MBA 103A- SOCIAL RESPONSIBILITY AND GOOD GOVERNANCE

CONTRACTUALIZATION

What is Contractualization?
Contractualization refers to the practice of hiring employees who would render their services for
a finite amount of time, usually, for a few months only. This is a system that has been practiced
and used by many companies, including large corporations. These enterprises often utilize this
arrangement in order to maintain their revenues up.

What is Endo?
In the previous presidential race, the issue of contractualization was put under the spotlight
when it was discussed during the final presidential debate that was held on April 24, 2016.

The five candidates, including current president Rodrigo Duterte, have all expressed their
opposition against “endo.” Endo means end of contract; it is also sometimes referred to as “5-5-
5” practice. Why? This is because some employers hire workers and then terminate their
contracts after five months, to avoid regularizing them – something that is mandated by the law.
According to the law, an employee who has been working for a company for six months should
be regularized unless the individual is not eligible to be a regular employee.

Regular employees are entitled to benefits and bonuses. However, through endo, employees
are stripped of these privileges. These benefits include:
 PhilHealth
 SSS
 Pag-IBIG
 Home Development and Mutual Fund (HDMF)
 13th month pay
 Paid sick leaves
 Paid vacation leaves
 Service incentive leave
 Meal and rest periods
 Housing and housing plans
 Expense account
 Company-sponsored vehicle
 Educational assistance

Endo has received several criticisms from many people, particularly workers; in spite of this, it is
important to note that 5-5-5 is in no way synonymous to contractualization unlike what some of
you might think. Endo or end of contract is a practice that utilizes contractualization to abuse
workers instead of valuing their contribution to different businesses.

Why Companies Practice Contractualization?

There are many legal forms of contractualization, such as the subcontracting of Filipino workers
abroad or to foreign countries like Hong Kong and Singapore. Laws have been established to
allow this system to run under certain industries like the car manufacturing, agriculture, and
business process outsourcing (BPO) sectors in the local scene.
There are a number of conglomerates in the country, for example SM Investments Corporation,
that would legally employ workers under this system for seasonal events or special occasions
like Christmas and school openings.

Furthermore, companies are choosing to practice this structure because they receive a lot of
benefits and these include:
 Being able to adjust quickly and efficiently when their workload changes
 Saving them the time and money from hiring full-time employees
 Improving your staff’s work by hiring contractual employees who are highly skilled and
could impart their knowledge to the internal staff

Can Local Firms Survive Without Contractualization?

The practice of contractualization has begun under the government of former president
Ferdinand Marcos back in the 1970s, when the Philippine economy was experiencing a high
unemployment rate and was suffering from instability.

Some people like the vice dean of the Economics Program at the University of Asia and the
Pacific (UA&P), Cid Tereso, believes that the time to end contractualization is now. He claims
that the local economy has grown to be robust and strong. According to him, it would be perfect
timing to implement strategies like a no-firing policy to move away from the current abuse.
However, there are many firms such as Human Nature that suggest that not many
businesspeople believe instigating such policies is a good idea. They think that it would open
opportunities for some people to take advantage of various businesses, knowing that they
cannot be fired.

Moreover, there is no assurance that all corporations and organizations in the Philippines will be
able to survive without hiring temporary workers; and without this guarantee, there is no way to
tell if the market will thrive at all.

Will No-Contractualization Lead to Negative Economics?

The current Government has pledged to work on removing the entire system of
contractualization in the Philippine Labor law, in order to end the abuse some corporations are
participating in.

They are also working to end it in order to help workers get the benefits that being a regular
employee entails. It is understandable for all political parties to want to get rid of endo for noble
reasons however, they say that “the road to hell is paved with good intentions” and in this case,
getting rid of contractualization might result into a disaster.

There are two main reasons as to why establishing a no-contractualization rule will cause
negative economics:

First, putting a deadline to this system will result into the closing down of numerous business
establishments across the country. This is because they simply do not have enough money to
pay for the financial trappings that come hand in hand with regular-status employment.

Second, would-be investors will likely refuse to establish their businesses here because the new
law would mean that they will not be able to develop profits from their own capital.
SOCIAL RESPONSIBILITY IN CONTRACTUALIZATION

Based on the Labor Code Article 106 Section 3 (APPENDIX A), In legitimate contracting, there
exists a trilateral relationship under which there is a contract for a specific job, work or service
between the principal and the contractor or subcontractor, and a contract of employment
between the contractor or subcontractor and its workers.

Hence, there are three parties involved in these arrangements, the principal which decides to
farm out a job or service to a contractor or subcontractor, the contractor or subcontractor which
has the capacity to independently undertake the performance of the job, work or service, and
the contractual workers engaged by the contractor or subcontractor to accomplish the job work
or service. Contracting or labor contracting is the replacing of regular workers with temporary
workers who receive lower wages with no or less benefits.

These temporary workers are also known as contractual, probationary, trainees, apprentices,
helpers, casuals, piece rate employees, agency-hire, and project employees. They do the work
regular workers for a specified and limited period of time, usually less than six months. The work
they do is “desirable and necessary” for the company’s survival, but they never become regular
employees even if they get rehired repeatedly under new contracts. While contractual
employment is allowed under Article 106 of the Labor Code of the Philippines, this clause has
been used and abused over time and led to the contracting of labor. (Wikipilipinas. org) At
present our country is having a large population of unemployed individuals. As stated in the blog
of Dr. Jose Mario B. Maximiano one way to decrease the impact of unemployment in our
country is to offer contractual jobs to individuals. The problem is contractual jobs are not for the
long term. Some of the contractual employees are not aware of their rights and privileges as
well.

According to the blog of Dr. Jose Mario B. Maximiano, contracting has become the main form of
labor in many Philippine businesses, a good reason why there are hardly any labor unions in the
country or why most workers are not organized in the new millennium. Contractual workers
cannot afford to join unions because they are at the mercy of their employers. Many laws
protecting workers protect only regular employment. The aim of the report is to be able to inform
the users of the report about the social responsibilities of the business entities towards
contractual employees.

To be able to evaluate if contractual employees have enough knowledge about their rights and
privileges and if their employers are properly exercising such social responsibilities towards
them as well. The information needed would be the social responsibilities towards contractual
employees and the characteristics of good working conditions under this type of employment. In
order to obtain this information, the researchers will gather pieces of information from books,
internet and other resources regarding social responsibilities towards employees.

The researchers will also conduct interviews in order evaluate whether employees have enough
knowledge about their rights and privileges and if their employers exercise social responsibilities
towards the employees. These interviews will be conducted to the contractual employees of
different department stores in San Fernando City La Union. At the end of the report, the
reporters expect that the users of the information are fully guided with the social responsibilities
towards contractual employees and be able to know their rights and privileges in entering in
such type of employment.

Moral Principles

1. Consumer Protection and Satisfaction

 Consumers are the drivers of the CSR activities of the company
 Consumers should be protected against false information
 For example, a government may require businesses to disclose detailed information
about products—particularly in areas where safety or public health is an issue, such
as food.
 Products supplied by company should meet the consumer expectation

2. Environmental Protection
 Companies while creating profit should also be aware that they can contribute to
sustainable managing their operations in such a way as to enhance economic growth
and increase competitiveness while ensuring environmental protection.
 Environment can be protected by manufacturing ecofriendly products, correct
storage, use and disposal, using raw materials wisely, reducing wastage, reducing
risk to soil air and water.

3. Economic Motive
 Company needs to be primarily concerned with turning a profit.
 If a company does not make money, it won't last, employees will lose jobs and the
company won't even be able to think about taking care of its social responsibilities.
 Before a company thinks about being a good corporate citizen, it first needs to make
sure that it can be profitable.

4. Legal Motive
 Company should obey the letter and the spirit of the law. 
 Businesses are expected to fulfill their economic goals within the framework of legal
requirements imposed by local town councils, state legislator, and federal regulatory
agencies.
 Responsible organizations accept the rules as a social good and make good faith
efforts to obey not just the letter but also the spirit of the limits.

5. Ethical Motive
 It is the responsibility to do the right thing even if it’s not written in law.
 Organization decision maker should act with equity, fairness, impartiality, respects the
rights of individual.
 Business should have an ability to recognize, interpret and act upon multiple
principles and values according to the standards within a given field or context.
 6. Discretionary Motive
 It is a responsibility "to contribute to society's projects even when they're independent
of the particular business.
 It relates to self-directed and concerned efforts undertaken by an organization in
order to contribute resources to community for a better quality of life and is to be
differentiated from a legally imposed action.
 Resources may be contributed for social, educational, cultural and recreational
purposes.

7. Transparency and Accountability

 All acts are obvious or communicated to all concerned
 The reports of an organization should give clear, accurate and detailed information.
 Business should be able to answer for decisions and activities to the organizations
governing bodies, legal authorities and more broadly its stakeholders

8. Respect for Human Right

 Human rights are relevant to the economic, social and environmental aspects of
corporate activity.
 For example, labour rights requiring companies to pay fair wages affect
the economic aspect. Human rights such as the right to non-discrimination are
relevant to the social aspect. And the environmental aspects of corporate activity
might affect a range of human rights, such as the right to clean drinking water.

Social Responsibility towards the Environment

Corporate Social Responsibility (CSR) towards the natural environment is a concept of

conducting business activities—according to which the companies, in strict compliance with law,
and while still making profits—voluntarily take into consideration the impacts of their operations
on the environment in their business decisions. Such an approach contributes to improving the
quality of life and implementing the concept of sustainable development.

Socially responsible entities assume responsibility for ecological ramifications of their activities,
strive to eliminate pollutions and emissions of harmful substances, and attempt to increase the
efficiency of using natural resources; thus, alleviating their ecological footprints.

One should remember that fast economic growth connected with intense exploitation of natural
resources is in overt contradiction with the need to preserve these resources for future
generations. In fact, every nation can use available resources for the benefit of its people;
however, nations are also responsible for their protection and preservation for the generations
to come.

Corporate Governance

Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled.
Corporate Governance refers to the way in which companies are governed and to what
purpose. It identifies who has power and accountability, and who makes decisions. It is, in
essence, a toolkit that enables management and the board to deal more effectively with the
challenges of running a company. Corporate governance ensures that businesses have
appropriate decision-making processes and controls in place so that the interests of all
stakeholders (shareholders, employees, suppliers, customers and the community) are
balanced.

Governance at a corporate level includes the processes through which a company’s objectives
are set and pursued in the context of the social, regulatory and market environment. It is
concerned with practices and procedures for trying to make sure that a company is run in such
a way that it achieves its objectives, while ensuring that stakeholders can have confidence that
their trust in that company is well founded.

As the home of good governance, the Institute believes that good governance is important as it
provides the infrastructure to improve the quality of the decisions made by those who manage
businesses. Good quality, ethical decision-making builds sustainable businesses and enables
them to create long-term value more effectively.

Investors Rights

All investors must be fully aware of their basic legal rights as articulated in existing laws, rules,
and regulations issued by the government entities and the Exchange.
 
The PSE has been promoting shareholder activism to encourage shareholders to exercise their
rights connected with their investment transactions. Outline below is a summary of such rights.
It covers the different phases of investment and includes pre-investment phase up to
termination of the investment.

It is important to note that the rights presented in this section are simply a collation from relevant
legal issuances. The basis for any liability in connection with investment transactions shall still
be the specific law, rule, and regulation.

1. RIGHT TO FAIR AND EQUAL TREATMENT

Every inventor should be given fair and equal treatment in terms of opportunities in terms of
opportunities offers and access to information.

2. RIGHT TO FULL, ACCURATE, AND TIMELY INFORMATION

Every investor should be given complete, accurate and timely information to allow them to make
informed decisions about their investments.

3.  RIGHT TO VOTE AND EXERCISE RELATED RIGHTS

Every investor should be given the right to participate in the management of the business by
voting on important decisions such as who should be the directors and what major activities the
business should undertake.

4. RIGHT TO HAVE FULL ACCESS TO FUNDS IN THE ACCOUNT 

Every investor should be allowed to exercise rights of absolute ownership over his account and
may be subjected to limitations only with express consent.

5. RIGHT TO EXPECT THE BOARD, MANAGEMENT, BROKERS, AND AGENTS TO

PERFORM THEIR FUNCTIONS RESPONSIBLY

Every investor can expect the Board, management, brokers and agents to perform their duties
and responsibilities in accordance with a corporate culture of integrity, honesty and compliance
with the spirit as well as the letter of the law.

6. RIGHT TO RELY ON THE COMPLETENESS, ACCURACY, AND TRUTHFULNESS OF

ACCOUNTING AND FINANCIAL STATEMENTS

Every investor should be able to rely on completeness, accuracy, reliability, relevance, and
timeliness of accounting and financial statements as certified by independent auditors.

7. RIGHT OF RECOURSE IN CASE OF DISPUTES CONCERNING THE ACCOUNT

Every investor has the right to know that in case a problem arises concerning his/her account,
he/she has access to officers, managers, and agents of brokerage firms and receive prompt
attention.

8.  RIGHT TO FAIR SECURITIES MARKETS WHERE TRADES ARE EXECUTED AT THE
BEST POSSIBLE PRICE

Every investor should be able to rely that stocks traded in the stock exchange is reflective of
how the market values the company.

9. RIGHT TO EXPECT THAT THE REGULATORY BODIES ARE EXERCISING

SUPERVISION OVER THE INDUSTRY

Every investor should be able to rely on these institutions, their functions and duties under the
law in ensuring that the market operates in an orderly, efficient, and transparent manner and
that investors are adequately protected.

10. RIGHT TO KNOW DIVIDEND POLICY, TO RECEIVE DIVIDENDS, AND TO ENJOY

OTHER BENEFITS DUE TO STOCKHOLDERS

Every investor should have a share of the profits of the company and enjoy other benefits as
part-owner of the company.