Clearing up the contractualization issue

The View from Taft

BusinessWorld

30 June 2016

With President Rodrigo Duterte assuming office this week, I am interested to see how he will implement his campaign promise that “the moment I assume the presidency, contractualization will stop!”

Some respected analysts and business leaders insist that ending contractualization is neither feasible nor desirable. These commentaries, unfortunately, often muddle the issue because they use different definitions and refer to different aspects of the contract work situation. They also mix up questions on the employment status of workers with questions on how to competently manage them to be productive. Let’s try to clear up the most important questions about the contractualization issue.

WHAT KIND OF CONTRACTUALIZATION IS PROBLEMATIC?

Contract work for specific and short-term periods includes apprenticeships, project work, seasonal work, and consulting engagements. These arrangements are legal and ethical when used for the purposes they were intended.

The problem is when work that is essential to the conduct of a business and which, therefore, should be done by regular employees is converted into short-term contractual work, either directly by the company or indirectly through an agency. This notorious business practice, commonly referred to as “end-of-contract” or “endo” for short, is what needs to stop.

For example, incoming DoLE Secretary Silvestre Bello III explained pointedly that since their main business is selling goods, large retailers definitely need the services of sales personnel. “Contracting out such work is not right,” Bello stressed.

WHY IS CONTRACTUALIZATION WRONG?

First, this structure perpetuates income inequality. It prevents the growth of the middle class since the employed poor are trapped in a perpetual end-of-contract cycle with minimal skills, wages, and benefits earned. Those lucky enough to have marketable skills understandably choose to work abroad or migrate in frustration.

Second, contractualization reduces workers to mere pairs of hands in the business instead of being partners of employers in producing business value. These workers effectively have no voice in how the business is run -- enabling management to lord over them. Such a situation violates the ideals of our republican democracy and common good economy, especially because our institutional social protections for workers are very weak.

Is contractualization necessary so that businesses can be competitive?

Business leaders often claim they need the flexibility of contractualization to compete effectively. They assume that the best way to compete is for businesses to price their products and services low. Thus, if a business can avoid paying workers’ salaries and benefits they deserve under the law, then the savings go to the business bottom line. What this argument misses is that businesses can also compete by providing better quality products and services with more desirable benefits and features for customers. A business can implement this superior strategy better if it has more experienced, well-trained, and engaged employees -- an unlikely situation under contractualization.

Donnie Tantoco of Rustan’s and founder of Shopwise was a speaker during the recent Summit of the Shareholders Association of the Philippines (SharePHIL) with the theme “Inter-generational Evolution of Corporate Values.” Tantoco argued for the importance of commitment to employees as part of a company’s competitive strategy. When his company was faced with a difficult downturn, his management team did not lay off employees. Instead, it instituted a company-wide cost-saving initiative under which everyone volunteered to accept reduced pay. And the higher the employees were in the organization, the higher the pay reduction they volunteered for. “The initiative entailed huge sacrifices from the employees,” explained Tantoco. The company saved jobs, weathered the difficulty, and is now much stronger because of that values-based decision.

IS CONTRACTUALIZATION NECESSARY TO PROPERLY MANAGE WORKER PERFORMANCE?

Managers have the duty to exercise reasonable control over the quality and volume of work done by workers. Workers who fail to perform or otherwise neglect their duties should be corrected through performance feedback and, when needed, formal discipline with due process. This can, of course, lead to termination when the workers refuse to cooperate.

Strangely, many believe that the best way to guarantee performance is to altogether remove security of tenure and due process for workers. But if managers do not know how to engage employees to contribute good work and instead can only extract performance through the fear of imminent job loss, how can Filipino businesses be truly competitive? Fear and insecurity are incompatible with sustainable, high-quality work. Managers need to move away from a fear-for-compliance approach to an engagement-for-performance strategy. De La Salle University offers training programs on this.

Can political will trump unrestrained profit seeking? There is reason to hope. Donald Dee of the Employers Confederation of the Philippines (ECOP) has stated: “We are completely in support of stopping this ‘endo’ or ‘5-5-5.’ Labor-only contracting is a no-no. It is against the law and we in ECOP will go out of our way to monitor and not endorse companies who are doing this.”

Indeed, change may be coming. Let’s wait and see.

Dr. Benito L. Teehankee is a professor of management and organization at De La Salle University. He is also Vice-Chairman of the CSR Committee of the Management Association of the Philippines.