MAP CEO Academy: A New Age of Capitalism in the Philippines

By Lawrence L. Iliscupides, RPm

Last March 16, 2021, I was privileged to attend the webinar on “A New Age of Capitalism in the Philippines” presented by the Management Association of the Philippines (MAP) CEO Academy. It is a joint project of MAP Management and the Human Capital Development Committee, and MAP Corporate Governance Committee. The event was formally opened by Atty. Emerico “Rico” O. De Guzman, Chair of the MAP Management and Human Capital Development Committee and Managing Partner of ACCRALAW, who welcomed and thanked everyone for joining and participating in the webinar. Immediately after, the main speaker was introduced by Dr. Ramon “Mon” B. Segismundo, Founder and CEO of 1-HR.X Pte. Ltd. (Singapore) and President of the PMAP Foundation.

The main speaker was Dr. Niceto “Nick” S. Poblador, a Management and Economics Thought Leader, retired Economics and Management Professor, and now a Professorial Lecturer at the University of the Philippines. He started discussing the “Strategy in the New of Capitalism”, the contents of which are from his published book. He stated that this presentation takes a long, hard look at the business strategy and corporate governance in today’s world against a backdrop of destabilizing changes taking place in the global economy.

According to him, there are three sets of forces that are disrupting the economy:

1. The transformative technological changes brought about by the 4th Industrial Revolution;

2. Disruptions in the global political and economic order, notably, the breakdown of globalization, increasing nationalism and growing political extremism;

3. The deadly coronavirus pandemic (the worst in living memory).

PART ONE: Rethinking Shareholder Wealth Maximization

He discussed that by long-standing tradition, corporations have pursued only one goal, and that is maximization of shareholder wealth. It has historical roots in the so-called profit-maximization assumption of neoclassical economics and provides the core concept that underpins #capitalism as an economic system.

Since the beginning of the 20th century, #capitalism has served business and society well by (1) providing the primary driving force behind entrepreneurial spirit — technological innovations, creation of enormous material wealth, and recently, eradication of widespread poverty; (2) making the United States of America the world’s leading superpower since the end of the World War II and the undisputed champion of neo-liberalism and global economic integration.

But it also has its drawbacks.

Capitalism has left the average worker with no safety net from economic vicissitudes, has endangered a political system that is prone to capture by vested interests (CORRUPTION), and capitalistic societies have witnessed a dramatic increase in economic inequality, lack of economic opportunities and worsening living conditions among large segments of society in the last 30 years.

As stated by Dr. Poblador, there is a widespread belief that business has been primarily responsible for the growing economic inequality and poor access to economic opportunities among the most economically deprived members of the society.

PART TWO: Reactions to Shareholder Wealth Maximization

Dr. Poblador cited that in the recent years, there has been increasing disenchantment with Shareholder Wealth Maximization from civil society and from some progressive elements in the business community itself.

On August 19, 2019, the influential Business Roundtable (BRT) formally abandoned its long-standing advocacy of shareholder wealth maximization as the main purpose of business corporations, and has formally adopted a new “Statement of Purpose of the Corporation”. With this proclamation, the BRT committed corporate America to “creating value for ALL stakeholders”. Below is the BRT five-fold mission:

In continuation, 26 of the largest business and professional organizations in the Philippines (Philippine Business Groups) signed a “Covenant for Shared Prosperity” in which they upheld the universal issues of economic and social inequality and non-inclusivity by ensuring “ethical wealth creation and the sharing of prosperity with all stakeholders.” MAP is the major signatory of this covenant, Dr. Poblador said. Below are other valuable information in the appeal for “Stakeholder Capitalism”:

The above statements of multiple corporate objectives have a number of historical precedents:

a. Triple Bottom Line — which incorporates three dimensions of performance: social, environmental, and financial (3Ps of Sustainability — People, Planet, and Profit)

b. Environmental, Social, and Governance (ESG) standards — imposed on corporations by socially conscious investors to screen potential investments

By all indications, STAKEHOLDER CAPITALISM appears to be the new MANTRA in the corporate world.

PART THREE: Position of this Presentation

Dr. Poblador stated that stakeholder strategies assume that businesses have the “moral responsibility” to serve the economic interests of stakeholders. In addition, moral responsibility here is ethical obligation — common interpretation of corporate social responsibility (CSR) — that assumes that businesses have an ethical responsibility to serve the interest of society. In his thinking, businesses have a low moral responsibility to serve the interests of everybody else. Corporate managers should have a strategic responsibility to serve the interests of the company and its shareholders.

Below is the image that illustrates that simultaneously aiming for several goals is problematic:

But still that goal remains to be SHAREHOLDER WEALTH MAXIMIZATION. Companies can be both focused on shareholder wealth maximization as well as committed to the economic interest of all other stakeholders. However, this requires a radical change in the way businesses seek to achieve their profit objectives.

PART FOUR: Defining the Role of the Firm in Modern Society

In the last part of his presentation, Dr. Poblador shared an insight from social Darwinism: all participants in the production process are driven by self-interest. In line with American sociologist Talcott Parson and his theory of social functionalism, we define the role of the firm in modern society as one of creating economic value, and appropriating the economic wealth created among all the groups (stakeholders) that contributes to the process of value creation.

Alternative strategies by which firms can co-align the financial interest of their owners and those of the other groups that have a stake in the business.

Create values for:

A. CUSTOMERS

B. WORKERS

C. BUSINESS PARTNERS

D. REST OF THE SOCIETY

Many corporate initiatives that pass for “corporate responsibility” have an underlying strategic agenda. The economic value allotted to stakeholders in the production process constitute INCENTIVES for their active participation in the production process. The residual value that remains with the firm provides the incentive to the investors in the business.

According to him, the resources employed by firms in pursuing these stakeholder strategies are in the nature of INVESTMENTS intended to enhance long-term productivity and to ensure sustained shareholder wealth creation over the life of the enterprise, and not OPERATIONAL COSTS to be minimized to achieve immediate gains for the owners. Below is the comparison of two strategies:

Lastly, in terms of lessons learned from the COVID-19 pandemic, Dr. Poblador shared that COVID-19 has sent the powerful message to corporate managers the world over that their economic fortunes and those of their other stakeholders are intimately and inextricably intertwined, and benefits or adverse effects one experiences will also be felt by others. The realization is that “WE’RE ALL IN THIS TOGETHER”, fostering closer ties between business firms and their stakeholders.

Following the lengthy presentation and in-depth elaborations of Dr. Poblador, reactors were introduced by Dr. Segismundo. The first reactor to share his insights from the presentation was Sec. Sonny Coloma, Executive Vice President of the Manila Bulletin Publishing Corp. and Former Secretary of the Presidential Communications Operations Office (PCOO). He stated three key points from Dr. Poblador’s presentation:

1. There is a widespread belief that the business has been primarily responsible for the “growing economic inequality and poor access to economic opportunities among the most economically deprived members of society”.

2. Simultaneously aiming for several goals is problematic and for these purposes, firms must pursue only one goal: SHAREHOLDER WEALTH MAXIMIZATION.

3. Co-align financial interest of owners and those of the other business stakeholders:

• Create value for customers, workers, business partners, and the rest of society.
• Adopt inclusive business models: provide low-income communities greater access to economic opportunities in a manner that will make business more viable and sustainable.

Next in line was, Dr. Benito “Ben” L. Teehankee, Professor of Business Ethics, De La Salle University, and Co-Chair of MAP Social Justice Committee’s Sub-Committee for Covenant for Shared Prosperity. Below are his insights from what transpired in Dr. Poblador’s presentation:

Lastly, Dr. Segismundo’s parting message to all is: All Businesses Must Act… Before It Is Too Late.

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About the author:

Lawrence is jolly, bubbly, and easy-to-be-with kind of person. He loves spending time at coffee shops to read his favorite books and going to places where there is good food. Instead of taking selfies, he tends to take pictures of beautiful scenery, food, and other things he finds #instagrammable. When he has spare time, he watches suspense-action series, romantic-comedies, and horror films. He also loves seeing and making time to socialize with his friends. In addition, his favorite pastime is listening to music, especially pop, R&B, and OPM, and sings along with the songs he plays.