Inclusive capitalism, recovery

by Ma. Aurora Geotina-Garcia – The Philippine Star, 15 Sep 2021

In March 2021, in an article entitled “Bridging Capitalism and Inclusion,” I wrote about the emergence of this philosophy upon which the Coalition for Inclusive Capitalism was formed. Quoting from their website, “We consider that inclusive capitalism is fundamentally about creating long-term value for all stakeholders – businesses, investors, employees, customers, governments and communities – guided by an approach that provides equality of opportunity, equitable outcomes, fairness across generations, and fairness in society.”

Now, I would like to talk about a regulator that has adopted the principles of inclusivity in its policies and programs, and how SharePHIL is advocating for inclusivity and sustainability to promote economic recovery and growth.

Stimulating the growth of retail investors

The Philippine Stock Exchange (PSE), although strictly speaking is not a “capitalist,” but rather a capital market regulator, has the critical role of mobilizing funds from the economy which capitalists can utilize for productive investments. This, in turn, positions them as a key player in the ecosystem for inclusive capitalism.

During SharePHIL’s last general membership meeting, it was a privilege to learn from Atty. Roel Refran, PSE chief operating officer, about the reforms they introduced to spur the capital market, protect investors, eliminate fraud and abusive practices, and broaden the base of retail investors.

The last 10 years saw a significant growth in the number of retail investors who opened stock market accounts: From nearly 500,000 in 2010 to 1.4 million in 2020 (an annual compounded growth rate of 10.8 percent), with online transactions accounting for 38.7 percent of total transactions in 2020. In the last two years, PSE also noted growth in the participation rate in online trading of retail investors versus institutional investors: From 18.2 percent in 2019, growing to 37.3 percent in the first semester of 2021, likely due to the pandemic and technology support.

In response to the needs of this fast-growing retail investor base and to remain relevant, PSE has implemented a number of projects to keep the investing public well-informed and empower investors to make informed decisions by enhancing its accessibility. Its website also aims to provide data analytics, which investors can use to review price movements and obtain key financial data on listed companies, in addition to PSE Edge, which is a source of key market information.

In line with its market education initiatives, PSE is enhancing the PSE Academy website and will continue to conduct webinars and certificate courses in collaboration with various partners. To improve the investors end-to-end trading experience, PSE is adopting more digital solutions, enhancing the payment systems, introducing “PSE EASy” for Initial Public Offerings, as well as upgrading the clearing and settlement system to shorten the settlement date to two trading days from the date of the transaction. As the use of technology exposes investors to the risks of fraud and cybercrimes, PSE will also introduced a “KYC” (Know Your Customer) platform for the benefit of new investors.

Regulatory reforms are likewise being formulated to safeguard shareholder rights and address concerns regarding the protection of minority and small shareholders to “level the playing field,” so to speak. On disclosures, adoption of the 10-minute rule for information, and the two trading days “Blackout Rule” have been implemented. On SRCs, a change in control of at least 35 percent in the last 12 months will trigger a tender offer to minority shareholders at the purchase price of the incoming shareholder.

To improve corporate governance, amendments to the rules on voluntary delisting will require the approval not only by majority (50 percent plus one), but also by a 2/3 vote of the Board, which should include majority of the independent directors, in addition to the requirement of a tender offer at a prescribed minimum price.

Building Better Businesses

Anchored on SharePHIL’s 2021 theme to promote inclusive economic recovery through smart investing, a two-part summit was launched to look at industries poised to lead our country’s economic recovery and ways to sustainably foster inclusive economic growth through businesses that place an importance on stakeholder value.

The first part , which was held last April, tackled how connectivity and access have made all the difference in a country where the economy is bolstered by consumer spending. Discussants noted that this shift from in-person to online transactions became a channel for inclusive and sustainable growth.

The discussion in the second part of the summit to be held on Sept. 28 will focus on how “Building Better Businesses” will lead towards stakeholder primacy. The emergence of stakeholder capitalism and the shift from shareholder-centricity to stakeholder-primacy has driven businesses to expand the goal of profit-maximization to the holistic creation of long-term value for all stakeholders. Although the pandemic has upended our economy, it also presented opportunities for the private sector to address gaps in sustainable and inclusive business practices and embed these in their corporate strategies, cognizant of the overall impact on their enterprises.

With Amb. Benedicto Yujuico of the Philippine Chamber of Commerce and Industry as keynote speaker, and panelists Greg Banzon of Century Pacific Foods, Cosette Canilao of Aboitiz InfraCapital, and Henry Yap of RLC Residences, Part 2 will tackle how the private sector is working towards economic recovery while ensuring progress for all stakeholders and how they make use of the recovery process and its challenges to shift the focus from shareholder profit-maximization to addressing the needs of the community as a whole and steering the enterprise towards sustainable deve