2013 and beyond: Renaissance for growth. Can it continue?

(Published in the ECCP Business Review, 2012)

THE YEAR 2013 will be a happy new year. And this doesn’t refer to the traditional holiday greeting.

Most major metrics point to an improving economy in 2013 buoyed by multi-billion peso election spending and anchored on strong economic fundamentals that made the Philippines Southeast Asia's leading growth economy in 2012.

The long-term outlook until 2016 -- which, coincidentally marks the end of President Benigno Simeon Aquino's six-year term -- is again optimistic. Among the reasons: the long-sought dissipation of the Eurozone debt crisis, which is at last easing, and a Philippine upgrade to investment status by some or all three of the international ratings agencies.

The European Union is the Philippines largest single export destination. It currently accounts for 13% of total Philippine exports and 17% of overseas Filipino remittances. Exports constitute about two-fifths of the Philippines’ consumption-driven economy.

The investment upgrade, while more of a boost to government morale, is nonetheless seen as validating the success of President Aquino's economic platform founded on boosting transparency, leveling the business playing field and restoring trust in government.

It should somewhat help remedy the Philippines' nagging inability to secure more foreign direct investments (FDIs) because of poor infrastructure and inconsistent investment policies.

“We have to address policy inconsistencies. There are so many inconsistencies, especially in mining, utilities and infrastructure," said Victor Abola, senior economist at the University of Asia and the Pacific.

The Philippine share of FDIs going into ASEAN in the first-half of 2012 was among the smallest in the region, said the UN Conference on Trade and Development.

GDP growth uptrend

Both the government's economic managers and foreign experts, however, agree that Philippine gross domestic product (GDP) growth in 2013 will exceed 5%. This growth could expand to 8.5% by 2016. Socioeconomic Planning Secretary Arsenio Balisacan said the country will most likely grow from 6% to 7% in 2012.

"We are already at 6.5% (in the third quarter), and the fourth quarter is always good for us because of the holiday spending. We kept growth and fiscal targets for 2012 to 2014.

"For 2013 onwards, we want to stay conservative. We recognize that there are still uncertainties external to the country."

The government targets 6% to 7% growth in 2013; 6.5% to 7.5% in 2014; 7% to 8% in 2015 and 7.5% to 8.5% in 2016.

It also hopes to keep the fiscal deficit capped at 2.6% of GDP in 2012 and 2% in 2013 and 2014.

The Philippine economy grew 7.1% in the third quarter, the fastest pace since 2010. It was a result that surprised even the government since this quarter is historically always the slowest in output.

This “unprecedented growth,” said the government, was better than Vietnam’s 4.7%; Thailand’s 3%; Indonesia’s 6.2% and Malaysia’s 5.2%.

The domestic market driven growth was led by construction (up 24.3% year-on-year, mainly on the condominium boom) and manufacturing (up 5.7% year-on-year). The government claims the spike in these sectors led to more jobs.

The services sector, which includes the robust IT-BPO industry, will again be a leading growth driver from 2013 onwards. Economists, however, warn that the Philippines must develop its own industries for economic growth to reach 7% to 8%.

The Philippines must also create more than one million jobs to sustain growth at this high level, but this task might well prove a serious challenge considering current realities and the paucity of FDIs.

High unemployment continues to plague the Philippines despite rising growth. The official Philippine unemployment rate of 7% in the third quarter of 2012 was the highest in ASEAN. Only Myanmar and Indonesia had unemployment rates above 4%.

Underemployment in the Philippines remains stubbornly high, estimated at almost 25%. These numbers emphasize the need for job creation and highlight the reason why 10% of Filipinos are working abroad.

More muscle will be added to the economy by government plans to increase infrastructure spending to a record level. Government also plans to invest P640 billion in roads and airports to prod growth to a high 7% in 2013 and beyond.

Lower inflation but higher prices

Inflation did not put a brake on growth in 2012 and is expected to reprise this role in 2013. It slowed to 2.8% in November 2012 year-on-year on cheaper food and gasoline prices. Headline inflation in 2011 was 4.8%.

Full year 2012 headline inflation is placed at 3.2%. But this was before the P11.7 billion damage to agriculture in Mindanao inflicted by Typhoon Pablo in early December.

The November headline inflation, however, is below government expectations of 3% to 5% from 2012 to 2014. Core inflation in November fell to 3.4% from 3.6% in October and 4.5% year-on-year.

The government cut its inflation forecast for 2013 to 3.1% from an earlier 3.9% during the last meeting of for the year of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). This lower inflation rate for 2013 took into account a rise in wages and salaries; an upcoming fare increase for the MRT and LRT intercity rail systems; higher jeepney fares and more expensive rice prices.

Record stock market in the making

The Philippine stock market is already reflecting investor exuberance at the Philippines’ strong fundamentals and the movement of “hot” short-term money moving to emerging markets. It closed at a new all-time high of 5,763.64 on December 6, mostly due to lower inflation, said analysts.

The main index of the Philippine Stock Exchange, Inc. and its sub-indices reported gains, especially those that were consumer driven like banks and property. PSEi or the Philippine Stock Exchange Composite Index ended a seven-day rally on December 5 after peaking at 5,706.28 on December 4 thereby breaching the 5,700 mark for the first time.

No new taxes in 2013

President Aquino’s pledge not to raise taxes in 2013 is another cause for business optimism. Instead of new taxes, the government will raise revenues through more efficient tax collections and two reform bills: the “sin tax” and the fiscal incentives bill.

The sin tax bill, which passed Congress on December 11, increases the excise or specific taxes on "sin" products such as tobacco and alcohol. It could add some P34 billion to government revenues in 2013 and P184 billion in total revenues until 2016.

The fiscal incentives bill seeks to rationalize and simplify the grant and administration of fiscal and non-fiscal incentives to promote foreign and domestic investments. The House of Representatives and the Senate each have their own version of the bill that has to be reconciled for the bill to pass into law. It is the aim of the Administration to create more transparency and accountability in granting incentives in future.

The Joint Foreign Chambers of the Philippines, of which the European Chamber of Commerce of the Philippines (ECCP) is a member, commented that removing the income tax holidays might negatively impact Philippine competitiveness as an investment destination within the Asia-Pacific.

Peso to stay muscular

The peso’s strength (about P41.00 to US$1.00 in mid-December) has again been both pleasant and alarming. The peso gained some 7% in 2012, the best performer after the Korean won among Asia’s 11 most-widely traded currencies. The peso’s exchange rate in December 2011 averaged P43.64 to a dollar.

Exporters are worried. To calm their fears, the government has promised to remain vigilant against the continuing rise of the peso. Further strengthening will threaten to erode Philippine export earnings and the purchasing power of OFW remittances, and lead to a surge in imports and hot money. The government shunned a further interest rate cut in December as a means of weakening the peso.

The consensus is for a strong peso in 2013 and 2014. The ING Group sees the peso staying strong against the dollar in the next two years, and to trade near the P40.00 to US$1.00 level. The main concern among policymakers is the peso falling below the critical P40.00 to US$1.00 barrier, an event that could conceivably occur in the next two years.

Interest rates to rise in 2013

A decision by the BSP on December 13 to keep its benchmark interest rate unchanged at 3.5% was a clear signal the Philippine economy is now racing along on a high gear that makes monetary intervention unnecessary at this point.

Deputy Governor Diwa Guinigundo said the Philippine economy demonstrated resiliency in the first three quarters.

“There’s very little need for assistance from monetary policy.”

The BSP decision meant the economy had withstood the global slowdown better than most and that inflation, which could have hammered growth, is being kept in check. BSP cut borrowing costs by a total 100 basis points this year.

Interest rates, however, are widely expected to rise in 2013 to head-off inflationary pressure. Analysts see the BSP raising interest rates by 25 basis points in the first quarter of 2013 and by another 25 basis points in the second quarter.

The BSP cut interest rates by a quarter percentage point in October  2012 to record lows. The rate paid by BSP to lenders for overnight deposits now stands at 3.5% while the rate borrowers pay for overnight credit from BSP fell to 5.5%.

It was the central bank's fourth rate cut in 2012 and was meant to encourage investment and consumption to guard against risks associated with weaker overseas demand.

Record remittances—again

Where will the economy be without the pick-me-up from overseas Filipino worker (OFW) remittances?  The answer becomes apparent when one considers remittances still account for 10% of GDP, driving the domestic market and GDP growth.

Remittances are expected to hit a record US$21.2 billion in 2012 and rise again to a new record of US$22.2 billion in 2013. The strong peso, however, is the greatest threat to these growth assumptions.

Close to 80% of remittances through banks come from the United States, Canada, Saudi Arabia, Japan, the United Kingdom, the United Arab Emirates and Singapore. The Philippines is the world’s third-largest recipient of remittances behind India and China.

The government, however, has noticed a decrease in the economy's dependence on remittances since 2011. The National Economic and Development Authority (NEDA) observed that the country’s Net Primary Income from Abroad (NFIA) has been falling and that this can be seen in the Gross National Income (GNI). NFIA includes remittances and is a component of GNI.

NEDA said NFIA grew by only 1% in 2011 while GDP growth came to 3.9%. Government data showed GDP growing at 7.6% in 2010 while NFIA grew 10%.

Mobile remittances, the next big thing in remittances, has not gained traction as a cost-cutting tool since governments remain uncertain as to how to regulate remittances using mobile phones.

Exports: key growth engine to recover

Exports traditionally contribute two-fifths of GDP and undoubtedly remain key to attaining the envisaged high GDP growth.

Electronic products are the Philippines leading export while the inputs used to make these products are the largest import items. These commodity groups will dominate trade in 2013, and will be among the first to surge with a recovery in its main markets, the USA and Europe.

Conversely, weak exports have a profoundly negative effect on growth.  Weak exports were the major reason for the GDP growth plunge in 2011. The government estimates that the export plunge cut the Philippines’ potential GDP growth by 2.2 percentage points.

Sturdy investor confidence

Florencio Abad, Secretary of the Department of Budget and Management, said high growth will also create investor confidence in the economy.

“We are, in other words, creating an environment that’s ripe for both local and foreign investments and stable enough to keep our fiscal performance at a reasonable high,” he said.

“We are optimistic that our fourth-quarter growth will remain as energetic. Public consumption will most definitely stay robust, fueled by high consumption levels during the holidays, continuing investments in public and private infrastructure, and the kick-start of election-related spending this Christmas season.”

Moody’s Investors Service raised the Philippines’ credit rating to one step below investment grade in October leading to investment pledges from European and other multinational firms.

Strong business optimism

ECCP President Michael Raeuber noted the prevailing business optimism among European companies doing business in the Philippines.

"We have to credit President Aquino and his team for the reforms, especially the emphasis on ethical government and integrity that have helped restore business confidence and started the process towards  the level playing field," Raeuber said.

Raeuber noted that President Aquino is a staunch supporter of the “Integrity Initiative,” a two-year old campaign co-founded by ECCP that has become the business sector’s champion in the fight against corruption in government and the private sector.

President Aquino noted that the Integrity Initiative has played a role in the Philippines’ economic recovery by its untiring advocacy to create a level business playing field. He revealed the government is directing the gains from Integrity into projects and programs that will make the Philippines more competitive.

“We have been channeling the budget into investments in our people, education, health, poverty alleviation and infrastructure because we recognize that sustaining our momentum requires a citizenry that can compete in the world arena,” he said.

“At the bottom line of our strategy is ensuring a level playing field, one that is stable, rules-based and whose outcomes are predictable,” the President said.

Election spending boost

In a mid-year estimate, the government’s Development Budget Coordination Committee (DBCC) said the growth drivers for 2013 will be strong domestic demand; more government infrastructure spending that will likely add P180 billion to the deficit; a moderate peso depreciation that will continue to spur spending by OFWs; a 2.5% growth in agriculture and a 25 basis point policy rate cut by the BSP that will bring overnight lending and borrowing rates to record lows.

Hindsight apparently confirms the soundness of most of these premises. The growth estimate for agriculture has now become suspect in light of P11.7 billion damage inflicted on Mindanao’s agriculture by powerful Typhoon Pablo (Bopha) during the first week of December.

The Eurozone and the USA are the Philippines’ key export markets and major sources of FDIs. This is the reason the Eurozone crisis and the halting economic recovery of the USA could restrict the Philippines’ growth to the higher levels dreamt of by government.

In the short-term, however, the key critical factor for Philippine growth in 2013 will be the general elections scheduled for May 13.

Over 18,000 officials, mostly at the local level, will be elected in this mid-term election. The scale of these elections is massive. Up for election are 12 senators, 229 district members of the House of Representatives, 80 provincial governors, 138 city mayors and 1,496 municipal mayors.

It is these elected officials at the provincial, town and city levels that will, for good or ill, exert an excessive influence on who succeeds President Aquino in 2016.

The aphorism that all Philippine elections are local elections--including that for the presidency--will again be invariably proven during the presidential election in 2016. Hence, the importance to President Aquino that the local candidates of his Liberal Party and its allies do well or dominate the May 2013 local elections.

Stacking the deck is the name of this political game. The opposition realizes this full well, too.

And at this juncture, only President Aquino's chosen successor can be counted on to continue his far-reaching reforms that have been largely responsible for this renaissance in Philippine economic growth and integrity. Given this situation and the uncertainties regarding the succession in 2016, it is essential that the reforms of the Aquino administration be institutionalized before the team leaves office.

Massive election spending in the 2007 and 2010 elections (the latter a presidential one) contributed to the high economic growth rates in those years and a spike in consumer spending. Election spending in 2013 will almost certainly boost growth and will most probably drive it over 7%. The economy last peaked in 2010, an election year.

The Philippines’ three highest GDP growth rates in the past decade took place in 2004, 2007 and 2010, all of which were election years. And except for 2009, the next highest growth rates were the years before election years, or in 2003 and 2006.

Secretary Abad said there might be some election spending as early as the end of this year. This, plus consumer spending during the Christmas holiday, usually boosts GDP growth, he said. Total consumption traditionally accounts for some 70% of GDP.

"Christmas is the time where Christmas and campaigning mix . . . The rush for spending for Christmas and preparations for the elections will further boost the economy," he said.

Abad noted that the 7.3% GDP growth in 2010—an election year—was the highest in 34 years.

"I don't know to what extent (election spending will boost 2013 economy), but you saw 2010.”

International financial institutions were also positive about Philippine growth in 2012. The World Bank upgraded its growth forecast to 5% from 4.8% after the Asian Development Bank increased its growth estimate to 5.5% from 4.8%.

“The Philippine economy continues to show strength despite global and regional economic slowdown,” the ADB said.

ADB cited the rise in investments by local firms, robust household consumption, and increase in government spending as factors behind the latest growth forecast.

ADB said the sources of growth are investments by local firms, robust household consumption, and an increase in government spending. It expects the economy to grow by 5% in 2013.

Metropolitan Bank and Trust Company, the second largest Philippine bank, raised its GDP growth forecast to 6.6% from 5.5% due to the robust GDP expansion in the first nine months. It said household consumption, which accounts for two-thirds of GDP, will drive growth. More remittances, a rise in government spending and benign inflation will also contribute to this growth.

Jollibee Foods Corporation, the country's largest fastfood firm, expects record sales and profit in 2012 due, in part, to early election spending later in the year.

CEO Tony Tan Caktiong believes spending for the 2013 mid-term elections will boost local sales that constitute 80% of the company's system-wide sales.

"Because of the campaign there are a lot of funds going into the society so I think that's basically the reason that boosts consumption.”

High unemployment to persist

That Philippines’ rosy economic outlook, however, has apparently had no effect on reducing what is Southeast Asia’s highest unemployment rate. The 7.1% GDP growth, when set against the unemployment rate of 7% in the same third quarter, reveals that growth’s benefits are not “trickling down” to consumers, but are instead being reinvested in non-productive financial instruments that boost personal income.

By comparison, Vietnam’s unemployment rate stood at 2%; Thailand’s at 0.9%; Indonesia’s at 6.5% and Malaysia’s at 3%. These countries have also had much higher levels of foreign direct investments that create jobs.

To its credit, the government admitted that trickle down growth is more easily felt by those in the business sector. It said high growth has instead allowed the government to spend more for the people, enabling more citizens to “feel” the benefits of growth through its “social protection strategy.”

“We want to make sure that this improvement in the economy won’t benefit only those who invest in the stock exchange. That’s why we call it inclusive growth,” said Presidential spokesperson Edwin Lacierda.

The Asian Development Bank has praised the government’s social protection strategy, saying the latter’s “Conditional Cash Transfer Program” to uproot extreme poverty costs less than 0.5% of GDP but helps 15 million people in a population of 90 million.

Far too many will remain poor

Growth has also not made a notable dent in reducing the ranks of the poor, said the ADB. 

“Despite growth, poverty incidence in the Philippines rose from 2003 to 2009,” said Neeraj Jain, ADB country director for the Philippines. “That is a cause for concern.”

The Philippines defines poor as anyone earning less than P16,841 a year. This comes to about P46.00 or US$1.00 per day, which is the generally accepted definition of poverty worldwide. About 27% of Filipinos fit this bill.

Jain said the Philippines must implement policies that bring investments to sectors that can provide jobs for the poor, especially those without a college education.

There has to be more focus on ‘inclusive growth’; the private sector needs to get involved in education; the first steps will be made in the K+12 programs. ECCP would like to see more emphasis on dual education/apprenticeship programs.

In 2015, the government intends to reduce poverty incidence to 16.6% or half the 33.1% poverty rate in 1991. The high growth in 2012; the expected growth until 2016 and relatively benign inflation make the government confident of achieving this goal.

Integrity begins at the top

(Published in the ECCP Business Review 2011)

WHEN IT COMES TO effectively battling corruption, Integrity has to begin at the top, and the higher, the better.

At its core, a company’s leadership bears the ultimate responsibility for upholding Integrity and banishing corruption from its corporate culture. And as experience in low-corruption countries such as Singapore and Hong Kong have shown, the top is the most effective place to begin.

Many of the 14 executive speakers at the country’s groundbreaking “Integrity Summit” held September 14, 2011, which included Pres. Benigno Aquino III, concurred that the “Tone from the Top” is the single key factor that influences the success of any organized effort to affirm integrity and root out corruption.

Pres. Aquino is leading the “Tone from the Top” at the highest level in government. He reminded his audience that Integrity was one of the battle cries of his presidential campaign last year.

For the past 15 months, his administration has “... taken that battle cry to heart -- working to foster a culture of integrity in government. In this regard, I am proud to announce that we have made some progress.”

This strong focus on integrity, the President said, has led to the appointment of people of integrity to top government positions and has shaped the government’s budgeting process.

He said his administration is building a culture of integrity throughout government. The President is convinced a culture of integrity is vital in both the government and the private sector.

“Companies who have a reputation for running their businesses in a clean and efficient manner enjoy the confidence of investors, debtors, and other stakeholders as opposed to those who run questionable operations.

“To put it simply: by doing your part as responsible corporations, everybody wins—and by everybody I mean not just you as corporate workers, but you as taxpayers, as family men and women, and as citizens of this country.”

Good governance in the private sector

Gerardo Ablaza, Jr., President & CEO of Manila Water Company, told the audience of 500 business and government leaders a strong commitment to good governance must start from the very top to ensure it is well-entrenched in the fabric of the entire organization.

“Board members change. But no matter the board’s composition, it must seriously and sincerely demonstrate a strong commitment and adherence to the highest standards of governance,” he explained.

Frank Schmidt, Vice-President & Compliance Officer, Asia & Pacific of the German multinational, Siemens AG, said the tone from the top “... has to be lived throughout all management levels.”

Schmidt’s company knows about corruption from the wrong end: it paid a record fine of $1.6 billion to American and European authorities in 2008 to settle charges that it routinely used bribes to secure huge public works contracts worldwide. Siemens became infamous as a company where bribery and corruption were key elements of its business strategy.

Siemens has since transformed itself into a paragon of transparency, however. It has some of the toughest policies anywhere for upholding integrity at all levels of its worldwide organization.

Hong Kong’s famed corruption fighter, Tony Kwok, emphasized that any anti-corruption campaign starts with ethical leadership.

“The Chief Executive should publicly pledge their commitment to adopt institutional integrity by issuing a public statement on business ethics, value and zero tolerance,” Kwok pointed out.

Kwok, an Anti-Corruption Consultant and former Head of Operations, Hong Kong Independent Commission Against Corruption (ICAC), spoke about his first-hand experience in battling corruption at the highest levels.

The conclusion that “The Tone from the Top” is decisive in any pro-honesty and anti-corruption fight verifies the raison d’etre of the Philippines’ expanding“Integrity Initiative” that began earlier this year and has caught fire in the supportive anti-corruption milieu in government fashioned by Pres. Aquino.

Kwok urged the Philippines’ business sector to begin its fight against corruption by taking the “Integrity Pledge” developed by the Makati Business Club (MBC) and the European Chamber of Commerce of the Philippines (ECCP) as part of the overarching Integrity Initiative.

Beginning with the preamble, “We will prohibit bribery in any form in all activities under our control . . . ,” the Integrity Pledge consists of a list of promises aimed at fostering ethical, clean, and transparent business transactions throughout the Philippines.

It commits signatories to support the Integrity Initiative that intends to create fair market conditions, transparency in business transactions and ensure good corporate governance.

The Integrity Initiative is a multi-sectoral campaign that seeks to institutionalize integrity standards among various sectors of society: business, government, judiciary, academe, youth, civil society, church and media. 

Led by the private sector, the initiative aims to help in diminishing the vicious cycle of corruption in the Philippines.

The Integrity Initiative aims to sign up as many reputable corporations as possible and collectively agree on a “Unified Code of Conduct” and on control measures to ensure integrity and transparency in business transactions.

The Integrity Pledge has been signed by some 800 business firms and government agencies. That number is expected to top 1,000 by the end of 2011 as the fervor that led to the rapid growth of the Integrity Initiative remains strong.

Most of the companies, government agencies and business associations that attended the Philippines’ 1st Integrity Summit have signed the Integrity Pledge. These integrity leaders came to the summit to share their experience in fighting corruption, and listenas experts gave wise counsel on how to battle corruption more effectively.

Ethical compliance programs

Joel Turkewitz, Program Coordinator of the World Bank office in Thailand, noted there is a worldwide movement seeking to reduce corruption. He also saw an increase in corporate ethical compliance programsduring his talk about “The Business Community and the Fight against Corruption.”

Maintaining the momentum that led to this worldwide fight, however, requires partnerships among civil society, the private sector and government.

He sees the ongoing “Arab Spring” as a manifestation of the global fight against corruption. This phenomenon and other similar world events have led to a redefinition of what is acceptable behavior in government and in business.

Corporate ethical compliance programs are key tools in the fight against corruption. A growing number of companies are pushing to have clear rules of acceptable business behavior, with mechanisms being developed to ensure corporate ethical behavior.

These programs help employees act ethically and there is evidence that proves this, said Turkewitz. A survey done five years ago showed almost 80 percent of employees in the surveyed companies were more willing to report an ethical violation if there were written standards;if there were help lines they could call and if they could remain anonymous while doing so.

“The Integrity Summit and the Integrity Initiatives are of great importance,” Turkewitz said. “The World Bank strongly supports the initiative and we hope that we can be a constructive partner in achieving its objectives.”

“The Integrity Summit gives the Philippines the resounding opportunity to make progress in the fight against corruption.”

Political will a necessity

Kwok focused his talk on the role of senior managersin fighting corruption.

“The most critical success factor for combating corruption is top political will,” he emphasized.

Companies must lead in the fight against corruption because there has been a change in the complexion of corruption in high places. He said Hong Kong’s ICAC before used to report that 70 percent of its corruption investigations focused on government and 30 percent on the business sector.

“Now, that’s 50 percent on the business sector and 50 percent on the government,” he noted.

He proposes Filipino companies develop an “Institutional Integrity Action Plan” based on four pillars: Ethical Leadership, Staff Integrity, Systems Integrity and Monitoring & Deterrence.

Of these four, ethical leadership beginning at the very top remains paramount. Kwok described Ethical Leadership as one having integrity; one with a respect for human rights; one that treats employees equally and one that adheres to the rule of law.

In Kwok’s definition, Integrity is honesty; selflessness (in the sense that a decision is based on public/institution interest and not on private interest); objectivity (a decision is based on merit); transparency (no under-the-table deals)and accountability (those who break the law must pay the price).

Apart from Filipino companies committing themselves to the Integrity Pledge, they should also establish business ethics development centers to ingrain integrity in their corporate cultures.

Integrity in business

Integrity from the top is also good for the Philippines, as well, saidAblaza.

“Strong ethical standards in the governance of business and public institutions can do much towards raising the growth trajectory of our country.”

Investments benefit from integrity. Ablaza explained that foreign investments, which are becoming much harder to come by, find their way to markets that provide the best returns commensurate to the risks.

“It naturally flows to countries where investors can better understand structural, legal, policy, and cultural issues. Investment capital gravitates to where the perception of governance risk is lower.”

He said these risks are largely influenced by the rule of law in a country, its regulatory and policy consistency (or inconsistency), governance quality—and the level of corruption. Reducing the level of perceived governance risk will go a long way in building investor confidence.

“Good governance is, therefore, a foundation for the progressive and sustainable future of any nation.”

The Ayala Group of Companies, Ablaza said, has a Manual of Corporate Governance that sets governance principles, defines the specific roles of key players particularly the board and executive management and details the prescribed governance processes.

Learning from massive corruption

Schmidt said that because of the massive corruption scandal that engulfed Siemens three years ago, the multinational has put in place “a high-performance compliance system,” and on this basis has started to fight corruption with “Collective Action.”

For Siemens, “Compliance is not just a program -- it’s a way of doing business,” said Schmidt.

The system is meant prevent, detect and respond to corruption. It starts with the “Tone from the Top” that pervades management worldwide at all levels.

The collective action on which Siemens relies to forestall corruption necessarily involved building alliances against corruption. This “... is not always easy in Asia-Pacific, but we have jointly made remarkable progress,” according to Schmidt.

These measures are means to ensure the sustainability of the company’s various businesses, and of the company itself that has been in existence for 163 years.

“Only clean business is Siemens’ business,” he said.

Making integrity work

Besides the Ayala Group of Companies and Siemens, other Filipino firms have installed mechanisms that fight corruption and instill integrity.

Mike Enriquez, Senior Vice-President, Radio Operation Group of broadcaster, GMA Network, Inc., said upholding integrity and transparency is one of GMA 7’s seven core values.

“GMA Network recognizes the importance of good governance primarily in protecting shareholders’ interests and in enhancing shareholder value,” said Enriquez. He also said transparency and accountability are part of the “kapuso” culture.

Like Ayala, GMA has adopted a manual on Corporate Governance that defines specific responsibilities of the Board, Board Committees and management within the overall governance framework. He noted that GMA is the first media organization to create its own News and Public Affairs Ethics Manual.

He said joining the Integrity Initiative is a means for GMA to become part of a collective effort to promote integrity and business ethics among companies in the Philippines.

The control framework of SGV & Co. starts with the Tone at the Top, said Leonardo Matignas, Jr., Partner, Chief Risk Officer and ASEAN Quality and Risk Management Leader. It is based on the Integrated Internal Control Framework of COSO or the Committee of Sponsoring Organizations of the Treadway Commission.

COSO is a voluntary private-sector organization that provides guidance to executive management and governance entities on critical aspects of business ethics, internal control and fraud, among others. COSO has a common internal control model against which companies and organizations may assess their control systems.

He said this control environmentis the foundation for all other components of the firm’s internal control.

SGV’s control policies “...  help ensure that management’s directives and control objectives are carried out,” said Matignas.

“Information is the ultimate weapon ... and cost effective controls are made possible by the right information.”

No cutting corners

Aldrin Dulig, Senior Director for Finance for Convergys Corporation, noted that his company started small eight years ago but now has 26,000 employees in the Philippines. Convergys is the Philippines’ largest business process outsourcing firm.

“We have grown into one of the largest employers without sacrificing ethical practices,”Dulig proudly said. Convergys’ saga shows the “... possibility for a small business to grow without cutting corners.”

“Implementing ethical practices will help you become a successful company.”

As with other speakers, he said setting the Tone at the Top was vital to Convergys’ success. Convergys also has an “Ethics Hot Line” employees can use to report corruption or anomalies.

“Integrity has been a big key to our success. Indeed, integrity pays,” said Dulig.

Based in the USA, Convergys Corporation provides solutions in customer management and information management. It has 70,000 employees worldwide.

For Sitel, integrity starts at the very top with its President, Bert Quintana, who said integrity “...  defines our commitment to how we operate our business.  We believe that conducting business with the highest ethical standards is critical to our success.”

Trevor Bryan Friesen, Sitel General Manager for the Philippines, Australia and New Zealand, said the company promotes integrity and ethical practices across the organization, especially among top management.

In its championing of integrity, Sitel has put in place an Integrity Pledge; key control measures and standard control activities. 

Sitel is a telemarketing and outsourcing business with headquarters in the USA. It is one of the world’s largest and most comprehensive providers of customer care outsourcing services.

Integrity and Transparency are two of the four values that animate the healthcare firm, GlaxoSmithKline, said Lito de Guzman, Vice-President for Human Resources.

“At the end of the day, it’s all about performing with integrity,” he said.

There are links with integrity in GlaxoSmithKline, which bills itself as a “Learning Organization.” Integrity is also learned at the firms “Learning Circles,” a group of up to 12 people who engage one another in learning topics of common interest.

He said his dream was to formulate the “Seven Habits of Filipinos with Integrity.”

Slashing corruption in procurement

TransProcure is a Filipino company engaged in a unique business that can cut corruption in the purchasing cycle. It calls itself a “Global Procurement and Supply Management Solutions and Services Company,” meaning it helps companies “... manage corporate spend, increase savings, reduce costs and maximize supplier relationships” by providing a total end-to-end procurement service.

Charlie Villaseñor, President and CEO, said his company is the first Asian-based multinational company built around procurement and technology professionals. He described his company as a pioneer in in BPO-procurement services.

Villaseñor said corruption and bribery are the eighth leading cause of fraud in the Asia-Pacific. Fraud is being worsened bythe increased use of technology, phishing and anonymous email allegations. Availing of his company’s services will cut the many types of fraud associated with the procurement cycle.

“By conducting business in an ethical manner, it saves money for the company in that suppliers know exactly what our decisions are based on, Villaseñor said.

An integrity audit criteria

Royal Cargo Combined Logistics, Inc., a local global logistics organization, recently added a “third party audit criteria for integrity” to its list of services that include freight forwarding, contract logistics, projects and heavy lift services.

Michael Kurt Raeuber, President and CEO, said his company has formed an internal committee to control compliance with various integrity commitments given to several multinational companies the company serves.

“Our internal anti-bribery and corrupt practices policy has been systems-wide circulated, review processes are in place and training is presently organized,” he explained.

Raeuber noted that working with government structures in a partially corrupt environment is challenging. Despite this, Royal Cargo follows international standards in all aspects and has signed the Integrity Pledge.

He said that taking countermeasures in “hot spots” for corruption such as the Bureau of Customs and the Bureau of Internal Revenue is a joint responsibility of private firms and government, and is an ideal challenge for Public Private Partnerships or PPPs.

The hot spots in the logistics industry include corruption, red tape, unreasonable fines and penalties, facilitation and abuse of authority.

Not a gift?

When is a gift a gift and not a bribe? It’s a grey area that’s bedeviled corporate executives and the judicial system for centuries.

AstraZeneca Philippines, a leading healthcare company, decided there was only one anwer: transform that grey area into stark black and white by almost completely banning the giving and receiving of gifts altogether.

Beginning 2011, the company has changed its policy on gifts by banning all promotional gifts to doctors and all cultural courtesy gifts such as Christmas gifts. It also revised its policy guidelines for giving items of medical utility such as medical equipment, said Redentor Romero, Regional Legal Counsel for AstraZeneca Philippines.

Also beginning this year, the company will no longer sponsor healthcare professionals wanting to attend scientific meetings here and abroad.There are risks, such as a loss of business because of these strict ethical guidelines, but these risks can be managed properly.

“It takes full understanding and commitment from the entire organization to make the change.” Romero said.

Protecting whistleblowers

Over 40 percent of all corruption cases reported to the Association of Certified Fraud Examinersin 2010 was uncovered because someone decided spill the beans. Police investigations led to the discovery of less than two percent of corruption cases.

The overwhelming usefulness of anonymous whistleblowers has convinced ING Bank of the usefulness of this course of action in its internal fight against corruption.

Alice Salita, Director, Legal Counsel and Head, Legal and Compliance Department, said ING has a whistleblower policy and a whistleblower procedure that makes it easy for employees to report suspicious activity, even anonymously.

Under the whistleblower policy, complaints may refer to any possible breach by an ING employee of an external or internal regulation as stated in the ING Business Principles, and alleged irregularities of a general, operational and financial nature.

“Any employee can make a complaint, including an anonymous complaint,” said Salita.

She concedes the company receives a lot of malicious complaints, but the policy provides an avenue for employees to report suspicious activity that would otherwise not have been reported.

ING will maintain the confidentiality of the complaint and the anonymity of the person making the complaint to the fullest extent reasonably practicable within the legitimate needs of law.

“The whistleblower policy helps ING maintain a strong and sustainable business,” according to Salita.

The accounting firm, Punongbayan&Araullo (P&A), has developed a business out of whistleblowing. The “ProActive Hotline Anonymous Reporting System” is a web-based anonymous reporting tool offered to clients and other Philippine companies as part of P&A's corporate social responsibility effort.

“It’s the first ever service of this kind in the Philippines,” said Juan Carlos Robles, Risk Management Partner and Advisory Services Division Head.

The anonymous reporting system website at http://proactive.punongbayan-araullo.com is an interactive page where a whistleblower clicks on a set of questions to report the category and description of the offense. The whistleblower is not required to identify himself.

“P&A came out with this tool to capture these tips about fraud,” said Robles.

He noted that P&A has its own internal whistleblowing program consisting of a whistleblower policy; a whistleblower hotline and management actions in handling these complaints. Robles said the hotline is anonymous, confidential, secure and accessible.

In his closing remarks, ECCP President Hubert d’Aboville described the summit as aa milestone in our battle against corruption that exists in both the private sector and in the government.

“The Integrity Initiative from its inception last year was aimed at steering the Philippines from the dark side of corruption to the dawning of a new day when a culture of integrity is ever present to provide Filipinos with better lives,” he said.

D’Aboville said the “Unified Code of Conduct for Business” launched during the summit makes him confident this improved culture has a chance to develop across all sections of society starting from the private sector, government agencies and the academe.

“To this end, the Unified Code of Conduct which we presented to President Aquino will go a long way as it sets the standards for ethical practices for those that have signed the Integrity Pledge.”

He reminded those present they all made a commitment to uphold integrity and fight corruption because they want a brighter and more ethical future for our children and the future generation.

“From what I have personally witnessed today, I am very much confident that we will soon see the light at the end of the tunnel.”

Cultivating integrity

The summit theme, “Cultivating a Culture of Integrity,” implied an existing culture of integrity, but one that has to be cultivated.

Ultimately, the Integrity Initiative hopes to build trust in government, a more equitable society and fair market conditions. This will result in improved competitiveness and increased business confidence, which will be evident with the increase in domestic and foreign investments, and more employment generated for Filipinos.

Subsequently, with more Filipinos employed in a vibrant and dynamic Philippine economy, the alleviation of poverty should become inevitable.  Through the initiative, the Philippines will become a benchmark in the transformation process of any country regarded as highly corrupt to one that fosters an ethical and progressive business environment.

MBC and ECCP are initially focusing on the development of integrity standards in the business community through the SHINE project. SHINE stands for “Strengthening High-Level commitments for Integrity initiatives and Nurturing collective action of Enterprises advocating for fair market conditions.”

SHINE is a four-year project funded by Siemens that aims to initiate collective action among ethical foreign and local business enterprises that wish to see the creation of fair market conditions for all market participants. Begun in December 2010, the project’s ultimate objective is a certification and accreditation system, like ISO, that will provide competitive advantages for compliant companies. MBC and ECCP are implementing SHINE.

Clean Business is Good Business

Ramon del Rosario, Jr., Chairman, Integrity Initiative and MBC Chairman,  described the 1st Integrity Summit is the private sector’s call to arms in the fight against corruption within the private sector and against political and bureaucratic corruption.

“Our message today is that the private sector no longer considers corruption ‘business as usual.’ We are declaring here and now that we can and fully intend to be both successful and honest in business! Let our mantra be ‘Clean Business is Good Business’.”

Del Rosario said the initial strategy was to get the commitment of CEOs and senior executives, and heads of government agencies, to support the campaign in order to set the tone from the top and pave the way for the desired culture change and inculcation of ethical behavior to permeate all levels of their organizations.

“Eventually, we will also seek the support of the next level of leaders -- the managers, supervisors, undersecretaries, assistant secretaries -- and invite them to sign the Integrity Pledge.”

Signatories of the Pledge adopted a Unified Code of Conduct, led by Edilberto de Jesus, President, Asian Institute of Management, to further embed integrity practices and implement control measures within their organizations. As more of us commit and abide by this Unified Code, the Initiative hopes to see the growth of an ethical community against corruption.

“That is what this Initiative is all about -- cleaning up the ranks of the private sector, accepting the responsibility for this challenge, pursuing it in a systematic and measurable manner that harnesses the best practices of good corporate governance and accountability at all levels, and inspiring the commitment and cooperation of our colleagues in the private sector and partners in government.”

Rep. Feliciano Belmonte, Jr., Speaker of the House of Representatives and Renato Corona, Chief Justice of the Supreme Court, each delivered a message of support for the Initiative.

Love your feet

(Published in Enrich magazine)

LOVE YOUR FEET, please.  And prove that love by treating your feet with a lot more respect.

Think about it. How far can you go without your feet? The answer: nowhere. And how far can you get with an injured foot? Not very far.

Feet are the underdogs of our anatomy. They’re so far down south, however, that we sometimes even forget they’re even there. We take them for granted.

We wear tight or ill-fitting footwear that injure our feet. Few of us even bother to soap in between our toes when we bathe. We let calluses go untreated. And any foot pain we experience we hope will go away the next morning.

About the only time we remember how vital our feet are to our daily functioning as human beings is when something goes wrong with them.

Like when you lose them in an accident. Or an injury prevents you from walking.

Next to losing your eyesight, losing your feet is probably the worst thing that can happen to you.

Our feet will have traveled tens of thousands of kilometers in our lifetime. One estimate said the average adult will have walked the equivalent of four times around the world before he dies.

Since the circumference of the Earth is about 40,000 kilometers at the Equator, that means you’ll have walked some 160,000 kilometers! And your feet will still be there when you take that last step before exiting this life.

Home feet and business feet

You can start on the road to treating your feet better by remembering your feet have two “homes.”  Your feet’s first and most important home is your home or the place where you live.  Call this your “home feet.” Its second home is the place where you work or study. Call this your “business feet.”

Why the distinction? That’s because you have to treat your home feet and business feet differently.

Home is the best place to prove your love for your feet. That’s because you can walk barefoot at home and podiatrists, or foot doctors, agree that walking barefoot is the best way to treat your feet.

Walking barefoot is the natural gait for human beings. A study made five years ago in South Africa that compared feet from three different population groups concluded that “. . . prior to the invention of shoes, people had healthier feet.”

The study said the shoe shod Europeans had the unhealthiest feet while the Zulus, one of South Africa’s largest indigenous tribes, had the healthiest because they walked barefoot most of the time.

An American podiatrist wrote that “Natural gait is biomechanically impossible for any shoe-wearing person.” He’s right and you’ve got the painful experience to prove it.

Mind you, I’m not encouraging you to walk barefooted outside your home or to your office. The reason I made the distinction between home feet and business feet is to encourage you to walk barefooted inside your own home.

Walking barefoot is natural and healthy. You should walk barefoot at home to remind your body that it should rely on the natural architecture of the feet. Walking barefoot allows freedom of movement in your feet ankles, legs and helps improve posture.

Start walking barefoot at home. Ditch the injury-prone flip flops and slippery slippers. Give your home feet a chance to be comfortable.

Having your feet touch the floor gives you a marvelous feeling of control and a natural ease of movement. Most important, it feels and it is natural.

There’s an added bonus to deciding to walk barefoot at home. You’ll be forced to clean your floors regularly and that’s good for your family.

Keep those dirty shoes and muddy slippers outside your home. Inside, make your home a clean haven for your home feet.

Business feet

Your home feet enters an alien world every time you take them outside your home. This more stressful environment requires your feet be protected.  Shoes are the logical “armor” that protect your home feet from the dangers of the outside world.

Trouble is that a lot of shoes on the market, especially formal footwear such as business shoes, seem as hard or as heavy as steel armor. That’s a problem for your business feet, which can be choked inside shoes up to 12 hours a day.

Although really useful, shoes are the enemy of healthy posture and movement. Shoes stunt the free movement of the feet and the entire leg. They change the way we walk, and lead to physical stress and strain throughout the body. Your business feet suffer if you wear the wrong shoes.

Shoes also impede the graceful form of walking and the effortless ease of movement of the body that comes with walking barefoot. To put it bluntly, feet are good and shoes, bad.

But we can’t live without shoes, especially in this country that’s either too hot or too wet. We need shoes once we exit our home and go to work or school or to travel.

We can compromise, however. Here are a few tips on how to be kinder to your business feet.

Always, always buy a pair of shoes for comfort and not fashion. That means preferring low heeled shoes to high heels and shoes with a large toe box to pointed shoes that will kill your feet. Foot health experts prefer shoes with shoelaces instead of slip-ons since you can adjust the laces to improve foot comfort.

It’s a tough choice, especially for the ladies, but would you rather walk in pain and look good or walk in comfort and look so-so?

When buying a new pair of shoes it would be wise to consider buying a pair with

“breathable uppers.” Uppers are the part of a shoe that covers the top of the foot, the toes, the sides of the foot and the back of the heel

Breathable uppers can be different types of leathers or synthetic mesh. The key thing to pay attention to is whether or not the upper's material allows moisture to escape and air to enter to keep feet dry.

Look for an “arch support” inside your pair of shoes. A proper arch support minimizes pain while walking by correctly realigning the lower limbs. It helps distribute weight and removes pressure from the heel and forefoot.

Badly made shoes with no arch support can strain your feet and put unnecessary pressure on joints and muscles in the lower limbs.

Shoes with padded collars are to be preferred. A padded collar helps minimize ankle pain.

A cushioned or soft “tongue” can prevent discomfort caused by pressure of tied shoelaces. It also pushes the heel back to provide a better fit.

A wide “toe box” or the front part of the shoe gives toes more wiggle room. It also adds comfort and reduces some foot problems such as corns and calluses.

Shoes that fit properly and support your feet can prevent sore feet and alleviate many common foot problems. They’re the only healthy alternative to walking barefoot.

You’ve got to be kinder to your feet because you won’t get anywhere in life without them.