The Top 50 Companies of the Philippines

Written by Miguel Camus / Reporter

DESPITE the global financial crisis, Filipino firms can do more in terms of increasing a company’s economic value added (EVA), a metric used to measure creation of shareholder value, by changing certain mindsets in the management level, according to a top official of the New York-based management-consultancy group Stern Stewart & Co. Stern Stewart & Co. president-international Erik Stern said firms can gain more efficiency by allowing managers deeper within the company’s ranks to take part in key decisions. For instance, some firms can include more individuals in the operational level to offer their inputs. “I think that what a lot of companies do is to open decision-making to a small number of people,” said Stern. He said many big deals are crafted by financial professionals “who don’t know anything about operations.” “They look at the synergies, or some percentage of sales. This is one reason why deals don’t work,” he said. Stern clarified that this is not the failure of those in finance, and is instead a case of lacking information. “But if you talk to people in operations they are usually much better at saying what’s realistic. Not only that, they are usually the ones who have to deliver, and they don’t really like delivering on tough targets that they have nothing to do with,” he noted. “The inclusion of more people in the decision-making process can have some impact.” This also extends beyond the operating environment and even into the firm’s boardroom, where many of the company’s directors are too lax—at the expense of the firm’s performance. Citing cases in the US and Europe, Stern said there should be enough board members asking “tough” questions but, at the same time, making sure these are backed by facts. “Often, the problem I find is people chosen to be [board members] shouldn’t be in these positions. They need to take their job seriously and they have to study the company well. They also need to ask the right questions, and they need to have the right skepticism,” he said, adding that this is different from board members who simply want to aggravate the chairman or chief executive. Stern said these moves on the management side can help a company improve its EVA, which takes into account the difference between net operating profit after tax and the opportunity cost of invested capital. Stern Stewart & Co., which advocates the use of EVA, said this will measure a firm’s economic profit. Stern said, for instance, firms have become too bloated with unnecessary capital. “Most firms are in a sense too large under traditional metrics. My sense is that a lot of companies in the Philippines are overcapitalized with the wrong capital. In the sense they had this huge empire of assets without thinking how these assets were going to contribute to, say, sales or profit generation,” he said. “There is a lot of weight within companies that can very easily be reduced by focusing on a measure like EVA,” said Stern. One way, he explained, is fostering “capital accountability” in managers, which will likewise allow them to make smarter investments. “The idea is to look at EVA beyond a formula. It’s a mindset,” he said. Stern Stewart & Co.’s ranking was designed to create a method of comparison to sift through the firms which were able to maximize shareholder value while delivering on these same shareholders’ expectations regardless of the business cycle. Included on the list are 11 Philippine companies: Philippine Long Distance Telephone Co., SM Prime Holdings Inc., International Container Terminal Services Inc., Bank of the Philippine Islands, Aboitiz Equity Ventures Inc., Ayala Land Inc., Manila Electric Co., China Banking Corp., Jollibee Foods Corp., SM Development Corp. and First Metro Investment Corp. The Relative Wealth Added tables from Stern Stewart’s latest analysis show the top 50 Philippine companies in various business cycles and those that topped in the overall cycle.