Income inequality in the Philippines: Do family-owned firms play a moderating role?

Many emerging markets, such as the Philippines, are characterized by the prevalence of corporations that are predominantly owned and managed by members of the same family.

Compared with publicly traded corporations in Europe and in the United States, family businesses are inclined to be as much focused on sustainability as they are on profitability.

For this reason, they tend to be more thoughtful in dealing with their major stakeholders, notably their workers, the other firms with which they do business, government entities, —and the community at large.

By contrast, public corporations are those whose shares are publicly traded on the market and owned by large numbers of shareholders.

In most publicly traded corporations, investors are mainly speculators who are motivated primarily by the lure of immediate returns on their investment.

In family-run businesses, the financial interests of the owners of the firm (known as “principals” in the agency theory of the firm) and the individuals who occupy major managerial and staff positions in the company (many of whom bear the same surname as the companies’ founders) are closely intertwined.

Here, the agency problem that is commonplace in publicly owned corporations is much less apparent, at least as far as these company officials and favored employees are concerned.

Because sustainability is a major strategic objective of family-owned corporations, there is much less pressure on corporate managers from shareholders to go all out for immediate returns.

Consequently, they are more inclined to be concerned with the economic interest of their workers, their customers, and their business partners with which they must work collaboratively in order to achieve their long-run strategic objectives.

Let us be clear on one point, however.

While the family-owned enterprise may not be insatiably motivated by immediate returns, its ultimate goal over the long haul remains the maximization of shareholder wealth.

Many family-run businesses are known for their espousal of Corporate Social Responsibility (CSR).

In many of these business organizations, the difference between what passes for corporate philanthropy and the social consciousness of the individual owners and their goal of profit maximization is often obscured.

In family-run businesses, volunteerism in the form of public service, gift giving to indigent individuals and families, and relief work for victims of natural disasters is often channeled through corporate foundations that bear the family name.

While these initiatives offer welcome relief to their intended beneficiaries, they also serve the purpose of bolstering their long-run profitability by burnishing the donors’ corporate image.

In pursuing CSR initiatives, it is not always clear which one takes precedence over the other.

Nonetheless, for the foregoing reasons, there is a sense in describing family corporations as being more “inclusive” in their policies than are public corporations.

The extent to which family-owned businesses contribute to inclusive growth in the country remains unclear, however.

Available macroeconomic data on the Philippines suggest that the aggregate wealth of the country’s richest families has been increasing substantially over the past several years, accounting for an inordinately large share of the annual increases in Gross Domestic Product.

According to the Forbes Magazine 2019 list of the world’s billionaires, 17 tycoons from the Philippines and their families are among the wealthiest on the planet.

These select group of individuals had an estimated combined fortune of $47.7 billion, or P2.48 trillion, at current exchange rates, or about 14 percent of the country’s GDP.

Meanwhile, the economic plight of the poorest segments of society appears to be worsening.

A recent Social Weather Stations survey report for the third quarter of 2018 showed that 52 percent of the estimated 12.2 million families in the country considered themselves poor, the highest registered over the recent four-year period.

By all outward indications, the distribution of income and wealth in the country has been worsening, and there is little evidence to show that the most profitable corporations in the country are doing enough to alleviate poverty and to promote economic equality.