1 In a recent article that appeared in the MIT Sloan Management Review (issue of December 17, 2020), authors Tom Hunsaker and Jonathan Knowles wrote: “… companies (should) show that they are actively contributing to the broader society rather than simply serving as financial entities seeking to maximize their return on capital.” The notion that companies should contribute to the wellbeing of others instead of just pursuing the financial interest of corporate investors is in keeping with emerging thinking that “… the fiduciary duties of executives to non-shareholder stakeholders (should cover) a plurality … of the purpose of the corporation” (N. Craig Smith & David Rönnegard, Journal of Business Ethics, November 16, 2014; emphasis supplied). Both statements convey the message that businesses should attempt to achieve multiple goals. They echo the currently evolving viewpoint that call to question the long-established tradition that the corporation has only one purpose, and that is to maximize shareholder wealth. In August 19, 2019, the influential Business Roundtable (BRT), an association of close to 200 CEOs of major US corporations, formally abandoned its long-standing advocacy of shareholder wealth maximization as the main purpose of business corporations in favor of a new “Statement of Purpose of the Corporation” (SPC). With this formal proclamation, the BRT committed corporate America to creating value for ALL stakeholders by adopting a five-fold mission: to deliver value to customers, to invest in employees, to deal fairly and ethically with suppliers, to support communities, and to generate long-term value for shareholders. Among the over 150 signatories to the SPC are Amazon’s Jeff Bezos, Apple’s Tim Cook, Bank of Volume 7 Issue No. 04 map.org.ph January 26, 2021 BEING FOCUSED ON SHAREHOLDER WEALTH AND COMMITTED TO THE ECONOMIC INTEREST OF ALL OTHER STAKEHOLDERS How Companies Can Be Both January 25, 2021 “MAPping the Future” Column in the INQUIRER Dr. NICETO “Nick” S. POBLADOR
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
In a recent article that appeared in the MIT Sloan Management Review (issue of
December 17, 2020), authors Tom Hunsaker and Jonathan Knowles wrote:
“… companies (should) show that they are actively contributing to the broader
society rather than simply serving as financial entities seeking to maximize their
return on capital.”
The notion that companies should contribute to the wellbeing of others instead of just
pursuing the financial interest of corporate investors is in keeping with emerging
thinking that “… the fiduciary duties of executives to non-shareholder stakeholders
(should cover) a plurality … of the purpose of the corporation” (N. Craig Smith &
David Rönnegard, Journal of Business Ethics, November 16, 2014; emphasis
supplied).
Both statements convey the message that businesses should attempt to achieve
multiple goals. They echo the currently evolving viewpoint that call to question the
long-established tradition that the corporation has only one purpose, and that is to
maximize shareholder wealth.
In August 19, 2019, the influential Business Roundtable (BRT), an association of
close to 200 CEOs of major US corporations, formally abandoned its long-standing
advocacy of shareholder wealth maximization as the main purpose of business
corporations in favor of a new “Statement of Purpose of the Corporation” (SPC). With
this formal proclamation, the BRT committed corporate America to creating value for
ALL stakeholders by adopting a five-fold mission: to deliver value to customers, to
invest in employees, to deal fairly and ethically with suppliers, to support
communities, and to generate long-term value for shareholders. Among the over 150
signatories to the SPC are Amazon’s Jeff Bezos, Apple’s Tim Cook, Bank of
Volume 7 Issue No. 04 map.org.ph January 26, 2021
BEING FOCUSED ON SHAREHOLDER WEALTH AND
COMMITTED TO THE ECONOMIC INTEREST
OF ALL OTHER STAKEHOLDERS
How Companies Can Be Both
January 25, 2021
“MAPping the Future” Column in the INQUIRER
Dr. NICETO “Nick” S. POBLADOR
2
America’s Brian Moynihan, BGC’s Joe Davis and IBM’s Ginni Rometty, to mention
but a few.
Over a year later, 26 of the largest business and professional organizations in the
Philippines, collectively known as the Philippine Business Groups (which includes
the Management Association of the Philippines or MAP, sponsor of this column)
signed a “Covenant for Shared Prosperity” by 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.”
Many prominent individual corporate CEOs and business leaders the world over have
similarly expressed their faith in stakeholder capitalism. Among them are outgoing
Mastercard CEO Ajay Banga, who declared that capitalism should be “…repositioned
for stakeholder capitalism,” and recently installed Accenture CEO Julie Sweet who
observed that “Serving stakeholders is not separate from the business. It’s responsible
business by design.”
By all indications, stakeholder capitalism appears to be the new mantra in the
corporate world.
However, simultaneously aiming for several goals could be problematic. Creating
value for all stakeholders in a company deprives its managers of an unequivocal
criterion for making rational choices. Any strategic decision made is acceptable for as
long as it creates value for everybody, and decision makers are unable to determine
what is the best, or optimal solution. For this purpose, firms must pursue only one
goal.
The Role of the Firm in Modern Society
By long standing managerial practice, businesses create value for themselves by
extracting value from all the other entities with which they interact in the process of
value creation – their customers, their workers, their suppliers and service providers,
and the larger communities of which they are an integral part. To our minds, this is a
self-seeking and short-sighted business solution by which businesses try to grab a
bigger slice of a given economic pie at the expense of everybody else, and by
degrading the ecosystem that sustains the entire community.
A better strategy for corporate managers to follow is to create a bigger pie, and to
share out bigger slices to everybody – including the owners of the firm.
If business is to implement socially beneficial initiatives and at the same time achieve
its long-run strategic goal of maximizing shareholder wealth, it has to radically change
the manner in which it does business. In particular, it needs to rethink the way it
pursues its profit objective.
As an alternative to profit or shareholder wealth maximization as the raison d'être, or
sole purpose of the business enterprise, we propose to state the function of the firm in
modern society as one of maximizing economic value, and allocating the economic
wealth created among all the groups that contribute to the process of value creation.
3
By implementing appropriate strategies and putting in place governance mechanisms
for creating value for its other stakeholders, we contend that the residual value that
accrues to the owners of the firm (a.k.a. profits) over the long stretch will consequently
be maximized.
Following this line of reasoning, we propose the following business strategies for
efficiently appropriating economic value to the non-owner stakeholders of the firm:
1. Create value for customers through product and service development to better
serve their needs, offering generous prices, and providing adequate customer
care;
2. Create value for workers by offering comfortable wages and other performance-
based financial benefits, creating an organizational culture that is conducive to
information sharing and collaboration, and devoting ample resources to
maintain a high level of productivity primarily through skills development;
3. Create value for business partners by engaging suppliers and distributors in a
mutually beneficial and trusting collaborative relationship; and
4. Create economic value for the rest of society, primarily by developing the
limitless productive resources that remain untapped at the bottom of the social
pyramid, the poorest and least productive members of society. This objective is
pursued mainly by partnering with government agencies, multilateral
organizations, NGOs and other institutions in the community in implementing
what are known as inclusive business models, solutions that provide access to
economic opportunities to low-income communities in a manner that will make
businesses more viable and sustainable.
The resources employed by firms in pursuing these stakeholder strategies are in
the nature of investments intended to enhance long-term productivity and to insure
sustained shareholder wealth creation over the life of the enterprise, and not short-run
operational costs to be minimized in order to achieve immediate gains for the owners.
One creates value for all, and the other creates value for business owners at the
expense of all others.
(The article reflects the personal opinion of the author and does not reflect the official
stand of the Management Association of the Philippines or MAP. The author is a
Retired Professor of Economics and Management, and currently Professorial
Lecturer at the University of the Philippines - Diliman. Feedback at
5. December 21, 2020 (Monday) MAP Online Panel Discussion on “A YEAR OF COVID:
Gloom or Boom?”
6. November 23, 2020 (Monday) MAP Online Annual General Membership Meeting
and Awarding Ceremony for “MAP Management Man of the Year 2020”
7. October 13, 2020 (Tuesday) MAP Online General Membership Meeting on
“ESG and its Linkage to Long-term Value Creation”
8. September 8, 2020 (Tuesday) MAP-PMAP Joint Online General Membership
Meeting on “Deepening the Bench for Future Business Leaders”
9. August 18, 2020 MAP 6th Online General Membership Meeting on “The Urgent
Need for a Future-Ready Board” with Ms. ALIZA KNOX, Mr. REY LUGTU and
Dr. JUSTO “Tito” A. ORTIZ
10. July 14, 2020 MAP 5th Online General Membership Meeting on “Landscape and
Control Mechanisms for Business Crimes and Fraud” with Mr. ALEX TAN,
Partner for Consulting of PwC Malaysia
11. June 9, 2020 MAP 4th Online General Membership Meeting (GMM) on
“MAYORS ENVISION A POST-COVID FUTURE”
12. May 20, 2020 MAP 3rd Online GMM on “Leveling the Playing Field amid the
COVID-19 Pandemic” with PCC Chairman ARSENIO M. BALISACAN
13. April 14, 2020 MAP 2nd Online GMM on "Leading Through COVID-19"
Video Recordings of MAP Webinars 14. September 25, 2020 MAP Sustainable Development Committee Webinar on
“MOVING FORWARD WITH OUR MANA TOWARDS A SUSTAINABLE
BLUE ECONOMY” to Celebrate September as MANA Mo (Maritime &
Archipelagic Nation Awareness Month)
15. June 26, 2020 MAP Webinar on “DIVERSITY & INCLUSION AGENDA: Does it
Matter during the Pandemic?”
16. June 24, 2020 MAP 2nd Webinar on the Anti-Terrorism Bill with Senator
PANFILO “Ping” M. LACSON, Chair of Senate Committee on National Defense
and Security, Peace, Unification and Reconciliation
17. June 17, 2020 MAP 1st Webinar on the Anti-Terrorism Bill with former Supreme
Court Senior Associate Justice ANTONIO “Tony” T. CARPIO
18. May 8, 2020 MAP Webinar on “Helping the MSMEs Survive the Pandemic”
19. April 24, 2020 MAP Webinar on "Developing Health Protocols for
Workforce Re-Entry"
34
20. April 17, 2020 MAP Webinar on "Managing the Workforce Today and Preparing
them for the New Normal"
21. April 2, 2020 MAP Webinar on “Responding to COVID-19”
MAP Legacy Series 2019 on ANC featuring the following:
22. MMY 1996, Mr. DAVID M. CONSUNJI
23. MY 1998, Gov. GABRIEL C. SINGSON
24. MMY 1999, Mr. HENRY SY, SR.
25. MMY 1967, Mr. WASHINGTON Z. SYCIP
26. MMY 2006, Dr. GEORGE S.K. TY
27. MMY 1992, Amb. ALFONSO T. YUCHENGCO
The MAP Lifestyle Masters on Living Well and Aging Well
January 1
1. Mr. ADOR A. ABROGENA, EVP, BDO Unibank, Inc. 2. Usec. ROWENA CRISTINA “Gev” L. GUEVARA, Undersecretary for Research and Development,
Department of Science and Technology (DOST) 3. Mr. MANUEL “Manny” L. WONG, General Manager, Acer Philippines, Inc.
January 3
4. Mr. LAURENT P. LAMASUTA, President and CEO, Ayala Properties Management Corporation (APMC)
January 4
5. Mr. ALLEN L. LEE, President and General Manager, MESCO, Inc. 6. Mr. NELSON C. PAR, Chair, Pascal Resources Energy, Inc. 7. Ms. TITA D. PUANGCO, CEO, Ancilla Enterprise Development Consulting, Inc.
January 5
8. Mr. RAYMUND “Ray” T. AZURIN, Chief Executive, Zuellig Pharma Corporation 9. Mr. FRANCISCO “Paquito” A. DIZON, Chair and President, Pacific Northstar, Inc. 10. Mr. FERNANDO “Fern” O. PEÑA, President, MOF Company (Subic), Inc. 11. Engr. TELESFORO “Porsche” E. PEÑA, Founder, T & D Design Consultancy, Co. 12. Dr. TONY TAN CAKTIONG, Chair, Jollibee Foods Corporation
January 6
13. Mr. JOSE JEROME “Jeng” R. PASCUAL III, CFO, VP for Finance and Treasurer, Pilipinas Shell Petroleum Corporation
14. Ms. LOLY NGO UY, CFO, San Roque Supermarket Retail Systems, Inc. (SRS) January 7
15. Mr. ARMANDO “Armand” S. NG, General Manager, Asia Cargo Container Line Inc.
Happy Birthday to the following MAP Members who are
celebrating their birthdays within January 1 to 31, 2021
35
16. Mr. BENJAMIN “Ben” R. PUNONGBAYAN, Founder, P&A Grant Thornton January 8
17. Mr. RICO T. BAUTISTA, President and CEO, Etiqa Life and General Assurance Philippines, Inc. 18. Mr. JOSE “Jomie” S. FRANCISCO, President, Wire Rope Corporation of the Philippines (A DMCI
Holdings, Inc. subsidiary) 19. Dr. JAIME “Jimmy” C. LAYA, Chair, Philtrust Bank 20. Mr. BERNIDO “Bernie” H. LIU, CEO, GOLDEN ABC, Inc. 21. Atty. RICARDO “Dick” J. ROMULO, Senior Partner, Romulo Mabanta Buenaventura Sayoc & de los
Angeles January 9
22. Ms. LORRAINE “Rain” BELO CINCOCHAN, President and CEO, Wilcon Depot, Inc. 23. Mr. JEFFREY JOHNSON, SVP for Human Capital Resource Management, Teleperformance 24. Mr. RICHMOND D. LEE, Founder and Director, ATLASOFFICE, INC.
January 10
25. Ms. MARIA NOEMI “Noemi” G. AZURA, President and CEO, Insular Healthcare Inc. 26. Dr. ROBERTO “Bobby” F. DE OCAMPO OBE, Chair and CEO, Philippine Veterans Bank 27. Mr. FREDERIC “Ricky” C. DYBUNCIO, President, SM Investments Corporation 28. Mr. SEBASTIAN “Baste” C. QUINIONES JR., Executive Director, Pilipinas Shell Foundation, Inc.
January 11
29. Mr. ELMER FRANCISCO “Elmer” U. SARMIENTO, President and CEO, Royal Cargo Inc. January 12
30. Cong. HARRY C. ANGPING, President, AP Genco North Services, Inc. 31. Mr. DANILO “Danny” VALENTON FAUSTO, President, DVF Dairy Farm, Inc. 32. Mr. WILSON P. TAN, Chair and Country Managing Partner, SyCip Gorres Velayo & Company (SGV
& Co.) January 13
33. Mr. MANUEL “Manny” U. AGUSTINES, Chair, Ramcar, Inc. January 15
34. Mr. FRANCISCO “Frankie” C. EIZMENDI JR., Chair, Dearborn Motors Company, Inc. January 16
35. Mr. OSCAR B. BIASON 36. Mr. KASIGOD “Kas” V. JAMIAS, President and CEO, The Zuellig Corporation 37. Dr. EDWARD “Moi” M. MOISES, Dean - School of Management and IT, De La Salle - College of St.
Benilde January 17
38. Mr. RICARDO “Ric” G. LIBREA 39. Mr. ANTONIO “Tony” A. TURALBA, Chair, President and CEO, Active Group, Inc.
January 18
40. Mr. VICTOR “Vic” Y. LIM JR., President, Banco Mexico Inc. 41. Mr. ROBERTO “Bert” G. MANABAT, Chair Emeritus, KPMG R. G. Manabat & Co.
January 19
42. Mr. LUIS “Louie” M. CAMUS, Chair and President, L. M. Camus Engineering Corporation 43. Ms. MA. BELEN “Bel” B. LIM, General Manager, Golden Press
January 20
44. Dean RODOLFO “Rudy” P. ANG, Dean, Ateneo de Manila University Graduate School of Business 45. Mr. ROBERTO “Dondi” D. BALTAZAR, EVP, Philippine National Bank (PNB) 46. Ms. MARICRIS “Cris” MEDINA CAMPIT, President and CEO, Airfreight 2100 Inc. (AIR21) 47. Mr. SANTIAGO “Santi” F. DUMLAO JR., Secretary-General, Association of Credit Rating Agencies in
Asia (ACRAA) 48. Ms. ANNA GREEN, CEO, Australia and New Zealand Banking Group
January 21
49. Mr. RAMON “Mon” L. JOCSON, EVP, Bank of the Philippine Islands (BPI)
36
January 22
50. Dean PASCUAL “Al” SAYO GUERZON, President, Melior Realty Services January 23
51. Mr. RABBONI FRANCIS “Bong” B. ARJONILLO, President, First Metro Investment Corporation 52. Mr. VICENTE “Ting” R. AYLLON 53. Ms. JEANETTE “J'net” BAUTISTA ZULUETA, Chair, ZMG Ward Howell, Inc.
January 24
54. Mr. YU MING “Yu Ming” CHIN, Executive Director, Viventis Search Asia 55. Mr. FELIPE ANTONIO “Felipe/ Poopi” P. ESTRELLA III, President, Volkswagen Philippines 56. Atty. ROBERTO “Bobby” P. LAUREL, President, Lyceum of the Philippines University (Manila,
Makati, Cavite) 57. Mr. ALFREDO “Fred” B. PARUNGAO, President, Ligaya Management Corporation
January 25
58. Mr. NESTOR E. CONSTANCIA, Marketing and Sales Manager, Gardenia Bakeries (Phils.), Inc. January 26
59. Mr. ROMEO “Romy” G. DAVID, Chair and President, BNL Management Corporation 60. Gen. JOSE “Joemag” P. MAGNO, Chair, Citra Metro Manila Tollways Corporation 61. Mr. ROMUALDO “Boyet” V. MURCIA III, Partner for Audit and Assurance, Punongbayan & Araullo 62. Ms. ELIZABETH “Beth” G. RABUY, General Manager and Director, FPD Asia Property Services, Inc. 63. Mr. ALFREDO “Fred” C. RAMOS, Chair, The Philodrill Corporation 64. Mr. RODOLFO “Jun” B. STA. MARIA JR., Chair and CEO, Paxforce Corporation 65. Atty. SYLVETTE Y. TANKIANG, Senior Partner, Villaraza & Angangco (V&A) The Firm
January 27
66. Atty. FABIAN “Fame” K. DELOS SANTOS JR., Partner and Head of Tax Services, SGV & Co. 67. Mr. ANGELITO “Lito” VILLANUEVA, EVP and Chief Innovation and Inclusion Officer, Rizal
Commercial Banking Corporation (RCBC) January 28
68. Mr. VIRGILIO “Vio” O. CHUA, President, SB Capital Investment Corporation January 29
69. Amb. FRANCISCO “Toting” V. DEL ROSARIO 70. Mr. JOSE EMMANUEL “Joel” P. GUILLERMO, President and CEO, JPGlobal Ventures Corporation 71. Mr. CARLOS MA. “Caloy” G. MENDOZA, Country Head, JP Morgan Chase & Co. 72. Mr. HILARIO “Larry” C. MURILLO JR., President, Grandcatch, Inc.
January 30
73. Atty. SERAFIN “Jun” U. SALVADOR JR., Managing Partner, Salvador Llanillo & Bernardo, Attorneys-at-Law
74. Ms. EVELYN R. SINGSON, Vice Chair and President, Dusit Thani Philippines, Inc. 75. Mr. JESUS “Jess” G. TIRONA
January 31
76. Mr. EMMANUEL “Noel” D. BAUTISTA, Executive Director, Head of ASEAN, LF (Philippines), Inc. 77. Mr. MANUEL “Karim” GONZALEZ GARCIA, VP for Business Development, Metro Pacific
Investments Corporation (MPIC)
https://www.facebook.com/map.org.ph/
Please like MAP on Facebook by clicking the following: