Corporation Stakeholders Management

Creditors Shareholders Employees

Clients Government Public

PURPOSES OF A CORPORATION

Early Stage To Increase

Survival Profit

To Offer Vital To Offer Goods

Services to the and Services
Public to the Market
SHAREHOLDERS, BONDHOLDERS &
BOARD OF DIRECTORS
SHAREHOLDERS BONDHOLDER BOARD OF DIRECTORS

• Vote • Bond • Governing the Organization

• Selecting, appointing,
• Propose Resolutions • Liquidating Right supporting and reviewing
• Receive Dividends (Primary) the performance of chief
• Not exposed to executive
• Preemptive Right • Ensuring availability of
• Liquidating Right Fluctuating Interest financial resources
(Secondary) Rates • Approving annual budgets
• Interest and • Accounting to the
stakeholder’s the
Principal Receipts organizations performance

Principals ? Agents? Fiduciary Relationship? External Auditor?

TRANSNATIONAL & MULTI-NATIONAL CORPORATION

Desire for Escape Preventing

Reduce Cost
Growth Tariffs Competition

MNC TNC
“Enterprises which own or control
Do not have coordinated product production or service facilities
offerings outside the country in which they
based”

Focused on Adapting their Products More complex ; invested foreign

to the local market operations

Disrupt Traditional Economies, Impose

Monopolistic Practices, Assert
Consumer Goods & QSR
Political and Economic Agenda on a
Country & Minimize Tax Liability
DEFINITION OF GOOD GOVERNANCE
 Process and structure used to direct and manage the business and affairs
of the company towards enhancing business prosperity and corporate
accountability with the ultimate objective of realizing long-term share
holder value, while taking into account the interest of other stakeholders
(Malaysian High Level Finance Committee Report on Corporate
Governance).

 Joint responsibility imposed on BOD & management to protect

shareholder rights and enhance shareholder value to protect shareholder
rights and enhance shareholder value (Wall Street Journal, 1999).
PHILIPPPINE CONTEXT - PARADIGM SHIFT
 2002 - SEC CODE OF CORPORATE GOVERNANCE – Corporate Governance
“system whereby shareholders, creditors and other stakeholders of a
corporation ensure that management enhances the value as it competes in
an increasingly global market place…”
 Objectives: 1) Raise investors confidence 2) Develop capital market 3) Help
achieve high sustained growth for the corporate sector of the economy. –
MORE VALUES LADEN

 2005- CODE OF CORPORATE GOVERNANCE PRINCIPLES AND LEADING

PRACTICES
 Objectives: 1) Policyholder & market investor confidence 2) Sustain the
growth of the insurance industry 3) Thereby contributing well-being –
FROM ITS PROCESS ORIENTED POINT OF VIEW
PHILIPPPINE CONTEXT - PARADIGM SHIFT

 2009-REVISED CODE OF CORPORATE GOVERNANCE

Corporate Governance the framework of rules, systems and
processes in the corporation that governs the performance
by the Board of Directors and Management of their
respective duties and responsibilities to the stockholders.
 Limited reference to “Stockholders” or “Investors”
FUNDAMENTAL OBJECTIVES OF
CORPORATE GOVERNANCE

Consideration
Improvement
of the Interests
of Shareholder
of Other
Value
Stakeholders
GOOD GOVERNANCE PROMOTES

Transparency Accountability

Prudence *Responsibility
BENEFITS

Reduced
Marketability
Vulnerability

Credibility Valuation
AGENCY PROBLEM IN CORPORATIONS

 “…if managers’ and owners’ objectives are not the

same and whether management really acts in the best
interest of the owners.”
 Maximize the stockholder value after satisfying the
claims of employees, suppliers, and creditors; need to
identify financing and investment arrangements to
favorably impact the value of the stock.
AGENCY PROBLEM IN CORPORATIONS

1. Agency relationship and costs.

2. Goals of financial management.
3. Do managers act in the stakeholders’ interest?
4. Managerial Compensation.
5. Control of the Firm.
6. Stakeholders.
AGENCY THEORY IN GOVERNANCE
 Owners are principals and the managers act as the agent…agency loss
is necessary for the benefit that would have accrued had the owners
handled or directly controlled the corporation.

 Agency loss in order to maximize the long-run value of the corporation

and there are different mechanisms (harvest and enjoy while
available).

 Opportunistic Behavior being countered by the presence of Board of

Directors who is independent of the executive management.

 Compromised when Chief Executive Officer is the Chair of the Board

at the same time.
EFFECTS OF AGENCY IN GOVERNANCE

Conflict of Managerial Incurrence of

Interest Opportunism Agency Costs

Shareholder Managerial
Activism Defensiveness
PERFORMANCE INCENTIVES & DISINCENTIVES

Pay
Shares Shareholder’s
Dependent on
Incentives Intervention
Profit Level

Threat of Takeover
Being Fired Threat
ROLE OF NON-EXECUTIVE DIRECTOR

 Not an employee; not connected with the company.

 Brings independent judgment to resource, strategy and
performance issues.

Monitoring
Establishing
Strategy of Audit
Networks
Performance
CFO, AUDIT COMMITTEE & EXTERNAL AUDITOR
CFO AUDIT COMMITTEE EXTERNAL AUDITOR

• Implements Internal • Risk Identification & • Reduce information risk at a

Controls Response: reasonable level:
• Supervises Major Impact
Projects • Rapid technological changes • Remoteness of
• Downturns in the industry information Providers to
• Develops Relations with • Unrealistic earnings information Users
Financing Resources expectations by analysts • Bias of Information Users
• Advisor to Management • Operating / Internal Risk. • Volume of Data
• Drives Major Strategic • Information and Control Risk.
• Complexities in
Issues Transactions
• Pressure to manage
• Risk Manager earnings. • Proper accounting records.
• Relationship Role • Internal controls and • Faithful financial reports.
• Objective Referee company's growth. • Adequacy of notes and
other financial disclosures.
• Compliance with FRS.
OBJECTIVES OF
ORGANIZATIONAL ORGANIZATIONAL
ORGANIZATIONAL
THEORY STRUCTURE
STRUCTURE

PRINCIPLES OF
CONSEQUENCES OF ORGANIZATIONAL DESIGN
DIMENSIONS OF ORGT’L
ORGANIZATIONAL (Simple, Machine,
STRUCTURE
STRUCTURE Professional, Divisionalized,
Adhocracy)

TYPES OF
ORGANIZATIONL
STRUCTURE (Functional, CENTRALIZATION /
Product / Service, DECENTRALIZATION
Geographical, Divisional,
Matrix
MINTZBERG NINE DESIGN
PARAMETERS (Job Specialization,
Behavior Formalization, Tarining &
LEVEL OF ORGANIZATION
Indoctrination, Unit Grouping, Unit
(Technical, Managerial &
Size, Planning and Control Systems,
Community)
Liason Devices, Vertical
Decentralization and Horizational
Decentralization)

ORGANIZATIONAL
RELATIONSHIPS Work Design,
Formal, Span of Control and People
and Organizational Relationships
ECONOMIC LEGAL SOCIO POLITICAL

NATURAL
TECHNOLOGICAL
ENVIRONMENT
EMPLOYEES
CULTURE, SIZE OF THE
ENVIRONMENT, COMPANY
LANGUAGE & VALUES

STRATEGY (Cost
COMPANY’S RANGE
Leadership,
OF PRODUCTS AND
Differentiation, Focus
SERVICES
Etc
LEGAL SELF
RESTRICTION REGULATION
•Depends on the
•Imposed by Law Industry where a
business belongs
 Where economic decisions is controlled by the government.
 Opposite of Free Market or Capitalist Economy.
 Market is not the measure of what is best for the country.
 State runs the country.
 Mix of centrally planned and free market.

DRIVEN FOR
ECONOMIES INHERENTLY
COLLECTIVE STABILITY
OF SCALE PROTECTED
BENEFITS

INEFFICIENT RESTRAINT
USE OF OF
RESOURCES DEMOCRACY
A. Disproportionate Licensing and Regulatory Requirements.
B. Excessive, Complex and Arbitrary Taxation.
C. Inadequate Banking System and Poor Banking Practices.
D. Lack of Government’s Commitment to Reduce Administrative
Barriers.
EMPLOYMENT &
ADVERTISING ENVIRONMENTAL
LABOR

SAFETY AND
PRIVACY
HEALTH
 Imposing penalties.
 Monitoring the political climate.
 Changes in policies and attitudes among foreign businesses.
 Stability of country’s political environment check.
 Tariffs and quotas.
CONTEMPORARY
ENVIRONMENTAL GLOBAL TECHNOLOGICAL
SOCIAL ISSUES
Character Ethics Integrity Laws

CODE OF SOX OF
Morals Values
ETHICS 2002
Understanding corporate social responsibility

DEFINING CORPORATE SOCIAL RESPONSIBILITY

• Has been defined as:

CSR refers to
Accommodation of corporate behaviour The firm’s
corporate that extent beyond consideration of, and
behaviour to the economic response, to, issues
society’s values motives and legal beyond the narrow
and expectations requirements economic, technical
and legal requirements
of the firm

However, corporate social responsibility is complex, context dependent and is

generally agreed to be an ambiguous concept.
Understanding corporate social responsibility

CARROLL’S PYRAMID OF CORPORATE SOCIAL

RESPONSIBILITY
Economic responsibilities: The primary responsibilities of companies
is to produce goods and services in a way that is profitable to their
owners.

Legal responsibilities: While assuming their fundamental economic

role, companies are expected to comply with the laws and regulation
that reflect society’s values and norms.

Ethical responsibilities: Businesses are also expected to abide by the

ethical norms of society. They are more ambiguous than legal
requirements and therefore more difficult for companies to anticipate
and follow.

Philanthropic responsibilities: Business may engage in activities

that go beyond the expectations of society, including volunteer work,
sponsorship, and donations.
Consumer
Protection

Contract
Enforcement

Employee
Protection

ROLE OF GOV’T Environmental

GOVERNMENT
IN BUSINESS Protection

Investor
Protection

Permission

Taxation
Promote Provide
Businesses Services

To the
Rescue
Giant Private Corporations

Professional Organizations
ECONOMIC PRESSURE GROUPS
Trade Associations
PUBLIC PRESSURE GROUP
Trade Unions
PERSSURE GROUPS SECTORAL PRESSURE GROUP

RELIGIOUS/ ATTITUDE
PRESSURE GROUPS

GOVERNMENTAL PRESSURE
GROUPS
 Innocent is a young company selling fruits and smoothies an other healthy drinks. I t
was launched by Cambridge graduates in the United Kingdom and named Innocent to
reflect the healthiness of its product range. The entrepreneurs behind Innocent had
difficulties in finding the funding for their business, but the company soon became
successful an held 20 percent of market worth 20 million pounds.

 It also had a reputation of being organic and fun, partially due its delivery vehicles that
are painted to resemble cows. In 2009 its sold 10-20 per cent of its shares to Coca-Cola
in order to pay for an expansion in Europe. Critics saw this move as sell out to a
corporate giant that did not share Innocent’s values on natural ingredients. Innocent
defended its decision by maintaining that its business principles were not changing;
instead it was given an opportunity to affect the values of a much larger company.
What is you view on this? Did the Innocent sell its soul? Please explain.
 Can redistributing wealth also be good for
growth? Written by
 According to Gulf News Investment 2015
Culture and Diversity of
Development Education
Religion Choices

Wealth
Globalization Inflation Labor Market
Condensation
 Conclusion: Muslims of the world are among the poorest of the poor.
 Fact: Of the 1.4 billion Muslims 800 million are illiterate (6 out of 10
Muslims cannot read). In Christendom, adult literacy rate stands at 78
percent.
 The planet’s poorest countries include Ethiopia, Sierra Leone,
Afghanistan, Cambodia, Somalia, Nigeria, Pakistan and Mozambique. At
least six of the poorest of the poor are countries with a Muslim majority.
 Diagnosis 1: Muslims are poor, illiterate and weak because they have
‘abandoned the divine heritage of Islam’.
 Diagnosis 2: Muslims are poor, illiterate and weak because they have
refused to change with time.
INTERNAL AND EXTERNAL INSTITUTIONS
THAT INFLUENCE GOOD GOVERNANCE
 The Phone Business: Then and Now

 Now: PLDT to Buy into Digitel

 TV5-GMA7 Deal ‘Final’ By End-2012, Says MVP

INTELLECTUAL QUALITY OF GOOD
HONESTY GOVERNANCE GOVERNANCE

RESPONSIBILITY ACCOUNTABILITY FAIRNESS

TRANSPARENCY
 A team that understands the Purpose of the Company.
 Board must identify Sustainability Issues.
 Need for an Inclusive Approach in Good Governance.
 Communication with Stakeholders.
 Long term Strategy must include: Financial, Human, Social,
Environmental and Technology
 Apply or Implement Good Governance.
 BW Resources Notorious Case

 Require management to be accountable; auditors to be

demanding or meticulous.

 Need to have a Framework.

 Memorandum Circular No. 2, Series of 2002 (old).

 Objectives?
 2002 - SEC CODE OF CORPORATE GOVERNANCE – Corporate Governance
“system whereby shareholders, creditors and other stakeholders of a corporation
ensure that management enhances the value as it competes in an increasingly
global market place…”
 Objectives: 1) Raise investors confidence 2) Develop capital market 3) Help achieve
high sustained growth for the corporate sector of the economy. –
MORE VALUES LADEN

 2005- CODE OF CORPORATE GOVERNANCE PRINCIPLES AND LEADING

PRACTICES
 Objectives: 1) Policyholder & market investor confidence 2) Sustain the growth of
the insurance industry 3) Thereby contributing well-being –
FROM ITS PROCESS ORIENTED POINT OF VIEW
 2009-REVISED CODE OF CORPORATE GOVERNANCE
Corporate Governance the framework of rules, systems and
processes in the corporation that governs the performance by the
Board of Directors and Management of their respective duties and
responsibilities to the stockholders.
 Limited reference to “Stockholders” or “Investors”
1. Aims to promote corporate good governance reforms that will raise
investor confidence, develop the capital market.
2. Prescribes BOD as primarily responsible for governance of the
corporation.
3. Board should establish the corporate mission, vision, strategic
objectives, policies and procedures.
4. Establishment of the Audit Committee, Nomination Committee,
Compensation and Remuneration Committee.
5. Emphasizes on the need for management disclosures.
6. Manual Form of rules as a means of promulgating Good Governance.
7. P100,000 Failure to adopt after due notice and hearing
 Section 30 – Compensations other than per diems yearly
compensation shall not exceed 10% of the NIBT of the
corporation during the preceding year.
 Directors are accountable only to stockholders.
 Directors cannot be paid for merits of service.
 Earn out of a sense of trust and honor.
 Corporation does not encourage a system of professional
directors
GOOD GOVERNANCE

BOARD OF
CEO CFO SHAREHOLDERS
DIRECTORS
BOARD MEMBERS

AUDIT COMMITTEE

MANAGEMENT
Accountable to Endorses to the Accountable
Shareholders Board the to the Board
Recommends External
Auditor Establishes a
to Stockholders
the External (rotated every 5 Performance
Auditor years or earlier Measurement
or handling s for Board
partner must and Top level
be changed). Management
Voting Preemptive Power of
Rights Right Inspection

Right to Appraisal
Dividends Right
What is an 'Appraisal Right'
 “An appraisal right is the statutory right of a corporation's
minority shareholders to have a fair stock price be determined
by a judicial proceeding or independent valuator, and the
obligation for the acquiring corporation to repurchase shares
at that price.”

 “An appraisal right is a protection policy for shareholders,

preventing corporations involved in a merger from paying less
than the company is worth to the shareholders.”
 Elected by Shareholders.

 Powers, duties and responsibilities determined by authority

coming from the by-laws and shareholders.

 Honorific image.
 Protect company’s resources.
 Ensure the company receives decent return on investment.
 Top governing authority.
 Selects, evaluate and approve CEO’s compensation.
 Assess attractiveness of dividend payment.
 Recommend stock split.
 Oversee share reacquisition programs.
 Approve the company’s financial statement reports other
financial highlights.
 Recommends or discourages acquisition and mergers.
 Sometimes have the rotation set up an anti- hostile take over
device.
 BOD has the ffg:
 Have a vested interest in the company.
 Work in the upper management.
 Are independent from the company but known for abilities (in the
case of Independent Board of Director).
 “A hostile takeover is the acquisition of one company (called the target
company) by another (called the acquirer) that is accomplished by going
directly to the company's shareholders or fighting to replace management
to get the acquisition approved. A hostile takeover can be accomplished
through either a tender offer or a proxy fight.”
 “A tender offer is an offer to purchase some or all of shareholders' shares in a
corporation. The price offered is usually at a premium to the market price.”
 “A proxy fight is when a group of shareholders are persuaded to join forces
and gather enough shareholder proxies to win a corporate vote. This is
referred to also as a proxy battle. Used mainly in the context of takeovers, this
term means the acquirer will persuade existing shareholders to vote out
company management so that the company will be easier to take over.”
 Audit Committee

 Compensation / Remuneration Committee

 Nomination Committee
 What if there is a controlling stockholder?

 What if there is no single controlling stockholder?

 When does a controlling shareholder becomes super

majority?
 Carries out strategic policies and procedure of the BOD.
 Helps align the company with its long-term vision.
 Engages with outsiders and direct employees, managers and
0ther EO to central objective.

HUMAN CAPITAL
MANAGEMENT –
SUPPORT THE BOARD – DELIVERY OF PROGRAM, FINANCIAL, RISK &TAX PUBLIC RELATIONS – Builds
Implements Personnel
Support Operations & Give PRODUCT AND SERVICE – MANAGEMENT – Positive Image to the
Policies based on Current
Advice to the Board Acts as the Brand Bearer Recommends Yearly Budgets Community
Laws, Regulations and
Standards
 Implements internal control.
 Supervises Major Impact Projects.
 Develops Relations with Financing Sources.
 Advisor to Management.
 Drives Major Strategic Issues.
 Risk Manager.
 Relationship Role.
 Objective Referee.
 SHAREHOLDER RIGHTS AND RESPONSIBILITIES
 Right to receive Dividends.
 Right to Sell or Transfer Shares.
 Right to Vote
▪ Would include Right to Information and Right to Express Opinion.
 Risk is present when there is Gap between the Objectives of
Management and Objectives of Owners.
 Ensure that the obligation to provide information to
shareholder’s does not detract from the company’s ability to
compete in its marketplace.

 Ensure that their right to attempt to influence the company

does not translate into behavior that will paralyze or will be
detrimental to the company.
 Effecting certain merger or reorganizations.
 Selling all or substantially all of the corporation’s assets.
 Adding or removing any restrictions on the business that the
corporation may carry on.
 Changing the corporation’s share capital.
 Increasing or decreasing the number of directors or the
minimum or maximum numbers of directors.
 Confirming laws.
 Adding or changing restrictions on the issue, transfer or
ownership shares.
 Proxy fight to replace board of directors.

 A proxy fight is when a group of shareholders are

persuaded to join forces and gather enough shareholder
proxies to win a corporate vote. This is referred to also as a
proxy battle. Used mainly in the context of takeovers, this
term means the acquirer will persuade existing shareholders
to vote out company management so that the company will
be easier to take over.
GOOD GOVERNANCE
POLITICAL,
LEGAL TECHNOLOGICAL
AUDITORS MARKETS
ENVIRONMENT & SOCIAL
ENVIRONMENT
 Ensures that firms are being run efficiently.
 Analyze and communicate financial information.
 Attest information provided by management.
 Engages in consultancy service.

FORENSIC ACCOUNTING
 Law and other institutions, sometimes, are good at forcing
Good Governance in different companies, although markets
can be good in limiting skirting.
 Three distinctions:
 Domestic Laws of the Country
 Domestic Laws of each of Foreign Markets
 International Law in General
 Most important external factor.

 Serves as gauge.

 Good internal decision (reflection of Good Governance) can

make the firm react well to product market changes,
economize on capital or make sure good managers come,
stay and perform.
Product Markets –
Capital Markets –
ability to produce
Good track records
goods and services

Labor Market-
ability to choose
the right people for
the Governance
Political Technological
Environment Environment

Social
Environment
 “A poison pill is a tactic utilized by companies to prevent or discourage
hostile takeovers. A company targeted for a takeover uses a poison pill
strategy to make shares of the company’s stock look unattractive or less
desirable to the acquiring firm. TWO TYPES: flip in & flip over.”

 “Shark repellent is a slang term for any one of a number of measures

taken by a company to fend off an unwanted or hostile takeover attempt.
In many cases, a company will make special amendments to its charter or
bylaws that become active only when a takeover attempt is announced or
presented to shareholders with the goal of making the takeover less
attractive or profitable to the acquisitive firm.”
No hiring of
Flip-in Flip-over Treasury Stock
Competitor’s BOD

Sale of Shares over

Super majority Debenture
the Market Price Debt façade
Vote Sheltering
Provision

Stock options, Staggered Election

High bonuses and of Board Members
Exceptional
Severance Pay (Locking of Horns)
ADVANTAGES
1. When the stock has a higher market price than reflected.
2. Predator purposes is in contrary to the company.
3. When the company undergoes financial difficulty – potential
prey.
DISADVANTAGES
1. Prevents good takeover.
2. Retention of old management.
3. To retain positions of old BODs.
GUIDELINES for anti-take over tactics
Non-disclosure of
Misappropriation Loyalty
conflict of interest

Non separation of
personal and Prudence
business concerns
 Reimbursement of officers and directors for defending claims
brought to them for actions taken on behalf of the
corporation.

 Provisions regarding indemnification and insurance officers

and directors and persons holding sensitive positions.
 Insurance coverage different from general liability insurance.

 Increasing cost because of Inherent risk (Big Fish in the Corporation)

 Increasing exclusion for the coverage to trim down assumed risk.

ORDINARY PREFERENCE
SHARES SHARES

CUMULATIVE
REDEEMABLE
PREFERENCE
SHARES
SHARES
½ +1 67% TO 90% FULL CONTROL

SMALL BUSINESS
AMENDING THE ANTI-TAKEOVER OWNERS GIVING OUT
CHARTER DEVICE SUPERMAJORITY
VOTING RIGHTS
 What is an 'Angel Investor'
 Angel investors invest in small startups or entrepreneurs.
Often, angel investors are among an entrepreneur's family
and friends. The capital angel investors provide may be a one-
time investment to help the business propel or an ongoing
injection of money to support and carry the company through
its difficult early stages.
 Legal contract involving voting of shares.
 Covers how BODs are to be selected.
 Covers major corporate events such as mergers and
acquisitions.
 Executed in connection with start up company in the case of
venture capitalist
 Can pool votes for a particular goal or whether it can be
casted collectively or cooperatively.
 Should relate to shareholders vote and should not have
malicious intention.
 Gives contractual protection to shareholders- explicit.

BOARD APPOINTMENT RIGHTS

ADOPTING
AND WARRANTIES
INTELLECTUAL STRATEGIC RESTRICTION
AMMENDMENT SCOPE OF RIGHT TO FROM RESTRICTIVE EXIT
VETO RIGHTS PROPERTY INVESTOR ON TRANSFER
OF BUSINESS BUSINESS INFORMATION MANAGEMENT COVENANTS PROVISIONS
RIGHTS RIGHTS OF SHARES
PLAN AND TEAM
BUDGETS
 Better understanding of human behavior at work.
 1st experiment - seeks to determine the lighting levels at it
contributes to productivity.
 2nd experiment – special privileges experiment to five women in the
wiring room.
 Experimenters (supervisors) became part of the study and influenced
is outcome.
 Human relations and social needs of workers are crucial aspects of
the business.
Theory X Theory Y

Managers create situations where subordinates act in ways that

confirm the manager’s original expectations.
Hygiene Factors (leading to Motivation Factors (leading
Physiological Need Psychological Need
Dissatisfaction) to Satisfaction)

An employee who
The job must use the full demonstrates an increasing
ability of the employee and level of ability should be
Adam & Abraham Concept JOB ENRICHMENT
provide them with given correspondingly
sufficient challenge. increasing levels of
responsibility.

People work for Inner

Tesco Dichotomy satisfaction and not
materialistic rewards
Human
Structural Political
Resource Lens

Schemata or
Symbolic Schemata
Theory
Trust
Vesting
Account

Lump or
Installment