Ronald Goseco l July 8, 2022 l The Manila Times
THE 6th Ayala Finex Finance Summit will be held on July 27 at the New World Hotel with the theme “From Stockholders to Stakeholders: the Future of Capitalism.” It will challenge the traditional way of thinking that management’s objective should be maximizing value for shareholders, which originates from Milton Friedman’s 1970 article denouncing corporate “social responsibility” as a socialist doctrine. All of us who attended business school from that time, all the way to the early 2000s, embraced this as gospel truth. The invited speakers come from McKinsey and Co., the World Business Council for Development (WBCD), Ayala Corp., Grant Thornton (UK) and Shell Philippines.
Jon Canto of McKinsey will talk about the history and evolution of stakeholder theory. This concept of corporate governance seeks to ensure that an organization is directed for the benefit of shareholders as well as other stakeholders like employees, creditors, suppliers and the communities where the companies operate. The stakeholder-oriented governance model caught on primarily because it was observed that some corporations had lost the public purpose bestowed on them. Many focused too much on short-term results because this addressed markets and satisfied shareholders. For decades, it was an accepted belief that companies have a singular commitment to maximize the wealth of shareholders. In this paradigm, what companies and their managers do is dictated by the needs and demands of stockholders. This is measured by profits, earnings per share and stock price. This belief focuses on the concept that the interest of the owners take precedence and dictate management’s actions.
Over time and especially with the 2008 global financial crisis, both academics and managers realized that a firm had special responsibilities to other stakeholders apart from what the law and ethical standards in previous periods prescribed. The perspective shifted to the view that managers should direct and control the corporation in the interest of various groups. They should not merely act as the owners’ agents but should promote the rights and proactively increase the participation of other stakeholders to ensure that the long-term stakes of each are safeguarded. This approach was taken up by the crafters of corporate governance codes like the Organization for Economic Cooperation and Development and even adapted in our revised Securities Code.
Under this stakeholder view, it has been argued that multiple groups actually “invest” in the firm and take risks together with the owners in the hope of achieving common success. This bestows on each a certain moral and legal claim to a share in the value created by the firm. Given the usual case where it is difficult to prioritize possible conflicting stakeholder interests, it is advocated that firms turn to the enlightened shareholder value approach. This prescribes that while companies continue to maximize shareholder wealth, they should also take a long-term view that aims for sustainable profits and growth on the basis of a keener attention to the interests of a broader set of relevant stakeholders.
Our speaker from WBCD, Wim Bartels, will present how sustainability is shifting from mere compliance to laws and regulations to actual value generation for the firm. He will be sharing empirical evidence that sustainable practices guarantee the long-term success and survival of a company. Meanwhile, Eric Francia, who is the president and chief executive officer of ACEN — the energy subsidiary of Ayala — and also chairman of the Ayala investment committee, will share with us the investment initiatives of Ayala and how they are increasingly applying environmental, social and governance (ESG) principles in identifying material risks and growth opportunities in the market.
Our speaker from Grant Thornton will be presenting the future of work and how sustainability will be key in all future dealings. He will be sharing with us industry-specific cases that he is working on, along with elements of practical sustainability that other companies are adapting and are applicable for both large and small enterprises. These practices are underpinned by continuous ESG innovation based on science, human-centric technology and regenerative thinking. They are based on outcomes and are being adapted now and will become pervasive in the future of work.
Some of these concepts include circular commerce, which refers to shifts in traditional business models to enable materials and products to be reused and to remain in the economy as long as possible. Other concepts include system of systems, which is essentially applied systems design to current problems, and digital twins that refers to digital manifestations of data interacting with the physical world to give us a deeper understanding of spatial relationships in supply chains. Some of these applications are already in the metaverse.
Lastly, the future of work would not be complete without discussing current issues like the war in Ukraine, which has created an ESG maelstrom on its own due to concerns over greenwashing, investments in authoritarian states or the mislabeling of green investments.
It is envisioned that the summit will create a path forward for a sustainable future that is truth-based, collaborative and will improve lives not just in our nation but also the entire world.
*** Ronald Goseco is a Finex trustee. His opinions are his own and do not reflect those of Finex or The Manila Times.