In 2005, Managing for Society was launched with a column titled “What is business for?” In that column I argued that “business managers shouldn’t work for equity owners alone – they also have a duty to work for the good of employees, suppliers, customers, lenders, their host communities, and society as a whole.” I was not making a novel argument. The Philippine Constitution mandated that businesses contribute to the common good.
I have harped on the social duties of business for the last 15 years with, I must admit, very little traction. I even wrote two senators to insert a stakeholders provision in the new Corporation Code but to no avail. Mainstream Philippine corporate leaders, for the most part, prioritize growth and profit for shareholders and pay little attention to the constitution’s common good mandate.
To be fair, most of corporate Philippines did jump on the corporate social responsibility (CSR) bandwagon. Unfortunately, many of these companies equated CSR with corporate philanthropy or outreach. While certainly welcome, philanthropy is not a substitute nor compensation for socially harmful business practices like polluting the environment or neglecting employee welfare.
Other companies have gone a bit further by showing a social orientation in their core business model as long as the bottom line was kept secure. The most popular approach to doing this is “creating shared value” which was introduced by Michael Porter and Mark Kramer.
Meanwhile, several social enterprises have emerged in the local scene, following a different, more socially responsive, tune than mainstream corporations. As pleased as I am with the growing popularity of social enterprises, they seem to give an excuse for traditional companies to conduct themselves as they always have by mainly focusing on profit.
Philanthropy, creating shared value and social enterprises are all good but distract from the basic point of this column that every business must be run in a socially responsible way for all stakeholders. I was quite encouraged, therefore, when the Securities and Exchange Commission declared one of the principles in the Code of Corporate Governance of 2017 as “The company should be socially responsible in all its dealings with the communities where it operates.”
It remains to be seen whether the SEC’s call for more socially responsible publicly-listed corporations will have any substantial effect on business practice, that is, beyond reportorial compliance under the new comply-or-explain regime. Disappointingly, the public statements of business leaders on the recently vetoed Security of Tenure Bill argued more for compliance with existing law and the enhancement of business growth and market competitiveness over any concern for the level of poverty in the country or the growing income inequality and concentration of wealth among the elite.
But business mindsets may change after all, with impetus coming from a most unlikely source. Last August 19, the highly influential Business Roundtable (BRT) released a “Statement on the Purpose of a Corporation” which was signed by many of the top CEOs in the US including Amazon’s Jeffrey Bezos, Apple’s Tim Cook, General Motors’ Mary Barra and IBM’s Ginni Rometty. The BRT website announced that the “updated statement moves away from shareholder primacy, [and] includes commitment to all stakeholders”.
This is a stunning reversal from the group’s 1997 statement that “the paramount duty of management and the boards of directors is to the corporation’s stockholders.” In its new statement, in contrast, the BRT emphasizes that “each of our stakeholders is essential [and] we commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Much of Philippine corporate practice has been heavily influenced by US developments. Maximizing shareholder value, corporate governance reforms and even CSR are all developments which emanated from the US. What will it take for the Management Association of the Philippines, the Philippine Chamber of Commerce or the Makati Business Club to adopt the BRT’s “modern” standard of corporate responsibility? Ironically, what the Constitution has failed to do since 1987 may still come to pass because of this latest US development.
But it will have to happen soon. A big push which influenced the BRT’s about-face, besides sympathy for the suffering American middle-class, is the growing expectation among millennials and Gen Z employees for their companies to be engaged in promoting social good, or at the very least avoiding social harm. Filipino employees will be expecting no less.
Dr. Benito Teehankee is the Jose E. Cuisia Professor of Business Ethics and Head of the Business for Human Development Network at De La Salle University.