Suits the C-Suite

27 September 2021

Betheena C. Dizon

Taxing the famous and followed: The broader impact of the BIR’s new regulations

Social media spawned the rise of popular and highly followed content creators — ordinary individuals outside of show business who become celebrities overnight by creating viral content through their digital platforms. Realizing the advertising potential of these content providers, also known as “social media influencers,” more and more companies partner with them to spread and maintain awareness of their brands and products among the influencers’ millions of followers.This became even more apparent during the lockdowns resulting from the pandemic, when an increasing number of people plugged into the online world to stay connected.The growing business of social media influencing caught the attention of the Bureau of Internal Revenue (BIR), which recently released Revenue Memorandum Circular (RMC) No. 97-2021 to clarify the taxation of any income received by social media influencers.INFLUENCERS LIABLE FOR INCOME TAX AND VALUE-ADDED TAX OR PERCENTAGE TAXThe BIR emphasized that social media influencers are liable for Income Tax and Value-Added tax or Percentage Tax unless the law clearly provides for an exemption. Moreover, social media influencers are required to register as taxpayers with the BIR, maintain books of account, and file the appropriate tax returns.BROADENING ENFORCEMENT OF TAXPAYER COMPLIANCEThis move by the BIR appears to be consistent with its renewed drive to enforce tax compliance. The recent focus on social media influencers appears to be one of the programs to remind the sector of their tax obligations, starting with the emphasis that earnings from social media platforms, are in fact, taxable income. If in the past, the BIR’s enforcement drive focused mainly on corporate taxpayers, it appears to be sending the message that tax compliance is for all taxpayers, whether individual or corporate.Among the notable points in RMC No. 97-2021 is that the BIR went as far as discussing the tax impact if the social media influencer is taxed by a foreign jurisdiction on income paid by a foreign corporation. Its discussion also includes remedies to avoid double taxation, such as availing of the benefits of the applicable tax treaty.On that point, the BIR is now harnessing increasing coordination among foreign tax authorities by reminding social media influencers that it has the power to obtain information from foreign tax authorities. By utilizing the Exchange of Information provisions included in tax treaties, the BIR emphasized that it has the capability to determine if the social media influencers correctly disclosed their earnings in their tax returns.It then stands to reason that the BIR can likewise wield its power of obtaining information from foreign tax jurisdictions to also ascertain the correct amount of foreign-sourced income earned by other taxpayers. For instance, the BIR may determine the amount of any foreign-sourced dividends received by a domestic corporation using the Exchange of Information tools under the tax treaties, to determine whether these dividends were declared by the corporation for tax purposes.The power to obtain information through Exchange of Information is only one of the weapons in the BIRs arsenal to oversee tax compliance. It may be worth remembering that the National Internal Revenue Code itself gives the BIR the power to assess the proper tax based on the best evidence obtainable. The BIR has been known in the past to use commercial advertisements to approximate the taxpayer’s net worth.While RMC No. 97-2021 focused its discussion on the tax obligations from the perspective of social media influencers, corporations who partner with these individuals may well be reminded that any income payments to such individuals or corporations may also give rise to withholding obligations. As withholding tax agents, corporations are required to withhold a specific amount of income on their income payments. The domestic corporation paying the social media influencer is required to withhold tax on payments at a rate anywhere from 2% to 15%, depending on how the payment is characterized under the expanded withholding tax system. Failure to withhold the correct amount of tax can give rise to potential deficiency withholding tax assessments that can be raised in a tax audit.On this note, a withholding tax issue may arise on the part of corporations with respect to free products that they give to the social media influencer. RMC No. 97-2021 emphasizes that the fair market value of free products received by a social media influencer in exchange for promotion on the digital platform is to be treated as income. If these free products are to be treated as income payments, a question may be raised on how the corporation giving away the free products is to apply withholding tax rules. Since the payment is made in the form of goods, and not cash, what practical approach can be adopted by the corporation providing the free products to meet its withholding tax obligations? Are these payments through free products even subject to expanded withholding tax? These points may be worth considering both by the payors and the tax authorities themselves.Another potential impact of this regulation is the reputational or perception issue of the partnering corporation. If the social media influencer is deemed to be non-compliant with tax filing obligations, it is possible that the corporation partnering with the social media influencer can likewise be questioned by the BIR if it correctly withheld taxes on any payments that may have been made to the non-compliant social media influencer. This can be an additional issue to hurdle in the event of a tax audit on the partnering corporation.TAXES FOR COMPLIANCE AND SOCIETAL CONTRIBUTIONWhile RMC No. 97-2021 trains its attention on social media influencers, the broader implications are that the BIR has tools at its disposal to remind all taxpayers of their tax obligations and to enforce compliance. Moreover, this regulation reminds us that all income, no matter how it is sourced, cannot escape the taxing power of the state. This is especially relevant in these times, in which taxpayers, both individual and corporate, can help by providing the resources to fight the pandemic. This makes these taxes not just an obligation carried out of compliance, but also our contribution to help society heal. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Betheena C. Dizon is a Tax Partner of SGV & Co.

20 September 2021

Martin C. Guantes

How will the auditing profession look in the future?

The pandemic has accelerated new ways of working across various industries, including the auditing profession. However, new ways of operating for audit firms and the companies they audit, including the sudden shift to flexible and remote working, are expected to outlast the immediate effects of the pandemic. According to the EY article, How the auditing profession is transforming to meet future challenges, this adds new dimensions to the existing challenges that audit professionals face in adapting audit to a rapidly evolving corporate world now and especially after the pandemic.With digital transformation driving companies to adopt more complex business models, the audit profession has the opportunity to transform itself by adopting an agile mindset capable of embracing disruption, further exploring the flexible working shift with hybrid working models and operating effectively in diverse, more technologically aware teams.EMBRACING DISRUPTION AND MULTIPLE DISCIPLINESAs the audit process becomes increasingly dependent on digital technology and data analysis, audit firms will require a more diverse skill set from their people. Though firms traditionally recruit auditors with business backgrounds with an emphasis on personal integrity and professional skepticism, all auditors will need to possess an increased level of technological understanding and an agile mindset that embraces disruption.As business models grow in complexity, firms will require professionals with the ability to leverage a wider specialist expertise across multiple areas of business. By directly accessing technical expertise through the multidisciplinary model and the resources of a broader firm, auditors can leverage knowledge such as cybersecurity, fraud, sustainability, and corporate finance expertise to provide high-quality audit services.While the article cites this as a necessary trend moving forward from the pandemic, it is interesting to note that we in SGV have been doing this kind of multidisciplinary talent development for a long time, with our professionals not only gaining strong audit competencies, but also acquiring related skills in business transformation, sustainability reporting, law, forensics, corporate governance, IT security, data analytics, business strategy development, digital transformation, workforce services, and many others.EXPLORING FLEXIBLE WORKING AND HYBRID MODELSThe pandemic has also proved that when the situation demands it, audit firms are capable of making rapid and significant changes to how they operate, particularly given the inherent challenges in mobility, interaction and collaboration due to quarantine and other restrictions. This shift has brought with it the reality that flexible, remote working has become the current norm for audit professionals who have both successfully adapted to using digital technology to perform audit work away from a client’s business premises, and learned to collaborate and support each other virtually.The sudden changes forced by COVID-19 not only helped accelerate cultural change in organizations — they also made them more open to different ways of working. This increased flexibility also brings with it other significant benefits, such as audit firms placing more emphasis on performance in terms of output and productivity.It should be noted, however, that such a rapid shift to flexible working also produced challenges that audit firms will need to address. Practical issues in remote working include audit teams having to hold their discussions over chat rooms or less personal virtual meetings, rapidly developing proficiency in using specialized digital platforms, and others. Moreover, there are also challenges with conducting sensitive conversations remotely, as well as helping new colleagues understand the firm’s organizational culture and receive proper coaching and mentoring. Building remote trust and rapport may be one of the new challenges for audit professionals in addition to needing to manage expectations from audited companies regarding onsite attendance.Firms can address these issues by shifting to a hybrid working model based on the requirements of the audit firm, its teams, and the companies they audit. This setting will involve determining the ideal proportion between flexible, remote and onsite working, and will depend on circumstances such as the need to build professional relationships. For example, teams will need to consider when they need to meet to increase team cohesion, receive training, or travel onsite to meet company management and establish trust and gather evidence. Auditors can also explore further applications of technology, such as the use of blockchain and drones to enhance audits, which professional firms like EY have been developing since even before the pandemic. As a member firm of EY, SGV has been able to leverage a number of technological applications that have enabled our audit teams to conduct remote audit.FOSTERING TEAM DIVERSITYThe move towards remote working further necessitates the need to build strong audit teams. The ideal audit team will have people who possess a wide range of personal and technical skills, diverse experiences, and viewpoints. This will mean recruiting people from wider backgrounds as well as providing opportunities for them to broaden their horizons to accommodate various interests and aspirations. The traditional linear and hierarchal career progression will not necessarily suit everyone, and it will be important to offer alternatives to those who do not want to go down this path. Promotions must also focus on skill instead of tenure, with career progression occurring once the individual is ready versus waiting for them to reach a certain number of years.However, fostering diversity will only be effective if the firm can create an appropriate environment where people can contribute and add value. Supporting a more diverse workforce that needs to operate in a rapidly evolving business environment will require continuous training, but with the new ways of working, such training will likely need to adopt a hybrid model based on the needs discussed previously. Long-term models will combine classroom-based and virtual setups to deliver training even beyond the pandemic.WORKING IN TRANSITIONThe working models brought about by the pandemic accelerated the transition towards a more flexible, diverse and technologically aware auditing profession. Auditors work in a continuously evolving space, with digital tools and data playing an increasingly significant role in the audit of tomorrow. While this process will pose an inevitable challenge for some, others will welcome it. If audit firms can navigate this change effectively, it gives audit professionals the opportunity to flourish.Digital transformation and the resulting new environment can give auditors not just more effective ways to perform their work, but a more purposeful profession that can better serve the public interest. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Martin C. Guantes is the Assurance Leader of SGV & Co.

13 September 2021

Marie Stephanie C. Tan-Hamed

Changing the game with digital ecosystems (Second Part)

(Second of two parts)To create long-term value and secure a competitive advantage, it is imperative for companies to undergo digital transformation and address rapidly-evolving consumer expectations as many economies begin preparing to reopen and start the period of recovery. Consumers today expect responsiveness and a variety of channels to access with a hyper-personalized experience. The need for digital interaction, online consumerism characterized by expectations of high responsiveness and extensive personalization, and new technology platforms were further accelerated by the pandemic. Companies forced to innovate and enhance business models through technology have blurred the boundaries between industries, leading to the emergence of what we call digital ecosystems.Digital ecosystems are defined in a new EY study, Building successful digital ecosystems in Southeast Asia, as competitive game-changers. Formed through a combination of strategic partnerships and platforms, digital ecosystems deliver value to consumers through personalized products and services that cut across numerous channels. By presenting an interconnected set of offerings composed of businesses across various sectors, a digital ecosystem can fulfill consumer needs in one integrated experience.To create an effective digital ecosystem roadmap and strategy, the EY study highlights three things companies must take into account before embarking on their digital ecosystem journey. In the first part of this article last week, we discussed the first two: evaluating the digital ecosystem maturity of the organization and defining the business model. In the second part of this article, we continue by discussing implementing and mobilizing the ecosystem.IMPLEMENTING THE ECOSYSTEMOnce organizations identify a digital ecosystem opportunity, they need to follow certain steps to design an ecosystem. The first step consists of identifying the most suitable role for organizations to undertake: digital ecosystem partner, enabler, or orchestrator. Once their role is identified, organizations need to determine their business model based on digital and platform maturity and partnership ecosystem. Additional significant aspects that will need to be addressed include assessing and determining the nature of the ecosystem, product market fit for integrated solutions, and the monetization model to generate value from the ecosystem.Moreover, to further sustain and scale the reach and capabilities of the ecosystem, organizations need to identify the key enablers of the digital ecosystem. These include organization structure and culture, talent pool, the technology stack and external resources that will need to be progressively developed to create a sustainable digital ecosystem.Lastly, critical to building a successful digital ecosystem is understanding and creating the digital ecosystem evolution roadmap. This involves mapping maturity of the business within the ecosystem, building and growing partnerships, identifying the potential pitfalls of the digital ecosystem and designing a risk mitigation plan. MOBILIZING THE ECOSYSTEMThe ultimate aim for organizations should be to assume the role of an ecosystem orchestrator who defines the reference architecture of the ecosystem. Of the three roles in an ecosystem — orchestrator, partner and enabler — orchestrators are pivotal players in any ecosystem, often outperforming other entities in terms of revenue and profit. With the larger control they hold over ecosystem dynamics, they are also subject to being more exposed to the gains and losses of the ecosystem.Whether the orchestrator is an incumbent or an innovator, a business can mobilize a digital ecosystem in multiple ways: the build, buy and partner approach.The build approach has the orchestrator begin with its own platform before organically involving and adding industry partners to expand. This includes ride-sharing apps that built the platform organically and were later joined by drivers and partners.The buy approach is where the orchestrator strategically invests in platform-based businesses through mergers and acquisitions (M&A) and investments to add upon their existing capabilities and customers. The investment made can be for small, strategic investments to get partners on board, or a majority stake.The partner approach leverages joint ventures, strategic contracts and alliances to develop a customized, platform-based offering that connects stakeholders and customers across different industries. These can also involve data-sharing or licensing arrangements between partners. CREATING LONG-TERM VALUE WITH ECOSYSTEMSThough digital ecosystems were originally believed to be relevant only to selected industries and regions, recent times have seen dominant ecosystem players accelerate their activities worldwide. This is only expected to intensify with the world continuing to prioritize digital interactions in the wake of the pandemic.The complex structure of digital ecosystems requires enterprises to define the right approach to maximize the value they can gain. It will be essential for businesses to assess how they create value to align their digital ecosystem strategy with the overall strategic vision of the company. They will need to assess market trends and identify the specific fit for their organization within the ecosystem.Questions that businesses must ask themselves include what opportunities to capitalize on the enterprise digital spend, how to build integrated, future-ready IT and data architecture, and how to digitally enable their workforce to drive transformation. After determining the maturity of the platform opportunity in their sector, the incumbents and disruptors in the current landscape, and whether their business model is best suited for the role of orchestrator or participant, businesses will need to assess and lock in quality partners through strong value propositions and develop one-stop solutions to commercialize the value chain end-to-end.By identifying the key objectives they need to achieve, be it core business growth, entry into new market segments or optimization within their operations, businesses will be able to more effectively map out their roles within an ecosystem and secure long-term value. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Marie Stephanie C. Tan-Hamed is a Strategy and Transactions Partner of SGV & Co.

06 September 2021

Marie Stephanie C. Tan-Hamed

Changing the game with digital ecosystems (First Part)

(First of two parts)With the continuing uncertainty present in the global economy, digital transformation continues to be a business imperative for companies seeking to create long-term value, secure a competitive advantage, address more rapidly evolving consumer expectations and transform in preparation for the period of recovery. The need to physically distance for safety has deepened the need for digital interaction, online consumerism and new technology platforms. This shift in industry dynamics has blurred the boundaries between industries, leading to the emergence of digital ecosystems.According to the new EY study, Building successful digital ecosystems in Southeast Asia, digital ecosystems are becoming a competitive game-changer. A digital ecosystem is formed through a combination of strategic partnerships and platforms in the form of omnichannel architecture that delivers value to consumers through personalized products and services. By presenting an interconnected set of offerings composed of businesses across different sectors, a digital ecosystem can fulfill consumer needs in one integrated experience.A digital ecosystem is not just about a partnership or merger and acquisition (M&A) — it is about building a truly integrated network of enterprises that encourages and facilitates the sharing of applications, technology infrastructure and data. The shared elements of a digital ecosystem enhance and complement each other, resulting in improved innovation, trust and digital experiences.Organizations need to map their roles in a digital ecosystem as well as monetize the digital ecosystem to drive sustainable growth. To create an effective digital ecosystem roadmap and strategy, companies must take three considerations into account before embarking on their digital ecosystem journey. This article will discuss the first two: evaluating the digital ecosystem maturity of the organization and defining the business model.EVALUATE THE DIGITAL ECOSYSTEM MATURITY OF THE ORGANIZATIONWhile digital ecosystems present myriad opportunities to all value chain participants, there are also various hurdles that need to be overcome before reaping the benefits of a digital ecosystem. Companies often find it a challenge to choose the appropriate role for them and the path to achieve it. This makes a robust digital ecosystem strategy critical for every organization regardless of where it stands in its digital ecosystem journey.As part of devising a digital ecosystem strategy, organizations need to understand the different maturity levels to be traversed in the digital ecosystem journey, and assess where they lie on the maturity curve. These are based on the digital capabilities a business has developed and the level of transformational impact it creates. There are three maturity levels to consider: digital ecosystem adaptor, digital ecosystem accelerator, and digital ecosystem attacker.Most organizations start at the digital ecosystem adaptor level, where the transformation of an organization is at a modular level and is limited to a particular geographical market or business unit. The transformation initiative may be in the form of a pilot program, or the company leveraging partnerships and platforms to create value for its customers.The next stage is the digital ecosystem accelerator, where the organization scales the transformation to a company and industry level, adding more digital capabilities and creating value from the platform economy. This can disrupt the respective industry of the company as it redefines how business is conducted by being a pioneer.An organization at the level of a digital ecosystem attacker drives large-scale transformation across multiple industries, leveraging cross-sector collaboration and technology capabilities across various parts of the value chain. The transformation of the organization at this level utilizes multi-platforms, omnichannel plays and super apps, with strategic partnerships across different industries and geographies.The impact and value brought by an organization into the digital ecosystem broadens from the company level to an ecosystem level as it moves from being an adapter to an attacker. As with any maturity model, organizations at the first stage must transform themselves before transforming their industry and ecosystem in the last stage.DEFINE THE BUSINESS MODELAfter assessing and determining their own digital ecosystem maturity level, organizations need to identify the business model to leverage as a digital ecosystem participant based on parameters such as the nature of the ecosystem, the scale of industry partnerships and the revenue model.Businesses that are just starting out on their digital ecosystem journey usually leverage pilot programs to develop a coherent set of digital solutions through partnerships. At the next level, platform-based businesses must look to connect multiple stakeholders across different industries through a marketplace model. One such example of this is ride-sharing apps that expanded into adjacent segments of food delivery and payments. Businesses at the digital ecosystem attacker level will utilize a multi-platform model, which can be transformed into a single source capable of offering products and services from different industries in one seamless, integrated experience.Businesses can define their business model as a digital ecosystem participant based on three archetypes, each defined by the stages of evolution within a digital ecosystem: the digital ecosystem pilot, platform, and super app or multi-platform.The digital ecosystem pilot archetype creates a coherent solution by digitalizing product capability with new functionalities through digital partnerships. It is orchestrated by the core firm, internal business units or its incumbents, and requires digital ecosystem adapters to launch.The platform archetype offers a single platform that seamlessly connects users and is orchestrated by single platform companies. This archetype requires digital ecosystem accelerators to launch.The super app archetype focuses on integrating several platforms into one service and captures user data from their integrated platform. This archetype is orchestrated by multiplatform companies with large investments or capital and requires digital ecosystem accelerators or attackers to launch.In the second part of this article, we will discuss the considerations in implementing and mobilizing the ecosystem. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Marie Stephanie C. Tan-Hamed is a Strategy and Transactions Partner of SGV & Co.

30 August 2021

Wilson P. Tan

The V in SGV

The S in SGV was a business icon in the person of Washington SyCip. Last June 30, SGV celebrated his centenary which coincides with the Firm’s 75th anniversary.On August 26th, SGV celebrated another centennial milestone — that of our Co-Founder, Alfredo M. Velayo. They were born just 57 days apart in 1921. The two met when they were five years old on the first day of First Grade in P. Burgos Elementary School. They then remained friends for the rest of their lives — they were the original BFFs even before the term was coined.Mr. SyCip convinced Mr. Velayo to return to the Philippines after the Second World War. Mr. Velayo had migrated to California with his young family at the time. Seizing the opportunities of post-war reconstruction, Mr. SyCip had started a one-man accounting firm in 1946 and not long after, wrote to Mr. Velayo to join him. That historic correspondence is considered the firm’s first recruitment letter and is now proudly exhibited in the SGV Museum.Together, Mr. SyCip and Mr. Velayo worked hard to grow the company. They shared the same values of integrity and excellence; the same vision of helping in national development; and above all, they shared the same deep love for the Filipino people. In just two decades under their joint leadership, SGV had grown from 5 people in a one-room office to more than 2,000 professionals in member firms throughout Southeast Asia called The SGV Group.The growth of SGV was phenomenal and it can be attributed to the balance that Mr. SyCip and Mr. Velayo brought to the practice. Each of them had their roles cut out for them. While both were heavily involved in client work, it was Mr. SyCip who focused on much of the external requirements of the young firm. On the other hand, it was Mr. Velayo who was depended on to take care of the house. He was affable and his winsome ways encouraged a familial work environment. He took very seriously his role as mentor and steward. His legacy in this respect is embodied in SGV’s Purpose to nurture people and leaders. In fact, when people think of Mr. Velayo, the first thing that they recall is the largeness of his heart.While Mr. Velayo retired from SGV when he was only 50, his presence was larger than life in SGV. He would faithfully attend all our events and he also chaired the SGV Foundation. He was also a client of the firm and that is how I personally got to know him. Two months ago, I had shared in this column some of the life lessons learned from Mr. SyCip. Here are some nuggets of wisdom that Mr. Velayo imparted to us. The first is to strive for perfection.Mr. Velayo was a man of precision — he always started and ended every activity on time. He was also a man of accuracy, which can be attributed to his being an accountant. Many who had worked with him in numerous Boards recall how he would come prepared for every Board meeting with questions that demanded exact answers. Being an eloquent person, he was impatient with people who could not articulate themselves properly. Mr. Velayo was also always impeccably dressed and looked like a movie star. The second lesson is to care for your people.While Mr. Velayo believed deeply in the value of hard work, he believed even more strongly in the importance of taking care of his people in SGV. He focused on finding ways to bring out the best in people and letting their inner strength shine through. He famously said that SGV does not give people jobs, they are given brighter futures.Caring for others can also be shown in small acts of kindness. He would tell us that little things matter — a lot. Take, for example, a thank you note to someone who had given you a gift or had done something nice. That short scribble can go a very long way. The third lesson is to give back or pay forward.When Mr. Velayo retired from corporate life, he didn’t stop working. Instead, he directed his formidable energies and intellect to finding ways to help and create opportunities for those in need. Not only was he the chair of the SGV Foundation, he also became president of the William J. Shaw Foundation. Both foundations support public educational institutions among many others.Looking back on his roots, Mr. Velayo was also inspired to support the schools that gave him and Mr. SyCip their educational foundations. At his instigation, they made numerous donations over the years to the P. Burgos Elementary School, the Victorino Mapa High School, and the University of Santo Tomas (UST).His passion for education shone through both as a student and teacher. During his early years in SGV, he would teach evening classes in UST. Little did he know that more than 60 years after he graduated from UST, the school would honor him with the creation of the University of Santo Tomas — Alfredo M. Velayo College of Accountancy — an institution that now carries on his life’s vision to educate and care for future generations. The fourth lesson is to have a sense of humor.This was his trademark — he loved to make people laugh. While he was very serious when it came to business, Mr. Velayo always managed to see the lighter side of things. He never ran out of jokes and anecdotes on any occasion. Of course, some of them were recycled over time but, because of his masterful storytelling, everyone would always end up in stitches. Mr. Velayo enjoyed the company of people. He would host luncheons or dinners for small groups where he would narrate his fascinating life stories peppered with jokes.The V in SGV is no other than Mr. Alfredo Velayo. The V in SGV stood for his vivaciousness and vitality. The V in SGV represents his values of integrity, excellence and compassion that have endured the test of time. The V in SGV is the vision that our co-founders so carefully crafted and worked for which is to nurture Filipino professionals who can contribute to national development.Thank you, Mr. Velayo, for your legacy that continues to inspire us in our SGV Purpose to help build a better Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Wilson P. Tan is the Chairman and Country Managing Partner of SGV & Co.

23 August 2021

Julie Christine O. Mateo

The certainty of Purpose

Every day, the volatility and uncertainty we see in the world continues to grow. People, organizations, and even countries are grappling with increasingly complex disruptions caused by the COVID-19 pandemic, and it often feels like we are constantly one step behind the changing times. However, while the global situation remains unpredictable there IS something that can provide us clarity and certainty — and that is Purpose.The global COVID-19 pandemic has revealed underlying weaknesses and vulnerabilities in many organizations. Many companies were caught off guard and needed to scramble to cope with new challenges, not just to growth, but even to survival. As we’ve discussed in previous C-Suites articles, companies are already rethinking how they work and the value they bring to their customers in the new normal and post-pandemic. For some, this has involved a reevaluation of their Purpose.To be clear, an organization’s Purpose is not just tested during times of crisis. It is an ongoing journey that companies need to undertake each and every day in the fulfilment of the organization’s collective “Why.” But we also need to see that a Purpose can resonate even more deeply when people struggle to find meaning in why they do what they do and the difference that it makes. It is a roadmap that reinforces the company’s values, gives weight to sacrifice, and encourages people to see the bigger picture. A Purpose acts like a North star — a beacon that can guide an organization’s people through dark times. Purpose is not a mission, vision or strategy — these can change over time. True Purpose endures and can provide clarity and conviction when we need it the most.DOES IT RESONATE WITH PEOPLE?A Purpose has to appeal to people on various levels — rational while being emotional, ethical yet strategic, important and enduring. It helps to state a core issue or challenge that the organization wants to address, and not simply make statements about their products or services. Sometimes, it also helps to go back to the organization’s roots and why it was founded. It also helps if the Purpose clearly illustrates the company’s identity in some way — does it reflect the interests and priorities of a company’s leadership? Does it include any metrics beyond financial value? Does it resonate with your people on a deeper level, and bring truth to what you wish to achieve?In SGV, for example, our Purpose to nurture leaders and enable businesses for a better Philippines is anchored on the bedrock of the vision, values and real-life examples of our founders and generations of alumni. The ideals of developing people, helping companies thrive and doing our part for our country and communities are already in our corporate DNA. By anchoring and articulating our Purpose on our roots, we provide our people with a familiar roadmap that feels achievable and something that they can actively contribute to.DOES IT ARTICULATE YOUR WHY, WHO AND HOW?WHYAuthor and motivational speaker Simon Sinek’s book Start With Why: How great leaders inspire everyone to take action illustrates the importance of clearly communicating and stating the WHY behind the company’s existence. The WHY (provide a better way of life, creating healthier communities, create a more inclusive society) is more effective than merely stating WHAT (produce high-quality, low-cost goods, provide seamless services) the company does. In addition, many organizations with a powerful and motivating Purpose put people, both within and outside the company, at the heart of all their efforts.WHOA Purpose should clearly state who the organization aims to benefit beyond its shareholders. It is important to state or demonstrate how the organization’s work can benefit those beneficiaries. The beneficiaries can be as specific (marginalized women, small and medium enterprises, primary school children) or as general (healthy communities, a better country, every home) as the organization wishes. However, it should also be authentic and believable to be acceptable to your people and the public.HOWTo round out a Purpose statement, it should also clearly state “How” it intends to achieve its “Why” for its “Who.” This is often where organizations stumble as they strive to find the balance between being too abstract (becoming a world-class company, promoting innovation) or too specific (manufacturing cars, creating devices). Organizations that can find that “sweet spot” where a concrete, measurable and definable “How” can be communicated are more likely to crafting a powerful Purpose statement that will inspire people to truly embrace, act on and advocate it.DOES YOUR COMPANY CULTURE DEMONSTRATE IT?A unique and powerful Purpose can not only unite the people in your organization behind a personally meaningful, inspiring and achievable vision for the future, it can also provide a competitive advantage as it translates into better employee engagement, stronger commitment and more focused efforts and initiatives for the organization.However, it has to be authentic and believable, and it must necessarily permeate the organization from the top down. As stated in an article by EY Global, Why business must harness the power of purpose, for purpose to truly matter, it must go beyond any single initiative that sits on the margins of an organization. It must be driven operationally by the leadership team, and supported with training, performance metrics and talent management. Purpose also has to continually and organically suffuse every aspect of the organization, and should be constantly part of the dialogue between the leadership and the people in a company.Purpose, by itself, will not take the place of strategy or planning, but it does intensify the will and intent behind them. It is also a continuing journey, one that everyone in an organization needs to constantly work together to truly achieve. By leveraging and truly embodying the power of Purpose, business leaders can help their people find certainty and assurance in an uncertain world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Julie Christine O. Mateo is the Talent Leader and Purpose Council co-chair of SGV & Co.

16 August 2021

Noel P. Rabaja

Repositioning for growth beyond COVID-19

More than a year into the COVID-19 pandemic, it is apparent that the impact of this global health crisis has far-reaching implications. Countries are still battling to contain the virus and businesses continue to adapt and find ways to address the resulting disruption. According to the EY Global Capital Confidence Barometer, 92% of global respondents reported a negative impact on their profitability due to COVID-19. For companies to thrive in this disruptive and rapidly changing landscape, looking beyond the immediate challenges is key — companies need to also seize the opportunity to transform and make long-term, strategic decisions on how to reframe their future.To accomplish this, it is important to be able to distinguish between temporary shifts in behavior and enduring changes. Companies have to focus on key trends that had been shaping up even before 2020 but were accelerated by the pandemic, and which will significantly impact how business is conducted. These trends were identified in the EY article, How companies can win in a dislocated economy. Companies need to consider these key trends in their strategy in order to reposition themselves for growth beyond the pandemic and achieve long-term success.DIGITALIZATIONEmerging technologies such as data analytics, artificial intelligence and robotics continue to have a transformative effect on companies regardless of their size, and across all aspects of business. As technological disruptions continue to arise today even under the shadow of the pandemic, companies will need to fully embrace digital instead of adopting it in silos. They need to incorporate it into their culture and corporate strategy, as well as allocate resources to accomplish their digital transformation goals.The 2020 study EY-Parthenon Digital Investment Index found that companies that achieved higher returns on their digital investments have better technical execution and clearer strategies. These digital leaders reported stronger revenue growth in the past two years and expect to sustain this growth in the future.ESG AGENDAThe pandemic has also heightened awareness of environmental, social, and governance (ESG)-related risks. As a result, there is increased pressure from stakeholders for companies to review their efforts to address global challenges such as sustainable growth and climate change. Businesses are driven to take action on these issues by rebuilding a stronger post-crisis business landscape underpinned by sound ESG principles.Companies that prioritize the ESG agenda benefit by driving improved financial returns and simultaneously making a better overall impact on the world as they do business. Research has proved that ESG initiatives positively correlate with the performance, financial value and reputational value of a company to investors. A University of Oxford study reveals that 88% of companies with robust ESG practices also demonstrate better operational performance.Given how wide the scope ESG can be, it may be a challenge for some companies to identify specific priorities and focus areas that can best deliver material sustainability, yet the data show that this is a necessary step for continuing growth.SECTOR CONVERGENCESome sectors did better than others in recovering from the uncertainty of COVID-19, resulting in uneven K-shaped recovery that is pushing sectors to converge as they push to survive. Lines between sectors such as media, telecommunications and healthcare were blurring even before the pandemic, driven by changing consumer behaviors and technological advancements. Digital ecosystems now connect very different stakeholders, indistinguishably linking insurers, governments, healthcare providers and consumers.We are already seeing this trend in our own market where, for example, we see a telecoms provider bundling healthcare and COVID-19 insurance into its packages, in addition to traditional voice and data plans. Similarly, some insurance companies are found on online retail platforms to market their products.Moving forward, companies will have to determine the impact of sector convergence upon their operating environment and find ways to rise past the challenges that emerge while also creatively coming up with adjustments to existing business models so that they can better capitalize on resulting new opportunities.CHANGING GEOPOLITICSThe pandemic exacerbated an inward-looking approach for several countries, impacting how governments made policies in their efforts to protect their citizens, create more jobs and address falling economies. However, Southeast Asia saw an opposite trend where countries like Vietnam and Indonesia liberalized their laws to attract foreign investment. In the Philippines, there is also a move to liberalize foreign investment in certain industries through the proposed amendment of the Public Service Act, Retail Trade Liberalization Act, and Foreign Investment Act.Global leadership is also simultaneously becoming more multipolar as the US, EU and China emerge as competing powers. Smaller countries will have to align their activities to address changing global dynamics, while companies need to focus on applying and building resilience into their supply chains to anticipate the disruption from geopolitical shifts.REPOSITIONING FOR GROWTH BEYOND THE CRISISCompanies need to consider these key trends in developing their blueprints for recovery and growth. However, they will find that there is not one formula that can fit all, and that the right strategy will vary across industries.Businesses from any sector can nonetheless reposition for growth amid the current economic landscape. To do this, companies need to adopt proactive strategies based on a strong understanding of the key trends as well as the resulting sector dynamics and rapidly changing market landscape. These proactive strategies include taking bold decisions to transform existing businesses or transact through acquisition or divestment. Acquisition can help the company expand its capabilities or reach new markets and accelerate growth, while divestment can help build resilience. Past experience shows that companies who made the early bold choices — particularly acquisition or divestment — during crises had significantly higher total shareholder return over time, even if this meant taking an initial hit on their cash flows. These bold strategic decisions can create competitive advantage and long-term value to the business beyond the crisis.By integrating the key trends into their growth strategies and identifying the right path to follow, companies can reframe their future and emerge stronger in the period of post-pandemic recovery. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Noel P. Rabaja is the Strategy and Transactions Leader of SGV & Co.

09 August 2021

Lisa Marie T. Escaler

Reimagining the future of work (Second part)

(Second of two parts)While many organizations have embarked on implementing more agile, people-centric and digitally-enabled workplaces, these same enterprises were not sufficiently equipped to deal with the rapid proliferation of COVID-19. After more than a year of adapting to the new normal and transforming how we work, it became evident that employees, workplaces, and the future of work have changed in significant ways that we could not have previously imagined. According to the EY 2021 Work Reimagined Employee survey, which comprises the results of interviews with more than 16,000 employee respondents across 16 countries, employees are fully embracing the flexibility that has made remote work possible, with 48% of respondents believing that their company culture improved during the pandemic.In the first part of this article, we discussed how companies need to understand the new normal worker, enabled by technology. In this second part, we continue by determining when and where work can be done in terms of remote and hybrid workspaces, and the necessity of making data-driven decisions fueled by workforce insights.WHEN AND WHERE CAN WORK BE DONETransitioning to video conference meetings and online chat presented a number of challenges. Employees reported varying levels of distress learning to manage remote work and work-life balance, such as a lack of boundaries, losing track of time over days and weeks, and feelings of isolation. These were the most common concerns raised in an EY Work Reimagined Leader’s Forum in the discussion on the challenges posed by remote work. In the survey, 78% employees and leaders responded that they felt the increased pressure to be constantly connected to their jobs.Up to 77% of survey participants also selected the loss of human connectivity as their top concern about increased technology adoption and agile working. This indicates that human connections still matter — and are perhaps even more important now as many employees globally face limitations on mobility, travel and returning to physical work spaces.In light of this, companies should consider incorporating “digital well-being” into their technology and tools to help employees manage remote work, such as leveraging fitness apps or digital fitness programs and emotional well-being apps to sync with enterprise technology. This technology aims to give employees insight into when they need to recharge and disconnect.Leaders designing remote and hybrid work strategies will want to position employee well-being at the forefront. They will need to understand what well-being features available in enterprise tech can benefit their employees and, concurrently, reinforce leadership communications that emphasize how they prioritize and support the well-being of their people. Despite the widespread adoption of remote work, survey data indicates that most employees are still not ready to embrace a completely virtualized work experience. The study shows that two-thirds of respondents wish to resume some form of business travel, and that a large majority of employees would prefer to work in the office two to three days a week once it is safe to do so.Many corporate leaders are already creating hybrid workplace strategies that bring together remote and in-office work. However, the hybrid work model risks falling flat unless the purpose of the office is made clear: as a place that helps people accomplish their best work and create meaningful connections. Employees enabled by technology have already realigned their working style to be more agile and flexible. New tools and technologies have already set the workforce on a new trajectory underpinned by flexibility. Based on the EY survey results, tomorrow’s employees will likely desire more freedom to design their workdays and meet virtually or in-person when needed to innovate and collaborate. In brief, employees want the flexibility to choose where and when to work while assisted by technology at all end points.To capitalize on this trend, the Chief Human Resources Officer (CHRO), Chief Technology Officer (CTO) and the Head of Corporate Real Estate should deliberate and consider how future work models can offer diversity and flexibility while encouraging a diverse and inclusive workforce, finding a good balance among location, technology and human interaction to bring out the best in their people.MAKING DATA-DRIVEN DECISIONSLeaders now have access to technology to drive their organizations forward, becoming increasingly accustomed to written communications and virtual appearances. The increased deployment of survey technology also allows leaders to align more quickly to their company purpose and employee needs.Leadership communication has improved in terms of expressing empathy, trust, and support, according to one comment at the EY Work Reimagined Leader’s Forum. The pandemic had a humbling effect on everyone, especially leaders, leading people to be kinder and more considerate under the collective challenges that we are all experiencing today. Technology rapidly broke down barriers between leadership, management, and employees, allowing leadership to sustain a more positive culture that saw gains in 2020.Technology leaders and the CHRO can support leadership by exploring technologies that can measure sentiment in real time during leadership video messages and livestreams. It will be important to constantly listen and collect workforce feedback to provide leadership with timely insights. Moreover, it’s no longer enough for leaders to delegate digital leadership — leaders must understand the interplay between technology and megatrends to enable their businesses to deliver long-term value and remain relevant post-pandemic.THE WORKPLACE OF THE FUTUREThe future of work, where we work and how we respond to work have all been transformed by technology, and organizations that navigate this seismic shift can successfully take advantage of its transformative opportunities. Leaders will need to continue assessing how the new ways of working can further enhance productivity among their employees to make more informed decisions about what can be kept or improved. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services – Workforce Advisory (PAS WFA) Leader of SGV & Co.

02 August 2021

Lisa Marie T. Escaler

Reimagining the future of work (First part)

(First of two parts)While many organizations had previously embarked on implementing more agile, people-centric and digitally-enabled workplaces, these same enterprises were not sufficiently equipped to deal with the rapid proliferation of COVID-19. After more than a year of adapting to the new normal and transforming how we work, it became evident that employees, workplaces, and the future of work have changed in significant ways that we could not have previously imagined.According to the EY 2021 Work Reimagined Employee survey, which compiles the input of more than 16,000 employee respondents across 16 countries, the workforce has positively adapted to the uncertain circumstances in real time. On a 1 to 10 scale, almost 75% of employees rated their job satisfaction at a 7 or above. Employees are fully embracing the flexibility that has made remote work possible, with 54% indicating that they would leave their company if the same flexibility in work location and scheduling is not extended post-pandemic. Despite the lack of physical connection between employees, 48% of respondents believe that their company culture improved during the pandemic.Because the data indicate that workforce needs are changing to adapt to the present circumstances, there is an opportunity for leadership to reimagine the future of work. Though employees value their new levels of flexibility and appear to be equally productive working from home, we’ve yet to determine the long-term effect of remote working. There is also less clarity surrounding how much is lost from the lack of in-person engagement and interactions, especially in terms of coaching and mentoring.To deliver long-term value for employers and their employees, organizations will need to consider three critical courses of action: gaining deeper insight into the transformed employee experience; enhancing the collaborative needs of employees through remote and hybrid working environments; and supporting leadership with workforce insights.UNDERSTANDING THE NEW NORMAL WORKERVirtual collaboration has become the norm in enterprises across multiple industries and internally across functions from operations to innovation, with organizations leveraging technology to shift manual processes and workflows to a virtual platform. With an increase in adoption rates, user data and resources, tech companies have capitalized on the opportunity to evolve and enhance their offerings. Tools enabled by cloud technology are now ubiquitous, with new collaboration software features such as reactions, cross-platform sharing, and image filters digitizing the human connection. Organizations are exploring how to better leverage cloud technologies to deliver enhanced employee experiences to retain high employee engagement rates.Employers who initially expressed skepticism about maintaining the productivity of tech-enabled remote work can now objectively view the data that indicates that productivity remained high after a full year of working from home, according to the 2020 Harvard business review study, “Research: Knowledge Workers are More Productive from Home.” While the long-term productivity implications of working remotely remain uncertain, EY survey participants responded positively: 65% agree that remote work enables better productivity, and 66% believe that their productivity can be accurately measured regardless of where they work. Now that employees are aware that their work does not have to be limited to specific locations, they want their employers to provide them with more technology, benefits, and support to further improve their remote working experience. They have expressed their desire for reimbursement for hardware and home office setups, followed by training for remote presentations. In certain countries like the Philippines where a stable internet connection is not always guaranteed, some employees are also looking to their leadership to provide solutions to their data needs so they can work more effectively.With a vast range of tools, technology and platforms available to the workplace, HR and technology leaders should assess which of these add the most value and identify which of these are the most pragmatic to deploy given their unique culture and business model, while mapping out their new enterprise tech stack. EY Global Technology Consulting Leader Dan Higgins believes that leaders will likely uncover surprising findings that show how new tech impacts employee experience and retention. He added that 40% of employees want their organizations to offer better communication and collaboration tools to boost their productivity.To achieve this, Chief Human Resources Officers (CHROs) and Chief Technology Officers (CTOs) need to collaborate to assess their workforce and garner insight into how tech enables and transforms the employee experience. They will need to understand how tech enhances inclusive contributions and ideation in areas of collaboration and team dynamics, while also remaining aware and prepared as new cybersecurity and technology-related risks arise.After assessing how the new ways of working and rapid adoption of technology impact employee productivity, leaders will also need to better understand and potentially expand employee expectations around flexibility. The transformational journey will have implications on how office spaces can be configured to encourage certain work practices and better support the physical and mental well-being of the workforce.In the second part of this article, we discuss how to optimize work in the use of remote and hybrid workspaces, and the necessity of making data-driven decisions fueled by workforce insights. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services – Workforce Advisory (PAS WFA) Leader of SGV & Co.

26 July 2021

Karen Kaye M. Sta. Maria-Constantino

Reimagining healthcare

A year and a half into the pandemic, we have seen how almost every industry has had to undergo rapid transformation in order to develop new methods of product and service delivery. One industry that has perhaps been forced to rapidly move beyond traditional processes is healthcare. In the Philippines, we have seen a dramatic shift to using technology to promote telemedicine and virtual healthcare to allow for personalized, effective and convenient healthcare in socially-distanced safety.However, developments such as video or online consultations serve as a beginning, not an end point. Companies now have the opportunity to permanently transform how healthcare is delivered in a way that addresses the increased needs of care providers and their patients. To tackle the evolving needs of consumers, we look at three key areas identified in an EY article, Five trends redefining the health sciences and wellness operating model that companies should closely consider in their strategic focus and in the deployment of their human and financial capital and efforts.DEVELOPING INTEGRATED SOLUTIONS AND PERSONALIZED HEALTH OUTCOMESThe current health infrastructure is provider-driven, supply-oriented and siloed, placing consumers in a disparate model. In the future, consumer demand will drive a seamlessly connected healthcare system with humans at the center, delivering a personalized and informed experience. Imagine, for example, a one-stop system where a patient only needs to use one platform for initial consultation, treatment, the delivery of medication and follow-up consultation, all with centralized medical record access.While such a platform is yet to be developed, Philippine healthcare providers can start reimagining a future where technology and patient-centricity can drive a competitive advantage. Such a patient-centered model will require aggregated data that is shared to fully understand and more quickly respond to the needs and wants of a patient. Healthcare will have to take a more proactive role, bringing care to a patient instead of forcing a patient to spend time, money and energy searching for the care they need.For companies to put humans at the center, they must partner or collaborate with companies to gain capabilities in user-centered design, behavioral science and services. They can also build or employ the services of experts in artificial intelligence and machine learning algorithms as well as interoperable system integration. Already there have been several developments around the world in using AI to provide personalized healthcare, such as the launch of a cloud-based platform by one company to help patients manage chronic disease by managing both medication and patient responses to the medication remotely. Another is developing a system to conduct liquid biopsy and remote monitoring so that patients do not have to go to a hospital and undergo invasive tests. Another system does real-time monitoring of patient biometrics, allowing for a quick response in case of a medical situation.While such technologies may not be immediately available to Philippine healthcare providers, the continuing development of 5G technology and other innovations here could open the door to rich opportunities that healthcare providers can explore as part of their post-pandemic strategies.OPENING UP ACCESS TO DATAIt has been estimated that humanity generates up to 2.5 quintillion bytes of data each day. For the healthcare industry, an estimated 50 terabytes of data were created in 2020 alone, and the number is expected to increase exponentially as the effects of the pandemic continue. However, having all the data means little if we cannot properly analyze the information. Most of the data generated by the healthcare industry sit in siloes every year, but the difficulty in extracting the information’s true and extended value lies in various technical and ownership issues as well as regulatory reluctance. In addition, most companies tend to be very protective of their data, considering the information a source of potential intellectual property assets and new discoveries.However, the reality is that no single company is able to or should own more than a fraction of the total volume. At the same time, the monetary value of proprietary data is significantly less than the data that a company can actually access, interrogate and apply to the operations and product development. Simply owning data generates costs but accessing and assessing data can generate valuable insights for the health system. Moreover, refusing to share or grant access to data impedes meaningful progress in healthcare.While this is certainly a thorny conundrum, it is something that the healthcare industry should explore. Two key questions come to mind: How can companies mine their data to get the right information that is critical to their business model, and how they can share access to their data with selected, tightly regulated partners so that more long-term value can be gained by combining resources, knowledge and insight?Answering these will take time, investment, and no little amount of compromise. But consider the possible discoveries in such a situation. For example, a hospital that shares data on the most and least effective COVID-19 treatments and medication with a company that manufactures diagnostic machines might be able to develop more effective, life-saving technology. Or if we wish to consider recent news, there has been talk of combining various vaccine brands to achieve a greater protective effect — this is a potentially game-changing area where sharing and combining data could have incredible benefits.Of course, companies will need to develop structured data system arrangements to protect proprietary data while allowing access to vetted companies. They will also need to work with government, regulators and data security experts to establish norms that are acceptable and fair to all parties and while protecting data integrity. In addition, healthcare companies may need to retrain or acquire talent that can develop proprietary data processing technologies to help speed up the R&D process.BUILDING SUSTAINABILITY INTO OPERATIONSAn EY survey with almost 15,000 respondents discovered that up to 45% of consumers believe in the increased importance of sustainability compared to a year earlier. In the Philippines, we hear about the challenges that medical facilities and providers are now having in dealing with medical waste and used protective equipment. Consider as well the number of disposable syringes that are being consumed daily all over the world due to vaccination and we can better realize the increasing need for companies to measure and report sustainability practices tied to environmental, social and governance (ESG) disclosures.Though it may seem obvious that products and services that help people treat or manage disease have significant social value, more and more people are also weighing the import of environmental and economic issues.For companies to demonstrate their commitment to sustainability, they need to establish a measurement framework to gauge the impact of their sustainability programs based on their business model, and also be able to communicate the value of their sustainability initiatives to their patients, customers, stakeholders and investors.ACCELERATED TRANSFORMATION FOR BETTER HEALTHCARE DELIVERYCOVID-19 has highlighted the gaps between what companies are capable of now and what they will need to accomplish for future growth. With the acceptance and adoption of new technologies fueled by data and driven by consumer demand, companies in the healthcare industry need to start reimagining how they can generate innovative, long-term value for their business and use that to springboard into post-pandemic recovery.The pandemic is not the first, nor will it be the last, major disruption that will trigger forced transformation and evolution for companies. While we cannot predict what the future may bring, we can certainly reimagine how it should be. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Karen Kaye M. Sta. Maria-Constantino is a Tax Partner of SGV & Co.