Democratize the corporation

Benito L. Teehankee

Manila Times

The View From Taft

December 18, 2013

OUR POVERTY problem refuses to go away despite the economic growth everyone talks about. Many blame the unbalanced economic structure and widespread corruption, and I’m sure they’re right that these are important factors. The Aquino government has been hacking away at these things with some encouraging results -- if we can only be patient. But these things tell only half the story. The country’s corporate structure also needs to be reformed if economic gains are ever going to help uplift the poor. Corporations have to be democratized. Only then can these engines of socioeconomic development spread wealth as they were intended to do.

I’ve been waiting for this for a long time, and the opportunity to make this happen must be seized during this administration. The Securities and Exchange Commission (SEC), led by Chairman Teresita J. Herbosa, has started the critical process of updating our 33-year old corporate law. This gives us a chance to fix one of the most important reasons why inequality in the Philippines remains the most stubborn in the region.

The Corporation Code was sponsored using the most idealistic rationale during the Interim Batasang Pambansa. In his sponsorship speech on November 5, 1979, then Solicitor-General Estelito P. Mendoza argued, "... the proposed Code recognizes the value, and seeks to inspire confidence in the value of the corporate vehicle in the economic life of society.... The provisions of the Code demonstrate an awareness that corporations are not mere business organizations exclusively intended to serve the personal interests of shareholders or managers, but are social institutions in which all sectors of society have an interest."

On this premise,President Ferdinand E. Marcos signed the Corporation Code of the Philippines into law on May 1, 1980. Unfortunately, the best intentions fall prey to the law of unintended consequences. Many of the biggest Philippine corporations became anything but valuable social institutions for spreading the benefits of capitalism. Under the expert but less than socially minded advice of lawyers and accountants, and with the government’s policy of benign neglect, the wealthiest families used the corporation to not only produce more wealth, but also concentrate it in their closely knit hands. The Philippines became a poster-child of oligarchic capitalism. I am convinced that this tendency for wealth concentration is unwitting on the part of corporate leaders. The size of corporations tends to make corporate leaders insensitive to the sentiments of employees. It’s no wonder, therefore, that while employees help produce more corporate wealth, their relative share in this wealth has shrunk.

I propose that the following provision be added to the Corporation Code, which will allow employee representation in the Board:

"When the number of employees of a stock corporation below supervisory or management level exceeds 100, the said corporation, by its articles of incorporation or by-laws, may give them the right to elect from among themselves one representative to the board of directors. Such employees’ representative need not be a stockholder unless so required by the articles of incorporation or by-laws, and, when duly elected, shall have the right to sit in all meetings of the board, and shall enjoy all the powers, prerogatives, rights, and shall comply with all the duties and functions of a regular member of the board ; Provided, however, that any compensation, other than per diems, granted to him or her as such director, shall inure to the benefit of all the stockholders whom he or she represents. The by-laws may prescribe the procedure for conducting the election of said employees’ representative, and such other rules as may be necessary to implement the provisions of this section."

Originally proposed by the UP Law Center (Division of Research and Law Reform) in 1973, the provision ensures that as a corporation grows, employees have a voice at the highest level so that decisions that may greatly impact employees can benefit from the voice of the employees. Note that the proposed provision permits -- not mandates -- employee representation. In contrast, German corporations of sufficient size require half of the members of their supervisory boards be employee representatives under the principle of co-determination. Not surprisingly,Germany’s economy has been more robust than others during the recent economic downturn.

Let us heed the words of Pope Francis in his exhortation, Evangelii Gaudium: "As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems. Inequality is the root of social ills." Our corporate structure gives too much power to so few. Let us democratize the corporation.