Wednesday, 25 February 2009

Managing through challenging times, Part II

Map Insights
By Manuel V. Pangilinan
BusinessWorld Online
(*Excerpts of speech delivered by the author as guest of honor and inducting officer at the Jan. 30, 2009 MAP inaugural meeting. Mr. Pangilinan is chair of PLDT and MAP Management Man of the Year 2005 Awardee.)

Of course, the simplest approach to government spending is to pay down debt, and benefit from the positive effects of a possible upgrade in creditworthiness. With the decline in debt premium, credit availability at lower cost may spur private sector investments. It must be better to spend nothing but retire public debt, than to spend something but on the wrong things.

The last leg of the tripod concerns government’s capacity to execute the economic stimulus plan, and the confidence it may inspire in the process. Few details so far are known about the plan.

Let me now turn to regulation and governance.

This crisis reflects the greatest regulatory failure in modern history — a failure that cuts across banking supervision to securities and exchange regulation and disclosures, to credit rating oversight.

Apart from the external regulatory breakdown ...governance in corporations had been breached. Board oversight must have been lax and deficient. More importantly, the financial incentives in place favoring the CEO and his senior managers propelled them toward unprecedented greed, excess, and abuse. The banking system was part of the problem — with leverage and exotic financial instruments, which must have befuddled both investors and regulators.

Activist shareholders have proposed a range of measures to encourage chief executives to focus on the long term rather than the next quarter, to give shareholders a say on pay and to make it easier for them to nominate their candidates for board seats.

Ultimately however, any analysis of successful companies shows there is no single governance style that guarantees success. That said, moves to make directors more responsive to shareholders and to open board elections to challengers could be helpful. It can also be useful to tie executive compensation with long-term results by parceling out compensation over a number of years, with provisions for withholding portions, if performance fades. At the end of the day, the best solution to governance is greater transparency.

At PLDT, we recently adopted a new thrust in corporate governance called Enterprise Risk Management. This approach forces us to take a sophisticated and comprehensive look at the principal risks we face — from the risks of typhoon damage or terrorist attacks, to the dangers from competition and access to funding.

Let me move to my final point — poverty and philanthropy.

When times turn rough, resources normally devoted to social work are one of the first to be axed. But the needs of the poor will still have to be addressed even in a downturn. They certainly will not disappear in this crisis. In fact, they will get worse as unemployment rises. The role of corporate philanthropy during this time becomes even more critical than ever. This is a time for all of us to come together.

First Pacific regards 2009 as a year of two halves. In the first half, we’re seeing investment values driven by a contractionary environment, with equity and debt products undervalued but volatile. At some point in the year, these extreme valuations should provide attractive opportunities as risks growth dissipate, and deleveraging pressures ease.

It is this which drives us to encourage our companies to be affirmative in setting their goals despite the crisis; to be mindful of new investment prospects; to stay positive in outlook and spirit.

PLDT is maintaining its 2008 capex level of 27 billion pesos into 2009. Our hospitals group has budgeted over a billion pesos in renovation and equipment capex in the next two years. NLEX will spend 2.1 billion pesos in capex this year, ahead of the 90 million pesos spent in 2008, and is looking at new tollways expansion. Maynilad would have spent 8 billion peso capex this year, compared with 6 billion pesos last year, if tariffs had been adjusted as scheduled.

It is my hope that all of you at MAP will accept the challenge of crisis leadership, which says that it is ourselves who can best solve our problems. Let’s listen to that ancient maxim about leadership, espoused by the philosopher Lao Tzu: "The poor leader is he who the people despise;/ The good leader is he who the people revere;/The great leader is he who the people say, — we did it ourselves."

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