Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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How To Build Respected Companies

           The new dynamism of the Philippine economy, now rated as one of the most rapidly growing in the Asian region, is encouraging many Philippine businesses to branch out from their respective core competencies.  Consumer-oriented firms engaged in food and beverage, hardware and construction, trading, retailing, and finance are diversifying into big-ticket items like power plants, airlines, housing and real estate, and infrastructures.  The main motive for venturing into completely unrelated and unfamiliar businesses is profit.  As one of the tycoons was quoted to remark, moving from peddling peanuts to operating power plants can multiply profits more than a hundred times.

          I am actually glad that there are many local entrepreneurs graduating to the big league, so to speak.  They are helping the Philippines address a major  challenge:  how to increase the rate of investment of the economy from the very low level of less than 20 per cent of GDP to the average of the East Asian region which is closer to 30 per cent (China has fifty per cent).  Furthermore, these new investments like power plants, airports and other infrastructures are direly needed for us to sustain growth rates of 7 to 9 per cent over the next twenty years.   There is, however, a warning I would like to issue.  Profit cannot and should not be the only motive for such aggressive diversification strategies.  The investors must be sincerely interested in promoting the welfare of their new consumers, the human development of their employees, and the good of the community.  Again, I quote from the book authored by the Dean of one of the world's leading business schools, the IESE Business School in Barcelona, Spain.  In his best seller entitled "Building Respected Companies," Dean Jordi Canals analyzed the factors for the successes and failures of the largest companies in Europe and the U.S.  He came to the conclusion that only companies that go beyond the pursuit of short-term profit become respected companies and thus survive the test of time.  The road to short-term profit is strewn with the cadavers of business giants like Enron and Lehman Brothers.

          How can the drivers of Philippine growth today, many of them publicly listed companies, make sure that they go beyond short-term profit?  Dean Canals has the following answer:  "In today's society, expectations about firms go beyond their short-term economic success.  Besides being profitable, firms must serve clients, have competent and loyal employees, and be respected by these stakeholders and society at large.  Hence, corporate reputation has different drivers:  economic efficiency, people's competence, consumer loyalty and social impact.  Unless companies try to develop a coherent and balanced framework to deal with these drivers in an integrated way, they will get lost in a world of competing and increasingly demanding stakeholders."

          CEOs in the Philippines need not look far for a model of a respected company world-wide.  Dean Canals cites the case of Nestle, one of the world's most successful and admired food companies:  "Over the years, Nestle has developed a set of management principles and values that permeate the entire organization, from product research and design to people development.  'The Nestle Corporate Business Principles' is a brief booklet that was approved by the firm's board of management in 1998 after many years of global business experience  It clearly describes what Nestle stands for, what it is trying to achieve, and how these values are put into practice--in particular, how these principles shape the managerial's style.  It is worthwhile to consider how the booklet describes the company's main goal:  'Nestle's business objective, and that of management and employees at all levels, is to manufacture and market the company's products in such a way as to create value that can be sustained over the long term for shareholders, employees, consumers, business partners and the large number of national economies in which Nestle operates (Nestle1998)".

          One of the most effective ways for the top management of Philippine conglomerates venturing into new businesses to create respected companies is for them to focus on building an institution that will live long after the owners and top managers are gone.  In the words of Dean Canals:  "An institution is an organization structure (Scott 1995) with a set of norms and values and a body of knowledge that guides its behavior and influences the way society perceives it.   Institutions develop activities according to certain expected patterns and offer society some stability.  If institutions work efficiently and properly, they become respected and earn trust from external parties.  The company as an institution also goes beyond basic and very noble notions of corporate social responsibility (Benioff 2004) and social entrepreneurship (Elkington and Hartigan 2008) and philanthropy (Bishop and Green 2008)."

          The last point is very important.  I have observed that the large Philippine conglomerates that are actively starting or acquiring new businesses try to project a positive image to the public by all types of  CSR or philanthropic projects or activities that have to do with poverty alleviation,  improving the quality of basic education, or helping to protect or clean up the physical environment.   All these are laudable.  They will not do much to earn the respect of the public, however, if these companies are not perceived to be promoting the welfare of their consumers or clients, or are unconcerned with the total human development of their employees, or are not complying with the legitimate laws of the land like paying taxes or complying with labor laws.  It is obvious, therefore, that a respected company is an organization that does an outstanding job in promoting the welfare of its various stakeholders.   The development of a respected company is built upon economic success, its efficiency as organization, its people, its clients and its policy toward society.  For comments, my email address is bernardo.villegas@uap.asia.