Shared prosperity and our dream Philippines

(First of two parts)

For many years now, the whole world has been struggling with how to deal with the twin evils of Inequality and Exclusion. These two evils have led to worldwide poverty and hunger, and many other dehumanizing ills of society in countries, big or small, developed or underdeveloped, autocracies or democracies.

In his apostolic exhortation, “The Joy of the Gospel,” Pope Francis had this to say about these twin evils, “Today we also have to say ‘Thou Shall Not’ to the economy of Inequality and Exclusion. Such an economy kills. How can it be that it is not a news item when an elderly person dies of exposure but is news when the stock market loses two points? … Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the secularized workings of the prevailing economic system. Meanwhile, the excluded are still waiting … ”

This exhortation followed the Pope’s earlier encyclical “Laudato Si” where he lamented that … ”Never have we so hurt and mistreated our common home as we have in the last 200 years … The world must hear both the cry of the earth and of the poor.”

How serious are these two global problems?

On inequality, we read that the 10 richest men in the world own more wealth than the 40 percent (3.1 billion people) of humanity. The richest 1 percent have 22 percent of global income. In the Philippines, the wealthiest 1 percent has 17 percent of national income while the bottom 50 percent earns only 14 percent.

Our GINI coefficient, which is a measure of inequality in a country, is at 42.3 percent—the worst in Association of Southeast Asian Nations (Asean) and one of the worst in East Asia (based on the latest World Bank report). We also have the distinction of having the worst poverty ratio in Asean which, due to COVID, had even worsened from 16.7 percent to 23.7 percent. All the other Asean countries have single-digit poverty ratios.

On exclusion, there are still glass (if not brick) ceilings for women in the professions, even in boardrooms. In some family-owned and controlled companies, there are limits to professional growth of nonfamily members. In hiring, some companies prefer graduates of elite schools as some discriminate against older people if not people with disabilities.

Many financial institutions continue to require more stringent requirements for farmers and small entrepreneurs. And banks would rather pay penalties for not complying with loan level requirements for the agri-agra sector (which deprives this sector of up to P600 billion of financing annually). Other examples of exclusion are: ostracizing the unwilling targets of sexual harassment, exclusion due to religion and economic status, and many more.

What can be done to combat these twin evils?

The World Bank prescribes shared prosperity along with ending extreme poverty. This means, among others, increasing the incomes and welfare of the bottom 40 percent of society, wherever they are. The 17 Sustainable Development Goals of the United Nations include not only reducing inequalities but other societal ills, like poverty, hunger, education, gender equality, etc.

The Institute of Corporate Directors, in the last 20+ years of its advocacy, had been helping the corporate world create more wealth with good governance and encouraging them to sharing that wealth with their stakeholders.

What is the response of business to the twin evils?

In August 2019, the Business Roundtable, a business association in the United States made up of the top 181 CEOs in America (Tim Cook of Apple, Jeff Bezos of Amazon, Jamie Dyson of JP Morgan, and other CEOs—Microsoft, Google, GE, General Motors, etc.) issued a statement that reflected a collective change of heart of corporate America—from a stockholder-centric mindset (total stockholder returns) to a stakeholder-centric one. The CEOs promised to: (1) deliver value to their customers, (2) invest in their employees, (3) deal fairly and ethically with their suppliers, (4) support the communities in which they work, and, (5) generate long-term value for shareholders who provide capital that allows companies to invest, grow and innovate. This document essentially declared that the purpose of a corporation is now for the interest of all stakeholders, and not just for the stockholders.

In November 2020, the Management Association of the Philippines (MAP) and the Institute of Corporate Directors (ICD), together with 26 other large business and professional organizations, in a convocation called for the purpose, signed a Covenant for Shared Prosperity (CSP) that detailed the business groups’ commitments to six stakeholders; to wit: (1) quality products and services to customers, (2) meaningful and gainful employment for employees, (3) fair, ethical and respectful treatment of suppliers (product, service and funds providers), (4) active involvement in the community, (5) protection of the environment, and (6) reasonable and just returns to stockholders. These commitments are described in detail in the covenant signed by the 28 business groups.

Subsequent to the signing of the CSP, MAP organized a committee tasked to promote the adoption of the covenant and to develop a set of metrics to guide the future individual company-signatories in the operationalization of Shared Prosperity in their respective companies. Using the World Economic Forum’s 45 metrics on Shared Prosperity as basis, the committee decided to adopt 19 measures on Shared Prosperity plus another three measures for the companies’ board of directors. This will soon be rolled out to the membership of MAP, first, and later to the membership of the other 27 organizations that signed the covenant. The 19+3 metrics will soon be part of the MAP website once these are finalized. INQ

Why Shared Prosperity? (This question will be answered in part two of this article)

(The author is co-chair for Social/Shared Prosperity of the MAP Committee on ESG. He is also vice chair of Center for Excellence in Governance (CEG). Feedback at [email protected] and [email protected].)