Doing corporate reform right

14 May 2015

The View from Taft


Let’s face it. The most powerful human invention in the world is not nuclear power, nor is it space travel; it is the corporation. Not only do corporations run nuclear power plants (Tokyo Electric Power Company) and space flights (Virgin Galactic); they also touch every aspect of our lives, 24/7, through the food we eat, the work we do, the mortgages we pay, the homes we live in, the cars we drive, the toll ways we use… I could go on and on.

The Global Policy Forum has reported that the revenue of Wal-Mart Stores was higher than the gross domestic product (GDP) of South Africa, and that the revenue of J.P. Morgan Chase was higher than the GDP of Vietnam, to mention only two companies. In Metro Manila, corporations drive the massive build-up of vertical properties dotting the skyline and busy supply chains evidenced by the “Great Wall of Trucks” we see on C5 highway at night.

The social license for the legal creation of corporations has always been clear. In 1979, then Solicitor General Estelito Mendoza pushed for the passage of the revised Corporation Code by explaining that “corpo¬rations are not mere business organizations exclusively intended to serve the personal interests of shareholders or managers but are social institu¬tions in which all sectors of society have an interest.” Thus, the corporation is more than an attractive way for shareholders to earn a return on their investments. The corporation has the greatest potential to create the most number of decent-paying jobs for the most Filipinos. It also has the most potential to organize capital efficiently for meeting the needs of large numbers of people for vital products and services. In short, corporations are capable of enabling capital to serve the common good, as envisioned by the Philippine Constitution.

On the downside, corporations are, after all, human organizations. As such, they can also be arenas where the worst aspects of human nature can be displayed -- excessive pride, lust for power, exploitation of the weak, and uncontrolled greed. Instead of being agents for the common good as envisioned by the Constitution, corporations can easily become war zones between majority and minority shareholders, where the interests and voice of the minority are systematically shut out by the majority by raw, naked power in order to extract financial gain. Corporations can easily be used by controlling shareholders and managers to exploit workers by denying them security of tenure, humane working conditions, and a voice in policy. They can do all these by hiding behind the legal personality and limited liability provided by corporate law.

Indeed, this most powerful human creation is not easy to control to achieve the purpose for which it was legally created. Reforms in corporate governance have been ongoing since the early 2000s, but much corporate abuse remains.

There may be some hope. After years of planning and consultation, the Securities and Exchange Commission is making a strong push to finally revise the 35-year-old Corporation Code. Various proposed revisions are in the works in the Senate and in the House. Although it doesn’t get as much press as the Freedom of Information Bill or the Bangsamoro Basic Law, revising corporate law is the most important way that the current administration can really promote inclusive growth. Everyone should be interested in the revisions being proposed since, as I pointed out, we are all affected by corporations.

But to do corporate reform right, the proposed revisions have to be grounded on the corporation’s social license and on the basic principles of ethics. Without this grounding, the revisions can easily be used to further entrench the vested interests of the few at the expense of the rights of the many. They can further allow the unscrupulous to use the formidable resources of the corporation to protect themselves from legal liability for their abusive practices. The SEC already moved in the right direction when, through SEC Memorandum Circular No. 9, series of 2014, it made boards of publicly listed corporations responsible for “the best interest of its stockholders and other stakeholders” (underlining mine). Perhaps this provision should be incorporated into the planned revised Corporation Code, as some countries have done. Doing so will emphasize that corporations are not private playgrounds for the rich to play financial and power games – rather, they are highly valuable social institutions allowed by the State to legally exist for the important task of nation-building.

Dr. Benito L. Teehankee is associate professor of management at De La Salle University, chairman of the Education Committee of the Shareholders Association of the Philippines (SharePHIL), and chairman of the CSR Committee of the Management Association of the Philippines (MAP).