There is a growing trend towards businesses founded on the premise of social capital, though despite their enormous profits, most casino firms have yet to sign on.
The mission statement of these social capital corporations confers the same or higher importance to social metrics as to revenue and profit. Social enterprises measure themselves first and foremost on their contribution to society, beginning with their employees and their customers, as well as the greater community and the environment. Pure social enterprises are not-for-profit outfits.
Encouragingly, there is a rising trend of business enterprises that are responding to this higher calling and seeking to transform themselves into social enterprises to become good corporate citizens, not for the superficial purpose of good public relations but permeating through the companies’ culture from the shop floor to the boardroom.
A 2018 Deloitte report on global human capital trends surveyed CEOs and found 65 percent polled “inclusive growth”among their top strategic concerns, threefold more than “shareholder value.”
But missing the memo are many in the elite Big Business club. For big corporations, the term ‘charity begins at home’ is fast becoming a misnomer. There seems to be no longer a social contract between employer and employee. Workers are perceived more and more as disposal instruments, and not stakeholders.
Profitability alone is an insufficient metric; shareholders demanded year-on-year growth, handsome dividends and double-digit IRRs. It is a distant memory for the Fortune 500 companies where layoffs were once avoided as far as possible, and only as a last resort when businesses are on the brink of failure.
Today, a mass staff retrenchment exercise is applied as a quicker fix to eliminate costs immediately. Wharton management professor, Adam Cobb, observed the phenomenon arose out of declining social norms, muting the previously taboo nature of retrenching workers.
Microsoft is the world’s most valuable company with a market value of over $1 trillion. Yet, it rolled out mass layoffs after layoffs in recent years, 18,000 employees in 2014 and another 3,000 two years ago, during a period when the company continues to deliver handsome profits. FMCG industry giant, Kimberly Clark, too shed 5,500 of its workforce in 2017 during which time they announced record sales exceeding $18 billion and over $3 billion in operating profit. They are in good company; IBM, General Motors, Walmart, American Express, Monsanto, the list goes on
Even in the obscenely profitable casino industry, one might think companies in this lucrative sector would never witness job cuts. Think again. Resorts World Sentosa, one member of the casino duopoly in Singapore, experienced a slight dip in its earnings in 2016. It reacted in promptly showing the door to 400 staff even though the company still ended the year as the 7th most profitable casino in the world, and with probably the industry-leading balance sheet and cash flow position. The company had cited a need to “right-size” and pressing bad debt issues, ergo the reason for the layoffs; but its management were caught red-faced when it was discovered that they had placed job ads in Malaysia to recruit lower-priced casino staff.
Take also MGM Resorts. The company released a press statement on the first week of the year announcing its new growth vision. The ‘MGM 2020’ Plan began on a positive note about business optimization and digital transformation, and of a new “One Company” best practices to attain an EBITDA uplift goal of $300 million. The wordplay of “growth” being substituted for a more unusual “uplift” was the first portent of something amiss. A few paragraphs later, an innocuously dropped “labor savings” might have raised a tingle, and finally manifested into full dread with some quick mental arithmetic; $100 million of ‘uplift’ in ‘labor savings’. It was vintage prose for bad news that couldn’t have been more eloquently delivered. The company thought it at least demonstrated munificence to wait till after the Easter holidays to drop the axe; more than 1,000 staff cuts to achieve ‘a comprehensive change that is meant to be transformative’. For the over 1,000 mostly management-level executives, it had transformed into little pink slips. Yet, the company has financial capital aplenty albeit for other purposes. Four months back in August just the year before, it opened its doors to welcome customers at the new $960 million MGM Springfield casino in Massachusetts; April this year marked the opening of MGM Northfield Park property costing $1 billion. In the same period, it’s REIT arm made a failed bid for the Caesar’s REIT, VICI, that would have cost $6 billion; and also negotiated unsuccessfully to acquire Wynn’s new $2.6 billion resort in Boston.
Star Entertainment, one of the two major Australian casino operators will axe 400 staff comprising 20 percent of its backroom employees in June due to weak VIP gambling revenues, resulting in a 3 percent revision down of its EBITDA forecast this year to A$555 million. Again, this is a company pouring billions in expanding their casino in the Gold Coast and a new property in downtown Brisbane.
Melco Resorts, a Macau casino heavyweight that is consistently among the world’s top five most profitable casino operators, is yet another company looking to trim its rank and file. On the other hand, it is spending tens of millions to pursue a casino license in Japan with its Chairman, Lawrence Ho, vowing publicly to spend ‘whatever it takes’ to get into the Japanese market. But at least Melco can earn a tiny reprieve by the manner it is approaching its headcount reduction plan through its offer of cash incentives for voluntary attrition, and actively engaging employees throughout the exercise via focus groups and HR channels.
Given that casino licenses are finite and highly prized, regulators awarding and renewing licenses should give consideration to higher standards of corporate governance, giving equal weight the triune of social, financial and physical capital. Better yet, a pre-qualification criteria should be that companies need to satisfy the constitution of a social enterprise. After all, if there’s any particular segment of Big Businesses that owes a bigger obligation to pay-it-forward, it is the gambling business and the trail of destructive, addictive behavior they leave in their wake.