also being more faithful to the intent of the Constitution for businesses to preserve human dignity and to diffuse wealth equitably among as many people as possible.

The first way is to pay decently and share the profits. Oscar Chan of San Jose Kitchen Cabinets has been implementing a 50% profit sharing system with his employees for almost twenty years. The result is loyalty and commitment to long-term productivity among employees.

A second way is to encourage creative participation in productivity. Yoling Sevilla of The Leather Collection keeps her employees involved in the value creation work of the company through continuous training and weekly meetings which enable even the rank-and-file workers to be aware of the strategic directions of the company.

A third way is to develop the business acumen of employees. Richard Lim of Time Depot aims to develop the career path of his employees such that they can become future managers and even franchisees of his business. This is his way of sharing business success with his employees.

Corporate managers who take CST and the Constitution’s principles to heart can similarly come up with creative humanistic management strategies.

Meaningful corporate growth

The current situation of the country, where so few have ever-increasing corporate wealth while so many languish in poverty, will not be addressed by waiting for the market to distribute benefits while the people wait. It will only improve when more corporations fulfill their duty, as prefaced to the Corporation Code, to be “effective partners of the National Government in spreading the benefits of capitalism for the social and economic development of the nation.” Such is the role of humanistic corporations.

(Note: This article is an edited version of the author’s Sen. Benigno S. Aquino, Jr. professorial chair lecture on corporate social responsibility and governance delivered last March 17, 2007 at De La Salle Professional Schools.)