Moderator Opening Remarks
Thank you for the kind introduction. I was going to write a review
on the subject but was spared the effort by my
former GlobalSource Partners co-author
Maggie Debuque Gonzales. Her thoughtful and comprehensive report
titled “Re-thinking shareholder capitalism” was shared with me, and I encourage
all to read.
Let me summarize the key points in her paper peppered
w my own musings:
1) there has been recent serious rethinking both in academia and business
circles of the Friedman Principle— “the only responsibility of business is to
increase profit”. Initially occasioned by the Global Financial
Crisis, and now with the harsh impact of COVID, which revealed some of the
weaknesses of the existing capitalist system. In the business sector, the
debate focussed on which market model would deliver long lasting and
widespread prosperity— stakeholder capitalism or shareholder capitalism.
2) landmark events that skewed the discussion towards
the latter are:
- the August 2019 US Business Roundtable signed by over 180 CEO’s of major
corporations released a “statement on the purpose of a corporation” that
declared “a fundamental commitment to all stakeholders” and listed specific
commitments to customers, employees, suppliers and relevant communities, in
addition to long term value for corporate shareholders “.
- here in the Philippine 20 business organizations signed last November 2020 “
A Covenant for Shared Prosperity” where the country’s business leaders vowed to
raise the welfare of all local stakeholders.
- these same organizations and conglomerates, have also walked the talk
in addressing pain points brought about by the pandemic,
way way beyond their commercial interests. These initiatives
welcomed by and working hand in hand w govt include in :
testing facilities ( construction of new laboratories), quarantine
facilities, hospital facilities, vaccination procurement, administration and
communications.
These were all done in the Phl Bayanihan spirit of volunteerism,
not because of dictat, but a recognition that corporations do have
social responsibilities emanating from their dominant role and command over
resources, apart from individual shareholders initiatives.
3) The pandemic and talk of a a new normal and a reset
have raised the profile of the issue. Practical question of
how do we translate high level principles to actionable items for
boards and managements ( esp of major publicly listed
corporations.)
a) how relevant are the limiting conditions to Friedman in a developing country
/ Phl contexts?
Hart and Zingales wrote: “Friedman is right only if the profit making
and damage generating activities of companies are separable or if
governmentperfectly internalizes externalities through laws and regulations”
or in case the government does not, if the shareholder population
perfectly internalizes externalities and spend the appropriate amount for
mitigation or correction.
These assumptions are:
- perfect market (no market failure ) assumptions chief among which
are
- no market
power (implying no rule making power for firms)
- no externalities (absence
of markets ) and whether they may or
may not be internalized by
shareholder.
The answer is clearly affirmative. But these assumptions are heroic
and generally hold true only for small firms. Thus, they
conclude maximization of shareholder welfare should now be
Pareto efficient for large firms while the Friedman
rule of maximizing shareholder value hold only for
Small firms.
.
b) which brings us to the next question: how do we
operationalize stakeholder welfare optimization, clearly the relevant
situation in a country like the Phl w high concentration of large companies?
- multiple masters and objectives means no guidance to the Board.
(Issue of primacy of fiduciary responsibility to shareholders still
a live one. To give weight to interests of other stakeholders, often
amorphously , on the premise of social responsibility is de facto is
“taxation without representation” on the residual owners, the
shareholders..
- conflicts not just across various stakeholder interests, but
also how much weight to attach to conflicting social goods? To cite
a very live debate for the Phl, the issue of the energy trilemma— energy
security, affordability/equity vs environment for a country which needs fossil
fuel driven base load plants to address poverty— and which only contributes 0.3
pc to global carbon and in relative terms much less per capita.
-“market-oriented solutions” include:
*ESG ratings— now an emerging industry w dozens of players , but with differing
methodologies and emphasis, but in all cases overweighting E - carbon reduction
vs S- social impact.
*other mechanisms like explicit vote in Board of Directors or all shareholders on
policy as suggested by Hart and Zingales.
I would be remiss if I do not call out more general questions posed by
our organizers on the Great Reset. Namely:
• How must we reset our ways of life and rebuild toward a better normal?
• How can we build new foundations for the world’s economic and social
systems?
• How can we steer the market towards fairer outcomes?
• How can we ensure that investments advance shared goals, such as
equality and sustainability?
To address these questions, we are most honored to have as our
featuredspeaker, highly acclaimed thinker on the subject, Prof. Luigi
Zingales.
Professor Luigi Zingales is Robert C. McCormack Distinguished Service Professor
of Entrepreneurship and Finance and faculty director of the Stigler Center at
Chicago Booth. Zingales' research interests span from corporate governance to
financial development, from political economy to the economic effects of
culture. He co- developed the Financial Trust Index, designed to monitor the
level of trust that Americans have toward their financial system. In addition
to his position at Chicago Booth, Zingales is currently a faculty research
fellow for the National Bureau of Economic Research, a research fellow for the
Center for Economic Policy Research, and a fellow of the European Governance
Institute. Zingales also serves on the board of ProMarket and is the co-host of
the podcast Capitalisn't.
Pls help me welcome Prof Zingales
with a warm virtual applause.
At the end of his talk.
To provide reactions to his talk, we
are honored to have two deep thinkers on the subject with familiarity
with the Phl and other EMC’s. One a practitioner like me, and
another an Professor .
The first is :
MR. ANTON PERIQUET
Mr. Anton Periquet is Chairman and
Managing Director of the Campden Hill Group, an investment holding company that
owns interests in publicly listed and private equities. He was until recently
chairman of BPI Asset Management and Trust Corporation, the wealth management
arm of the Bank of the Philippine Islands, and is currently a director in
various publicly listed companies, including Ayala Corporation, the Bank of the
Philippine Islands, DMCI Holdings, the Max’s Group, Philippine Seven
Corporation, Universal Robina Corporation, and Semirara Mining and Power
Corporation. He is an experienced investor and equities analyst and
co-founded Deutsche Regis Partners, Inc.
Pls help me welcome him.
At the end of his talk. Our next
speaker is :
DR. BENITO L. TEEHANKEE
Jose E. Cuisia Professor of Business
Ethics Management and Organization Department Ramon V. del Rosario College of
Business De La Salle University
Dr. Benito L. Teehankee is the Jose
E. Cuisia Professor of Business Ethics at the Management and Organization
Department of the Ramon V. del Rosario College of Business, De La Salle
University. He is Head of the Business for Human Development Network (BHDN).
His research focuses on corporate governance, leadership ethics and
institutional change. He conducts governance and management development
seminars for various corporations. He serves on the boards of the Philippine
Academy of Management (PAoM), Shareholders Association of the Philippines
(SharePHIL), and the International Humanistic Management Association (IHMA). He
has been awarded as Best Business Columnist for his writing in Managing for
Society in the Manila Times by the Catholic Mass Media Awards (CMMA) and
Outstanding Educator in Corporate Governance by the Financial Executives of the
Philippines (FINEX).
Take it away, Prof Ben!
—-
Now for the open forum. Pls
type out your questions in the chat room or in FB, and they will be relayed to
me.
Let me start the ball rolling while
we wait for questions from the floor by asking the first question.
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