Corporate culture and income inequalities


The country has recently experienced phenomenal economic growth.

However, there remains, in the words of Jillian Keenan of the Atlantic, a lingering “grim reality”, and that is the fact that the distribution of wealth in the country remains one of the worst in the developing world.

The income gap between the richest and the rest of the country seems to be widening more and more.

The results of the SWS survey for the fourth quarter of 2014 show that a greater number of respondents considered themselves poor compared to those who did so for 2013 as a whole. This observation contrasts sharply with the figures of Forbes Asia as cited by Inquirer columnist Ciel Habito who noted that the total increase in the net worth of the top 40 families alone accounts for well over 75 percent of the increase in the country’s gross domestic product.

Over the years, the aggregate annual increases in wealth of an expanded list of, say, the richest 100 or 200 families in the country could easily exceed the total annual increases in the country’s national economic output.

This would leave the rest of us, on average, with a net decline in our wealth positions.

There are many criticisms to be made for this so-called non-inclusive growth.

There is no doubt that most should be borne by the government for its half-hearted efforts to implement pro-poor economic policies.

However, income inequality, and social inequality in general, is the result of a complex set of interrelated economic, political, social and cultural factors, and to distinguish one or two main “causes” of inequality is not. only unfair but wrong. .

Institutional factors

I have noted elsewhere that the disparity in income opportunities in the country is in part the result of institutional factors deeply rooted in our society.

A number of these factors are embedded in the business sector of the country where economic goods and services are produced and where the bulk of income is generated.

Many of the institutional arrangements that lead to income inequality are ingrained in our corporate culture.

There are three interrelated aspects of business life that materially affect the distribution of income in the country: governance, strategy and social responsibility.

By long tradition, corporate governance (GC) in the Philippines is simply the routine compliance by legal persons with the requirements set by the Securities and Exchange Commission (SEC) code of the GC.

These guidelines are mandated by the SEC Act of 1995 which defines CG in terms of the responsibilities of company directors to their shareholders.

This legal definition of CG is too focused on the interests of shareholders and does not take into account those of other groups that have a legitimate interest in the company, such as its workers, clients and the wider community of which it is a part. . .

In today’s highly interconnected business world, CG should be defined more broadly to encompass the interests of all groups in the organization and society that contribute to the process of corporate wealth creation.

In the modern business, CG should include all aspects of business life that govern the way things are done in an organization, such as those that specify the decision-making rights of all members of the organization. , and those who provide appropriate incentives to ensure that all activities undertaken in the organization are consistent with the achievement of legitimate business objectives.

GC should provide the mechanisms by which all business activities are coordinated, and should seek to align the conflicting interests of business enterprise owners with those of other groups in the organization and in society who provide valuable contributions. in the value creation process.

Being too focused on the narrow business concerns of the company’s shareholders prevents the company from actively participating in the enhancement of the broader and more enduring interests of the company, which is indeed the essence of corporate citizenship. .

Misplaced focus

Corporate strategy encompasses all decisions made and activities undertaken in the organization that aim to achieve long-term business goals.

The generally accepted ultimate goal of the corporation is the maximization of shareholder value (VS).

We subscribe to this goal long accepted by business. However, we believe, like a growing number of management practitioners and academics, that the most effective way to maximize SA over the long term is to create value for ALL stakeholders.

Paying wages higher than market rates, wrote a prominent American economist, guarantees greater labor productivity, an observation we are sure Google’s Larry Page will hardly dispute.

The late Apple CEO Steve Jobs has amply demonstrated that the best way to ensure a continuously expanding market base is to generate customer value through creative and innovative products.

Even well-known free entrepreneur Gary Becker of the University of Chicago had to admit that under certain conditions corporate altruism can actually be good for business.

In practice, however, business leaders, acting on behalf of their employers, tend to focus on the naive and resolute pursuit of immediate profits or measurable operational results – for which they are amply paid!

This so-called “bottom line focus” results in a number of undesirable consequences that can lead to the inability of companies to meet their long-term (ie sustainable) financial goals.

These “unwanted consequences” include the emphasis on profitability (aka “cost reduction”) rather than value creation, neglect of investment in human capital and environmental degradation.

The end result of this relentless pursuit of immediate financial gain is the creation of economic value for business owners (and those who bid on them), but at the expense of economic value for the many others who have contributed to the production process. . In short: income inequality.

Recover

By long tradition, CG, strategy and social responsibility have been treated as separate and distinct spheres of company life.

This is a big mistake. We believe that all activities that take place in a company, whether decision-making, operational or administrative, should be part of a common strategic framework that binds everything together.

Let’s not forget that the ultimate goal of the strategy is to maximize SV.

Everything that happens in a business organization should be aimed at creating the most value for the business.

The large gap between strategy on the one hand and CSR on the other is particularly distressing.

Commonly considered to be “doing well” and “doing good” respectively, the former is supposed to be linked to efforts to maximize the economic value of the company, while the latter is to share part of this value with society.

But do companies have a moral responsibility to provide material benefits to their communities? We believe not.

In modern societies, all forms of social organizations and institutions have specialized functions. That of commercial enterprises is to create material wealth.

Doing charitable work is not part of their social mandate, unless, we hasten to add, contribute to the overall strategy of the company to maximize its economic value.

This can only be achieved if CSR projects are chosen wisely, and not simply by choosing one philanthropic or event initiative after another without thinking about their overall strategic impact.

(The article reflects the personal opinion of the author and does not reflect the official position of the Management Association of the Philippines. The author is professor of economics at the University of the Philippines. Comments on and . For previous articles, visit www.map.org.ph.)

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