MAP Insights

In November last year, the largest business and professional associations in the Philippines — collectively called the Philippine Business Group (PBG which includes the Management Association of the Philippines, sponsor of this column) signed a “Covenant for Shared Prosperity” by which it pledged to address the universal issues of economic and social inequality and non-inclusivity by ensuring “… ethical wealth creation and the sharing of prosperity with all their stakeholders.”

This Covenant echoes the “Statement of Purpose of the Corporation” which was formally adopted by the Washington, DC-based Business Roundtable (BRT) over a year earlier. At its annual meeting in January 2020, the World Economic Forum (WEF) launched its new “Davos Manifesto” in support of Stakeholder Capitalism. With these proclamations, the PBG, the BRT, and the WEF abandoned their long-standing advocacy of Shareholder Wealth Maximization and committed themselves and the rest of the corporate world to creating value for ALL stakeholders.

In public forums and in social media, corporate leaders everywhere assert their commitment to pursue the economic interests of all their stakeholders. By all indications, Stakeholder Capitalism is now the new mantra in the corporate world.

These corporate commitments to Stakeholder Capitalism and responsibility to society carry the implication that businesses have a moral obligation to serve the interest of others.

There is widespread belief that businesses are morally bound to serve the needs of society.

This view is consistent with current thinking on Corporate Social Responsibility (CSR) which is generally understood to require the voluntary sharing of business profits with the community and the other stakeholders in the firm. These acts of magnanimity are generally seen as means of giving back what is owed to others. This widely popular concept of CSR stands in stark contrast with the Friedmanesque notion that business has no social responsibility whatsoever other than to make profits, nothing more, nothing less.

My own personal views on business ethics verge on the heretical and admittedly go against the grain of current thinking. I hold that as social institutions serving the specific function of creating economic value for society, business organizations have no moral obligations whatsoever.

However, people in organizations do. The firms’ owners, managers, employees, and the other individuals with whom they interact, are bound by ethical norms, including the moral responsibility of serving each other’s interests. To my mind, the term “business ethics” applies to people in organizations, and not to the organizations themselves.

There have been serious objectors to the idea of Stakeholder Capitalism, notably from academe.

According to Harvard Law School Professor Lucien Bebchuk, the Business Roundtable’s statement that companies have responsibilities to society equal to their responsibilities to shareholders is “largely cosmetic,” adding that “… when CEOs and other corporate leaders face choices, they do not give independent weight to the interests of stakeholders.”

University of Chicago Finance Professor Raghuram Rajan holds that “… the new mode of capitalism is simply a repackaging of the old. Successful companies will continue to focus on the value of their shares over the long term, while avoiding the risks of wading into areas where they don’t belong.”

As one who has lectured and written quite extensively on business strategy and corporate governance, I personally view with a good deal of skepticism the notion that business firms have the moral responsibility to serve the interests of all their stakeholders.

While formal commitments to Stakeholder Capitalism make good sound bites and signal good intentions, they provide no clear guideposts for implementation. Moreover, they leave major questions unanswered:

Given resource constraints and limits to productive capacity, what should be the basis for apportioning economic value among the stakeholders? Who gets more, and who gets less?

In setting priorities, how should the conflicting interests of stakeholders be reconciled?

Even more pointedly, stakeholder strategies as popularly interpreted have no theoretical basis. Simultaneously aiming for several goals is problematic. Creating value for all stakeholders in a company deprives its managers of an unequivocal criterion for making rational choices. By aiming to create value for ALL stakeholders, any strategic decision is acceptable for as long as it creates value for somebody — no matter by how much or how little. Consequently, decision makers are unable to determine what is the best, or optimal solution.

For this purpose, firms must pursue only one goal by which everything else is measured. That goal, by long-standing tradition, is profit or Shareholder Wealth Maximization.

At the end of the day, every corporate CFO is bound to ask himself/herself: “What is it about my company that makes it attractive to my shareholders and to prospective investors?”

The obvious answer is “Profitability.” 

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.


Dr. Niceto “Nick” S. Poblador is a Retired Professor of Economics and Management, and currently Professorial Lecturer at the University of the Philippines – Diliman.