Compiled Wriitten Reports Group 2

Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Santa Maria Bulacan Campus
WRITTEN
REPORTS
1
SHEANE RANUCO
REPUBLIC ACT NO. 7277

AN ACT PROVIDING FOR THE REHABILITATION, SELF-DEVELOPMENT
AND SELF-RELIANCE OF DISABLED PERSONS AND THEIR
INTEGRATION INTO THE MAINSTREAM OF SOCIETY AND FOR OTHER
PURPOSES.
TITLE I
GENERAL PROVISIONS
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CHAPTER I
BASIC PRINCIPLE
Section 1. Title. — This Act shall be known and cited as the "Magna Carta for
Disabled Persons."
Amendment:
R.A. 9442. SEC. 4. The title of Republic Act No. 7277 is hereby amended to
read as the “Magna Carta for Persons with Disability”, and all references on the
said law to “Disabled persons” shall likewise be amended to read as “persons
with disability”.
Sec. 2. Declaration of Policy — The grant of the rights and privileges for
disabled persons shall be guided by the following principles:
(a) Disabled persons are part of Philippine society, thus the State shall give full
support to the improvement of the total well-being of disabled persons and
their integration into the mainstream of society. Toward this end, the State
shall adopt policies ensuring the rehabilitation, self-development and
self-reliance of disabled persons. It shall develop their skills and potentials to
enable them to compete favorably for available opportunities.
(b) Disabled persons have the same rights as other people to take their proper
place in society. They should be able to live freely and as independently as
possible. This must be the concern of everyone — the family, community and
all government and nongovernment organizations. Disabled persons' rights
must never be perceived as welfare services by the Government.
(c) The rehabilitation of the disabled persons shall be the concern of the
Government in order to foster their capacity to attain a more meaningful,
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productive and satisfying life. To reach out to a greater number of disabled

persons, the rehabilitation services and benefits shall be expanded beyond the
traditional urban-based centers to community based programs, that will ensure
full participation of different sectors as supported by national and local
government agencies.
(d) The State also recognizes the role of the private sector in promoting the
welfare of disabled persons and shall encourage partnership in programs that
address their needs and concerns.
(e) To facilitate integration of disabled persons into the mainstream of society,

the State shall advocate for and encourage respect for disabled persons. The
State shall exert all efforts to remove all social, cultural, economic,
environmental and attitudinal barriers that are prejudicial to disabled persons.
Sec. 3. Coverage. — This Act shall cover all disabled persons and, to the
extent herein provided, departments, offices and agencies of the National
Government or nongovernment organizations involved in the attainment of the
objectives of this Act.
Sec. 4. Definition of Terms. — For purposes of this Act, these terms are
defined as follows:
(a) Disabled persons are those suffering from restriction or different abilities,
as a result of a mental, physical or sensory impairment, to perform an activity
in the manner or within the range considered normal for a human being;
(b) Impairment is any loss, diminution or aberration of psychological,

physiological, or anatomical structure or function;
(c) Disability shall mean
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1) a physical or mental impairment that substantially limits one or more

psychological, physiological or anatomical function of an individual or activities
of such individual;
2) a record of such an impairment; or
3) being regarded as having such an impairment;
(d) Handicap refers to a disadvantage for a given individual, resulting from an

impairment or a disability, that limits or prevents the function or activity, that is
considered normal given the age and sex of the individual;
(e) Rehabilitation is an integrated approach to physical, social, cultural,

spiritual, educational and vocational measures that create conditions for the
individual to attain the highest possible level of functional ability;
(f) Social Barriers refer to the characteristics of institutions, whether legal,

economic, cultural, recreational or other, any human group, community, or
society which limit the fullest possible participation of disabled persons in the
life of the group. Social barriers include negative attitudes which tend to single
out and exclude disabled persons and which distort roles and inter-personal
relationships;
(g) Auxiliary Aids and Services include:

(1) qualified interpreters or other effective methods of delivering materials to
individuals with hearing impairments;
(2) qualified readers, taped tests, or other effective methods of delivering
materials to individuals with visual impairments;
(3) acquisition or modification of equipment or devices; and
(4) other similar services and actions or all types of aids and services that
facilitate the learning process of people with mental disability.
(h) Reasonable Accommodation include
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1) improvement of existing facilities used by employees in order to render

these readily accessible to and usable by disabled persons; and
2) modification of work schedules, reassignment to a vacant position,
acquisition or modification of equipment or devices, appropriate adjustments or
modifications of examinations, training materials or company policies, rules
and regulations, the provision of auxiliary aids and services, and other similar
accommodations for disabled persons;
(i) Sheltered Employment refers to the provision of productive work for

disabled persons through workshops providing special facilities,
income-producing projects or homework schemes with a view to giving them
the opportunity to earn a living thus enabling them to acquire a working
capacity required in open industry;
(j) Auxiliary Social Services are the supportive activities in the delivery of social
services to the marginalized sectors of society;
(k) Marginalized Disabled Persons refer to disabled persons who lack access
to rehabilitative services and opportunities to be able to participate fully in
socioeconomic activities and who have no means of livelihood and whose
incomes fall below the poverty threshold;
(l) Qualified Individual with a Disability shall mean an individual with a disability
who, with or without reasonable accommodations, can perform the essential
functions of the employment position that such individual holds or desires.
However, consideration shall be given to the employer's judgment as to what
functions of a job are essential, and if an employer has prepared a written
description before advertising or interviewing applicants for the job, this
description shall be considered evidence of the essential functions of the job;
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(m) Readily Achievable means a goal can be easily attained and carried out
without much difficulty or expense. In determining whether an action is readily
achievable, factors to be considered include —
(1) the nature and cost of the action;
(2) the overall financial resources of the facility or facilities involved in the
action; the number of persons employed at such facility; the effect on
expenses and resources, or the impact otherwise of such action upon the
operation of the facility;
(3) the overall financial resources of the covered entity with respect to the
number of its employees; the number, type and location of its facilities; and
(4) the type of operation or operations of the covered entity, including the
composition, structure and functions of the work force of such entity; the
geographic separateness, administrative or fiscal relationship of the facility or
facilities in question to the covered entity.
(n) Public Transportation means transportation by air, land and sea that
provides the public with general or special service on a regular and continuing
basis;
(o) Covered Entity means an employer, employment agency, labor

organization or joint labor management committee; and
(p) Commerce shall be taken to mean as travel, trade, traffic, commerce,

transportation, or communication among the provinces or between any foreign
country or any territory or possession and any province.
TITLE II
RIGHTS AND PRIVILEGES OF DISABLED PERSONS
CHAPTER I
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EMPLOYMENT
Sec. 5. Equal Opportunity for Employment. — No disable person shall be

denied access to opportunities for suitable employment. A qualified disabled
employee shall be subject to the same terms and conditions of employment
and the same compensation, privileges, benefits, fringe benefits, incentives or
allowances as a qualified able bodied person. Five percent (5%) of all casual
emergency and contractual positions in the Departments of Social Welfare and
Development; Health; Education, Culture and Sports; and other government
agencies, offices or corporations engaged in social development shall be
reserved for disabled persons.
Related Implementing Rules and Regulations
RULE II. SECTION 1. Equal Opportunity for Employment
1.1 Opportunity for suitable employment.

Opportunity for suitable employment shall be open to all qualified disabled
persons. Efforts shall be exerted to provide qualified disabled persons equal
opportunity in the selection process based on qualification standards
prescribed for a appointment to a position.
1.2 Discrimination in employment.

No individual or entity, whether public or private, shall discriminate against a
qualified disabled person by reason of disability in regard to job application
procedures; the hiring, promotion, or discharge of employees, employee
compensation, job training, and other terms and conditions of employment. The
following constitute acts of discrimination:
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a) Limiting, segregating or classifying a disabled job applicant in such manner

that adversely affects his work opportunities;
b) Using qualification standards, employment tests or others selection criteria

that rule out or tend to rule out a disabled person unless such standards, tests
or other selection criteria are shown to be job-related for the position in question
and are consistent with business necessity;
c) Utilizing standards, criteria or methods of administration that:

1. Have the effect of discrimination on the basis of disability; or
2. Perpetuate the discrimination of others who are subject to common
administrative control;
d) Providing a lower compensation, salary, wage or other forms of

remuneration and fringe benefits to a qualified disabled employee by reason of
his disability as compared to a worker performing the same type and amount of
work but who is not disabled;
e) Favoring a non-disabled employee over a qualified disabled employee with

respect to
promotion, training opportunities, study and scholarship grants, solely on
account of the
latter’s disability.
f) Re-assigning or transferring a disabled employee to a job or position he

cannot perform by reason of his disability;
g) Dismissing or terminating the services of the disabled employee by reason of

his
disability unless the employer can prove that the satisfactory performance of
the work
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involved is impaired by reason of the disability to the prejudice of the business

entity,
Provided, however, that the employer has first exerted effort to provide
reasonable
accommodations for the disabled worker;
h) Failing to select or administer in the most effective manner employment tests

which
accurately reflect or measure the skills, aptitude or positive traits of the disabled
applicant or employee rather than the impaired sensory, manual or speaking
capabilities
of such applicant or employee, if any; and
i) Excluding disabled persons from membership in labor unions or similar

organizations.
1.3 Pre-employment medical examination.

Upon an offer of employment, a disabled applicant may be subjected to a
medical examination subject to the following conditions:
a.) Workers to be hired are subjected to such medical examination regardless

of whether or not they are disabled.
b) Information obtained concerning the medical condition or history of the

applicant is collected and maintained in separate forms and in separate
medical files and is treated as confidential medical information, Provided,
however, that:
1. Supervisors and managers may be advised of a medical findings regarding
the
applicant if it will result in impairment of the work or duties of the employees or
will require the installation of special facilities;
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2. First aid and safety personnel may also be informed of the medical finding,
when appropriate, if the disability will require emergency treatment;
3. The Secretary of the Department of Labor and Employment or his duly
authorized representative investigating compliance with this Act shall be
provided relevant information or request; and
4. The results of such medical examination shall be used only in accordance
with
this Act.
1.4 Compensation and other benefits.

The disabled employee shall receive the same compensation, privileges, fringe
benefits, incentives or allowances and other employee benefits as any other
qualified employee.
1.5 Reserved positions for the disabled.

Subject to existing laws and regulations, the Department of Social Welfare and
Development (DSWD); DOH; Department of Education, Culture and Sports
(DECS); and other government agencies, offices or corporations engaged in
social development, shall reserved five percent (5%) of all their casual,
emergency and contractual positions for employment of disabled persons.
Sec. 6. Sheltered Employment — If suitable employment for disabled persons

cannot be found through open employment as provided in the immediately
preceding Section, the State shall endeavor to provide it by means of sheltered
employment. In the placement of disabled persons in sheltered employment, it
shall accord due regard to the individual qualities, vocational goals and
inclinations to ensure a good working atmosphere and efficient production.
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RULE II. SECTION 2. Sheltered Employment
2.1 Provisions of sheltered employment.

The State shall provide sheltered employment to the disabled if suitable
employment is not available in the open labor market. In the placement of
disabled persons in sheltered employment, their individual qualities, vocational
goals and inclinations shall be accorded due regard to ensure a good working
atmosphere and efficient production.
2.2 Sheltered workshop.

For the purpose of sheltered employment, DOLE and DSWD shall endeavor to
set up sheltered workshops in all regions of the country in consultation and
coordination with existing non-government organizations (NGOs) and peoples
organizations (POs) which provide parallel services to disabled persons.
2.3 Entitlement to sheltered employment.

(a) Any disabled person who is literate and/or can follow simple instructions and
routine
work, provided he has undergone training in any particular work or service,
shall be
entitled to sheltered employment.
(c) The DOLE shall provide training in pre-determined preferential trades for the
disabled who are bound for sheltered employment.
Sec. 7. Apprenticeship. — Subject to the provisions of the Labor Code as

amended, disabled persons shall be eligible as apprentices or learners:
Provided, That their handicap is not as much as to effectively impede the
performance of job operations in the particular occupation for which they are
hired; Provided, further, That after the lapse of the period of apprenticeship, if
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found satisfactory in the job performance, they shall be eligible for

employment.
RULE II. SECTION 3. Apprenticeship and Learnership
3.1 Qualification for Apprenticeship.

To qualify as an apprenticeship or learner, the handicap of the disabled person
should not be such as to effectively impede the performance of job operation in
the particular occupation for which he shall be hired. In addition, the disabled
worker shall:
a.) Be at least fourteen (14) years of age;
b.) Possess vocational aptitude and capacity for apprenticeship; and
c.) Posses the ability to comprehend and follow oral and written instructions.
3.2 Apprenticeship agreement.

Every apprenticeship agreement shall include the following:
(a) The full names and addresses of the contracting parties;
(b) Date of birth of the apprentice;
(c) Name of the trade, occupation or job in which the apprentice will be trainee
and the dates on which such training will begin and will approximately end;
(d) The approximate number of hours of on-the-job training as well as of
supplementary theoretical instructions which the apprentice shall undergo
during his training;
(e) A schedule of the work processes of the trade/occupation in which the
apprentice shall be trained and the approximate time to be spent on the job in
each process;
(f) The graduated scale of wage to be paid the apprentice;
(g) The probationary period of the apprentice during which either party may
summarily terminate the agreement;
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(h) A commitment by the employer to make the apprentice a regular employee if

the latter’s services are retained upon completion of the apprenticeship period;
and
(i) A clause that if the employer is unable to fulfill his training obligation, he may
transfer the agreement, with the consent of the apprentice, to any other
employer who is willing to assume such obligation. The employer shall furnish
the concerned Regional Office of DOLE a copy of the apprenticeship
agreement five (5) working days from the date of its execution.
3.3 Apprenticeship programs.

(a) NMYC shall develop throughout the year apprenticeship programs for
disabled persons.
(b) DOLE shall encourage private companies to develop and implement
apprenticeship programs for disabled persons.
(c) Apprenticeship programs shall include placement assistance with
accredited NGOs.
3.4 Learnership agreement.

Any employer desiring to employ learners shall enter into a Learnership
Agreement with them, which shall include:
(a) the name and address of the learner;
(b) the duration of the learnership period, which shall not exceed three (3)
months;
(c) the wages or salary rates of the learner which shall begin at not less than
seventy five percent (75%) of the applicable minimum wage; and
(d) A commitment by the employer to employ the learner, if he so desires, as a
regular
employee upon completion of the learnership. A learner who has been allowed
or
suffered to work during the first two (2) months shall be deemed a regular
employee if
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training is terminated by the employer before the end of the stipulated period
through no
fault of the learner. The Learnership Agreement shall be subject to examination
by the Secretary of DOLE or his duly authorized representatives.
3.5 Learnership in piece work.

Learners employed in piece or incentives rate jobs during the training period
shall be paid in fully for the work done.
Sec. 8. Incentives for Employers. —
(a) To encourage the active participation of the private sector in promoting the
welfare of disabled persons and to ensure gainful employment for qualified
disabled persons, adequate incentives shall be provided to private entities
which employ disabled persons.
(b) Private entities that employ disabled persons who meet the required skills
or qualifications, either as regular employee, apprentice or learner, shall be
entitled to an additional deduction, from their gross income, equivalent to
twenty-five percent (25%) of the total amount paid as salaries and wages to
disabled persons: Provided, however, That such entities present proof as
certified by the Department of Labor and Employment that disabled persons
are under their employ: Provided, further, That the disabled employee is
accredited with the Department of Labor and Employment and the Department
of Health as to his disability, skills and qualifications.
(c) Private entities that improve or modify their physical facilities in order to
provide reasonable accommodation for disabled persons shall also be entitled
to an additional deduction from their net taxable income, equivalent to fifty
percent (50%) of the direct costs of the improvements or modifications. This
Section, however, does not apply to improvements or modifications of facilities
required under Batas Pambansa Bilang 344.
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RULE II. SECTION 4. Incentives for Employer
4.1 Incentives.
(a) Private entities that employ disabled persons who meet the required skills or
qualifications either as a regular employee, apprentice or learners shall be
entitled to an
additional deduction from their gross income equivalent to twenty-five percent
(25%)
of the total amount paid as salaries and wages to disabled persons.
(b) Private entities that improve or modify their physical facilities in order to
provide
reasonable accommodation for disabled persons shall be entitled to an
additional
deduction from their net income, equivalent to fifty percent (50%) of the direct
cost of
the improvements or modifications. This Section, however, does not apply to
improvements or modifications of facilities required under B.P. Blg. 344.
(c) The DOLE Secretary shall, from time to time, identify and provide other
incentives to
private entities which employ disabled persons to encourage the active
participation of
the private sector in promoting the welfare of disabled persons, and to ensure
gainful
employment for qualified disabled persons.
4.2 Requirement for entitlement to incentives.
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The following shall be the requirements for entitlement to the incentives:
A. For employing disabled workers:

(a) DOH Accreditation as to the type of disability/ties of the disabled workers;
(b) DOLE (NMYC) Accreditation as to the skills and qualifications of the
disabled workers;
(c) Certification of Employment of the accredited disabled workers from the
concerned DOLE Regional Director; For purposes of Accreditation, DOLE and
DOH shall establish a unit in each of their regional offices to facilitate the
processing of the accreditation of the disabled persons.
B. For improving or modifying physical facilities for reasonable accommodation

for disabled employees:
(a) Certification from the building inspectors in consultation with the DSWD and
other
concerned groups in the region where the facilities are located.
Sec. 9. Vocational Rehabilitation. — Consistent with the principle of equal

opportunity for disabled workers and workers in general, the State shall take
appropriate vocational rehabilitation measures that shall serve to develop the
skills and potentials of disabled persons and enable them to compete favorably
for available productive and remunerative employment opportunities in the
labor market. The State shall also take measures to ensure the provision of
vocational rehabilitation and livelihood services for disabled persons in the
rural areas. In addition, it shall promote cooperation and coordination between
the government and nongovernmental organizations and other private entities
engaged in vocational rehabilitation activities. The Department of Social
Welfare and Development shall design and implement training programs that
will provide disabled persons with vocational skills to enable them to engage in
livelihood activities or obtain gainful employment. The Department of Labor
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and Employment shall likewise design and conduct training programs geared
towards providing disabled persons with skills for livelihood.
SECTION 5. Vocational Rehabilitation
5.1 Principle of equal opportunity.

The principle of equal opportunity for disabled workers shall extend to the
provision to develop their skills for livelihood and gainful employment.
5.2 Vocational rehabilitation training.

The NMYC, in coordination with every concern department agency or LGU,
shall include vocational rehabilitation training of disabled person as a
component of its continuing human resources development program and shall
exert efforts to integrate that thrust into its corporate plans. Such component
may take the form of research material production, training design and
administration, or evaluation and monitoring.
5.3 Vocational rehabilitation program. â€“ In adopting the component of

vocational
rehabilitation, each agency or LGU, in coordination with NMYC, shall:
(a) Prepare a Comprehensive Support Plan based on the assessment of
training needs and skills inventory of disabled employees which will be
provided by the DSWD.
(b) Design, implement and evaluate, a specific and appropriate program which
the agency or LGU can manage, direct and control within its organizational
framework and capacity. Such programs shall include, but not be limited, to the
following:
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1) Orientation Program which is intended to inform disabled employees about

the
department, agency or LGU programs, thrusts and operations.
2) Social Adjustment/Personality/Development Program which is intended to
equip disabled persons with dynamics or interpersonal relationships as well as
public relations skills to prepare them for greater responsibilities.
3) Technical Program in specific areas which is intended to enhance the skills
and
knowledge of disabled employees for livelihood and gainful employment.
4) Values Development Program which is intended to generate positive
attitudes of disabled persons and to harness service values of participants to
be effective employees.
5) Entrepreneurial Opportunity Program which is intended to familiarize
disabled persons who wish to enter into business ventures, the mechanics of
business as well as available business opportunities or other productive
endeavors. Any department, agency or LGU may enter into cooperative
undertakings with other departments, agencies or LGUs, as the case may be,
to develop and implement an appropriate vocational program for disabled
persons.
5.4 Facilities for Vocational Rehabilitation

(a) Each LGU shall provide adequate and affordable facilities for vocational
rehabilitation
projects. Said facilities shall include infrastructure, funding and manpower.
(b) A Livelihood Promotion Committee shall be established in every LGU. Said
Committee shall be tasked to develop, implement, monitor and evaluate
vocational
rehabilitation programs for disabled persons residing in rural areas.
(c) The Livelihood Promotion Committee shall be comprised of a designated
Community
Development Officer permanently employed in the LGU, a ranking NGO official,
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and a
disabled person nominated by concerned groups in the LGU involved in
livelihood
programs.
5.5 Vocational Guidance and Counseling.

The DSWD shall:
(a) Provide vocational guidance and counseling for disabled persons.
(b) Ensure the availability of trained counselors and staff for this purpose.
Sec. 10. Vocational Guidance and Counseling. — The Department of Social

and Welfare and Development, shall implement measures providing and
evaluating vocational guidance and counseling to enable disabled persons to
secure, retain and advance in employment. It shall ensure the availability and
training of counselors and other suitably qualified staff responsible for the
vocational guidance and counseling of disabled persons.
Sec. 11. Implementing Rules and Regulations. — The Department of Labor

and Employment shall in coordination with the Department of Social Welfare
and Development (DSWD) and National Council for the Welfare of the
Disabled Persons (NCWDP) shall promulgate the rules and regulations
necessary to implement the provisions under this Chapter.
R.A. 9442 SEC. 5. Implementing Rules and Regulations , - The Department of

Social Welfare and Development, the National Council for the Welfare of
Disabled Persons, and the Bureau of Internal Revenue, in consultation with the
concerned Senate and House committees and other agencies, organizations,
establishments shall formulate implementing rules and regulations pertinent to
the provision of this Act within six months after the effectivity of this Act.
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SEC. 3. Implementing Rules and Regulations, – The Department of Social

Welfare and Development (DSWD), in consultation with the Department of
Health (DOH), the Department of Finance (DOF), and the National Council on
Disability Affairs (NCDA), shall promulgate the necessary rules and regulations
for the effective implementation of the provisions of this Act: Provided, That the
failure of the concerned agencies to promulgate the said rules and regulations
shall not prevent the implementation of this Act upon its effectivity.
References:
http://laws.chanrobles.com/republicacts/106_republicacts.php?id=10179
http://www.ncda.gov.ph/disability-laws/republic-acts/republic-act-9442/
http://hrlibrary.umn.edu/research/Philippines/RA%207277%20%20Magna%20
Carta%20of%20Disabled%20Persons.pdf
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ERVIE SAN PABLO
/TITLE TWO- RIGHTS AND PRIVILEGES OF DISABLED PERSONS
I. CHAPTER 2 – Education
SECTION 12. Access to Quality Education

The State shall ensure that disabled persons are provided with adequate
access to quality education and ample opportunities to develop their skills. It
shall take appropriate steps to make such education accessible to all disabled
persons. It shall be unlawful for any learning institutions to deny a disabled
person admission to any course it offers by reason of handicap or disability.
The State shall take into consideration the special requirements of disabled
persons in the formulation of education policies and program. It shall
encourage learning institutions to take into account the special needs of
disabled persons with respect to the use of school facilities, class schedules,
physical education requirements and other pertinent consideration. The State
shall also promote the provision by learning institutions, of auxiliary services
that will facilitate the learning process for disabled persons.
Related Implementing Rules and Regulations:

Rule III
SECTION 1. Quality Education for Learners with Special Needs
1.1 Learning institutions under this rule shall admit all learners with special
needs whether in academic, vocational or technical courses and other training
programs except in the following instances:
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a) If the learning institutions have already accepted learners with special needs
and further acceptance will render the teaching personnel and facilities less
effective.
b) If the learning institutions do not meet the criteria set by the Bureau of SPED
and are not included in the financial assistance program excepts for
government and state owned learning institutions shall be encouraged and
provided necessary assistance to comply with the requirements of this rule and
shall be subject to monitoring, supervision and assessment.
c) Teacher training institutions are enjoined to include basic SPED courses at
the undergraduate levels of education and in other related areas. These
courses shall equip teachers with the skills needed to modify content and the
teaching approaches used in ordinary classrooms so as to give curriculum
access to learners with special needs. Skills in identifying and assessing
learners with special needs and in working with parents and the specialists
shall also be developed.
d) Teaching institutions shall offer scholarship programs to SPED teachers in
coordination with the Department of Education, Culture and Sports,
Commission on Higher Education and other government and non-government
agencies. These programs can be provided through alternative training models
to include but not limited to short term courses, distance education, mobile
training, and module instruction.
SECTION 13. Assistance to Disabled Students

The State shall provide financial assistance to economically marginalized but
deserving disabled students pursuing post secondary or tertiary education.
Such assistance may be in the form of scholarship grants, student loan
programs, subsidies, and other incentives to qualified disabled students in both
public and private schools. At least five percent (5%) of the allocation for the
Private Education Student Financial Assistance Program created by virtue of
R.A. 6725 shall be set aside for disabled students pursuing vocational or
technical and degree courses.
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SECTION 2. Program Modification and Eligibility for Financial Assistance
2.1 Modified Facilities and Equipment for Learners with Special Needs
a) For Academic Institutions
1. For persons with visual impairment- sensory and tactile materials, Braille
books
and record materials, Braille writing, printing and reading machines, orientation
and
mobility equipment.
2. For persons with hearing impairment- group or individual hearing aids,
speech
trainers, tape recorders and speech or language kit containing auditory and
language
training materials.
3. For persons with orthopedic handicaps- the requirements provided for by B.P.
Blg.
344 shall complied with including adjustable desks or chairs and adapted
physical
education apparatuses.
4. For persons with mental retardation- facilities, equipment and instructional
materials for developing skills in self-care, socialization, motor, cognitive and
prevocational and vocational training.
5. Other types of learners with special needs: those with behavioral problems
including those with autism, those with learning disabilities and those with
multiple handicaps- instructional devices and equipment for behavior
modification, perceptual motor training, daily living skills, language and speech
and cognitive skills development.
b) Vocational and Technical Schools and Centers for Learners with Special
Needs.
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To equip learners with special needs with vocational skills for gainful
employment, on
the job or hands-on training and apprenticeship programs shall be encouraged.
1. For persons with visual impairment- tools and machineries used must have
Braille
marks and sound identifying features and other adaptations.
2. For persons with hearing impairment- signal lights, signs and other
adaptations shall
be incorporated in the tools and machineries.
3. For persons with orthopedic handicaps- tools and machineries shall have
adapted
devices which include but is not limited to the following:
Hand control for learners with special needs with non-functioning legs and feet;
control
panel for those with non-functioning hands; and mouth control device for those
with
non-functioning limbs. Height and size of the machines shall be considered in
making
adaptations in the teaching learning environment.
4. For persons with mental retardation- appropriate sheltered workshops, work
centers and other similar arrangements.
5. For other types of learners with special needs- those adaptations mentioned
in numbers1,2,3 and 4 as needed.
c) Special Education Centers for Learners with Special Needs

SPED Centers shall be establish nationwide based on needs assessment and
in consultation with leaders of the disabled sectors.
2.2 Eligibility for Financial Assistance

a) Only those academic institutions and entities, vocational and technical
schools and
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centers and those offering other training programs with modified facilities and
equipment mentioned in Section 1 a and b of Rule III shall be eligible for
financial
assistance under this rule.
b) All learners with special needs regardless of disability, age, sex, religion and
creed,
shall be qualified for a financial assistance program provided they are Filipino
citizens
and must have met the requirements set by the Bureau of SPED in accordance
with
Section V of Rule IV.
SECTION 14. Special Education

The State shall establish, maintain and support a complete, adequate and
integrated system of special education for the visually impaired, hearing
impaired, mentally retarded persons and other type of exceptional children in all
regions of the country. Towards this end, the Department of Education, Culture
and Sports shall establish special education classes in public schools in cities,
or municipalities. It shall also establish, where viable, Braille and Record
Libraries in provinces, cities or municipalities. The National Government shall
allocate funds necessary for the effective implementation of the special
education program nationwide. Local government units may likewise
appropriate counterpart funds to supplement national funds.

1.2 Formal Education
To provide learners with special needs with access to basic education, learning
institutions shall offer integrated education.
26
In order to ensure that quality education is accessible, the following

components namely, curriculum, educational programs, teaching methods and
services shall be given importance by learning institutions:
1. For persons with visual impairment in the preparatory, elementary and early
secondary levels modified curriculum shall include but not limited to, sensory
training, special instruction in Braille reading and writing, mathematics,
orientation and mobility, music and typing.
Preparation for integration and mainstreaming must be worked out in the early
years of schooling at the elementary level to assure that visually impaired
children just like other children with special needs except those possibly with
mental retardation are educated
worth their non handicapped peers to the fullest extent possible. For post
secondary vocational to tertiary levels they shall be integrated and
mainstreamed and undergo the regular curriculum. Learners with visual
impairment in these levels shall be given the necessary service such as:
reading, writing Braille, record library services, orientation and mobility, optical
and medical services, counseling and other assistance.
2. For persons with hearing impairment, modified curriculum shall emphasize
communication and language development which is tailored to meet the
learner's educational need. The curriculum shall include special instruction in
speech, speech reading, auditory training and rhythm using total
communication, multi-sensory and other approaches, They shall be referred to
such support personnel as sign language interpreters, audiologist, otologist,
speech therapist, auditory trainors and others as needed.
3. For persons with orthopedic handicaps, quality education shall be given in
the same manner as those in the regular education except that school facilities
and physical environment shall be in compliance with B.P. Blg. 344 and they
shall be allowed to attend classes in the ground floors of the school buildings
whenever possible. Class schedule and other pertinent considerations shall be
made to suit their learning requirements.
27
4. For persons with mental retardation, modified curriculum shall emphasize

training in self-care, socialization, motor, pre-vocational, vocational and other
daily living skills. For those with severe retardation, emphasize shall be on the
development of self-care skills.
5. For all types of learners with special needs, teaching strategies shall be
creative, multidimensional, multi-sensorial and shall involve active participation
of the learners.
6. For other types of learners with special needs:
a) Those with behavior problems including those with autism, those with
learning disabilities and those with multiple handicaps, modified curriculum
shall includes special activities and instructional techniques for the
normalization of behavior, functions and technical, academic skills to prepare
them for the world of work.
b) For disabled gifted persons, the curriculum should emphasize the
development of communication skills, positive self-concept, high level
abstract thinking, social skills and independent living using creative teaching
principles and interdisciplinary approaches.
7. All SPED personnel involved in the education of learners with special needs
shall be
technically trained. The DECS shall continuously review the possibility of
providing
incentives to these personnel to attract others to join this profession and
prevent the fast
turnover of the SPED teachers to high paying jobs.
With the above considerations, learners with special needs shall be afforded
appropriate types of special education programs suited to their needs to
maximize their potentials.
SECTION 15. Vocational or Technical and Other Training Programs
The State provide disabled persons with training in civics, vocational efficiency,
sports and physical fitness, and other skills. The Department of Education,
Culture and Sports shall establish in at least one government-owned vocational
28
and technical school in every province a special vocational and technical

training program for disabled persons. It shall develop and implement sports
and physical fitness program specifically designed for disabled persons taking
into consideration the nature of their handicap.
SECTION 16. Non-Formal Education

The State shall develop non formal education programs intended for the total
human development of disabled persons. It shall provide adequate resources
for non-formal education programs and projects that cater to the special needs
of disabled persons.

1.3 Non formal Education
Alternative special delivery systems to complement formal education shall
include but not limited to community-based, church-based, hospital-based, and
other non-school based programs and services for learners with special needs.
Radio, TV video, print and other distance teaching approaches shall be utilized
to reach out to those who cannot avail of institution-based programs and
services. The participation of persons with special need, their parents and the
community in the delivery of programs and services to this special group must
be enhanced through the establishment of peer counseling, volunteerism,
community awareness and church support.
SECTION 17. State Universities and Colleges

If viable and needed, the State Universities or State Colleges in each region or
province shall be responsible for (a) the development of material appliances
and technical aids for disabled persons; (b) the development of training
materials for vocational rehabilitation and special education instructions; and (c)
the research on special problems, particularly of the visually-impaired,
hearing-impaired, and orthopedically-impaired students, mentally retarded, and
29
multi-handicapped and other, and the elimination of social barriers and

discrimination against disabled persons; and (d) inclusion of the Special
Education for Disabled (SPED) course in the curriculum. The National
Government shall provide these state universities and colleges with the
necessary special facilities for visually-impaired, hearing impaired, speech
impaired, and orthopedically-impaired students. It shall likewise allocate the
necessary funds in support of the above.
II. CHAPTER 3 – Health
SECTION 18. National Health Program

The Department of Health, in coordination with National Council for the Welfare
of Disabled Persons, shall institute a national health program which shall aim to
attain the following:
(a). prevention of disability, whether occurring prenatally or post-natally;
(b). recognition and early diagnosis of disability; and
(c). early rehabilitation of the disabled.

Rule IV
SECTION 3. Function and Areas of Responsibility
A. Department of Health
1. National Health Program for Disabled Persons â€“ The Department shall:
1.1 include in its annual budgetary proposals the provision for the funding
requirements of the program;
1.2 create a division under the Non-Communicable Disease Control
Service that shall administer and lead in the implementation of the program;
1.3 set up a national registration/reporting system for specific types of
disabilities and shall generate and assess data base on the current status,
needs and circumstances of disabled persons in the country to provide an
effective basis for a national health program plan for disabled persons; and
30
1.4 strengthen its programs on immunization, breastfeeding, maternal and

child care, safe motherhood, family planning, pre-employment
examination/orientation disease control programs and other relevant
programs in support of the National Health Program for Disabled Persons.
2. Establishment of Medical Rehabilitation Centers at the Provincial Level
The Department shall:
2.1 Initiate the establishment of medical rehabilitation centers at the
provincial level and shall request for the necessary capital and equipment
outlay needed for this purpose;
2.2 Program the establishment of medical rehabilitation centers at the
provincial level through a reasonable phasing scheme that will ensure a
nationwide coverage within a ten year period, subject to availability of funds;
2.3 Formulate policies and standards governing the operations of such
medical rehabilitation centers;
2.4 Institute a manpower development program to ensure adequate
manpower support for the centers; and
2.5 Monitor and assess regularly the operations of the centers to ensure
that standards are strictly followed.
B. Local Government Units
It shall:
1. provide rehabilitation services within the scope and capability of the center at
affordable cost;
2. allocate or construct a room within or adjacent to the provincial hospital
building with a dimension of at least 100 square meters to house the medical
rehabilitation center;
3. provide adequate funding for the proper maintenance and operation of the
center;
4. create positions and provide funding for salaries of permanent and casual
personnel assigned to the center; and
5. tap the services of local non-government organizations, private practitioners
and other government agencies in the area, whenever feasible.
31
SECTION 19. Rehabilitation Centers

The Department of Health shall establish medical rehabilitation centers in
government provincial hospitals, and shall include it annual appropriation the
necessary funds for the operation of such centers. The Department of Health
shall formulate and implement a program to enable marginalized disabled
persons to avail of free rehabilitation services in government hospitals.

SECTION 5. Establishment of Medical rehabilitation Centers at the
Provincial Level
A. Operational Guidelines for Provincial Medical Rehabilitation Centers
1. The Medical Rehabilitation Center shall be attached to the Department of
Medicine of the Provincial Hospital. It shall be under the administrative
supervision of the chief of the Department of Medicine.
2. The Medical Rehabilitation Center shall provide, as a minimum, the services
of a physical therapist and/or an occupational therapist on a permanent basis.
3. The basic minimum requirements for equipment and supplies for a provincial
medical
rehabilitation centers shall consist of the following appropriate technological
devices:
3.1 Hydro collator with pack
3.2 Treatment table with pelvic traction (optional)
3.3 Cervical traction (optional)
3.4 Therapeutic ultrasound
3.5 Portable electrical stimulator
3.6 Therapeutic gym
3.6.1 Parallel bar with postural mirror
3.6.2 Overhead pulley
3.6.3 Weights
3.6.4 Stairs and ramp
32
3.6.5 Bicycle with ergo meter

3.6.6 Toys
3.7 Evaluation Kits
3.8 Mats
3.9 Adapted tables and chairs
3.10 Stove and water heater
4. The minimum services to be provided by provincial medical rehabilitation
centers shall be physical and psychosocial rehabilitation. Other services, such
as but not limited to occupational and speech rehabilitation may be provided
depending on the capability of the center. Services beyond the area of
expertise of the center shall be referred to higher centers.
5. To maintain the continuity of services, patients who have undergone
rehabilitation at the provincial medical rehabilitation centers shall be referred to
their respective local government units for any appropriate community-based
rehabilitation services and for follow up.
6. The Medical Rehabilitation Center shall be a training ground for field health
personnel in the provision of the rehabilitation service to Disabled persons.
7. Regional Hospitals and Regional/Medical Centers with Physiatrists and other
health professionals shall develop a mechanism for regular periodic visits of
such specialist to provincial medical rehabilitation centers within their
catchments areas. Expenditures arising from such visits shall be borne by that
recipient local government unit.
SECTION 20. Health Services

The State shall protect and promote the right to health of disabled persons and
shall adopt an integrated and comprehensive approach to their health
development which shall make essential health services available to them at
affordable cost. The National Government shall provide an integrated health
service for disabled persons which shall include, but not limited to, the
following:
33
(a). prevention of disability through immunization, nutrition, environmental

protection and preservation, and genetic counselling; and early detection of
disability and timely intervention to arrest disabling condition; and
(b). medical treatment and rehabilitation.
Department of Health shall field medical personnel specializing in the treatment

and rehabilitation of disabled persons to provincial hospitals and, when viable,
to municipal health centers. It shall also train its field health personnel in the
provision of medical attention to disabled persons. It shall further ensure that its
field health units have the necessary capabilities to fit prosthetic and orthotic
appliances on disabled persons.

SECTION 6. Health Services
A. Scope
The following types of health services shall be made available to disabled
persons at the affordable cost:
1. Primary, secondary and tertiary health care
2. Health education and counseling services
3. Referral to other centers, both government and non-government
organizations for further/special care when necessary
B. Availment of Services
1. All disabled/handicapped persons shall receive, without prejudice to their
condition, the appropriate outpatient and in-patient health services available in
any government/private health institutions.
2. Health services available in any government health facility shall be provided;
– free to indigent disabled handicapped patients
– at discounted rates for other disabled/handicapped patients, according to
conditions to be set by the Department of Social welfare and Development and
the Department of Health
34
C. Specific Health Services

1. Basic Health services for the prevention, early diagnosis, timely intervention,
and early rehabilitation of disability shall be provided to disabled persons such
as, but not limited to, the following:
1.1 Control of communicable and non-communicable diseases
1.2 Nutrition
1.3 Environment sanitation
1.4 Maternal/child health services.
1.4.1 Parental counseling
1.4.2 Safe delivery
1.4.3 Child care and immunization
1.4.4 Control of diarrheal diseases
1.4.5 Breastfeeding
1.4.6 Premarital/genetic counseling
1.5 Control of environmental hazards and occupational safety
1.6 Dental care
1.7 General health and medical services
1.8 Physical and psychosocial rehabilitation
2. Disability Screening
2.1 All health personnel attending to birth, whether private or public, shall
screen for and report disabilities to the nearest rural health unit within
seven (7) days.
2.2 Screening at the barangay level using the approved screening tool to
be developed shall be done by the midwife and/or barangay health
worker (either the barangay health worker, barangay nutrition health
scholar or the like).
2.3 Any child identified/suspected with a disability during the process of
immunization or Operation Timbang shall be referred to the nearest
government health care facility for confirmation of findings.
35
2.4 Confirmation of disability shall be done by a rural health

physician/district hospital physician/provincial hospital physician or regional
hospital physician/ private physician as the case may be, for work-up and
specific treatment, management and rehabilitation.
2.5 All confirmed disability cases shall be recorded and reported in
accordance with the Department of Health guidelines.
2.6 All primary and secondary schools, both public and private, shall
integrate disability screening during the annual physical examination utilizing
the approved forms to be developed.
2.7 The school physician/nurse/teacher shall make a report of all suspected
disabilities to the principal, who in turn shall inform, advice and make
appropriate medical referrals through the parents.
2.8 All cases of disability diagnosed and confirmed in any health care
facility
whether government or private shall be reported to the Department of
Health.
D. Promotive and Preventive Health Measures

1. The Department of Health shall strengthen its immunization program for all
infants and children.
2. All health centers at various levels shall provide genetic, prenatal and
premarital counseling.
3. Provincial hospitals shall assign appropriate health professionals who shall
act as genetic counselor after appropriate training.
III. CHAPTER 4 – Auxiliary Social Services
SECTION 21. Auxiliary Social Service

The State shall ensure that marginalized persons are provided with the
necessary auxiliary services that will restore their social functioning and
36
participation in community affairs. Toward this end, the Department of Social

Welfare and Development shall develop and implement programs on auxiliary
social services that respond to the needs of marginalized disabled persons.
The components of such a program shall be as follows:
(a). assistance in the acquisition of prosthetic devices and medical intervention
of specialty services;
(b). provision of specialized training activities designed to improved functional
limitations of disabled persons related to communications skills;
(c). development among disabled persons of a positive self-image through the
provision of counselling, orientation and mobility and strengthening daily living
capability;
(d). provision of family care services geared towards developing the capability
of families to respond to the needs of the disabled members of the family;
(e). provision of substitute family care services and the facilities therefore for
abandoned, neglected, abused and unattached disabled persons who need
custodial care;
(f). provision of after care and follow-up services for the continued rehabilitation
in a community-based setting of disabled persons who were released from the
residential care or rehabilitation center; and
(g). provision of day care services for disabled children of pre-school age.

Rule V
SECTION 1. Auxiliary Social Services
The Social Worker shall provide these services through the following
procedures:
A. Provide subsidized program for the acquisition of prosthetic devices and
Medical
Intervention on Specialty Services. This service shall assist the marginalized
disabled
person to improve his physical residual capacity through medical intervention
37
and/or use of technical devices. The City/Municipal Social Worker shall

undertake the following
steps:
1. Inform the community of the availability of the assistance for physical
restoration
services for disabled persons.
2. Refer the client to a doctor in the Regional Hospital or any other government
hospital specializing in the provision of physical restoration devices for medical
and physical assessment to determine the need for physical restoration.
3. Consult and coordinate with attending physician the need for prosthetic
devices
and/or medical intervention to restore residual physical capacities.
Specification of prosthetic devices shall be recommend by the medical
specialist.
4. Mobilize resources of the family, the community and coordinate with
government and non-government agencies involved in disabled persons to
assist in hospitalization and other needs while client is undergoing prosthesis
fitting and medical intervention services.
5. Discuss with the disabled person and his family upon recommendation for
prosthetic and/or medical intervention by the doctor, the advantages and
disadvantages of the intervention.
6. Motivate and counsel client to undergo the treatment
7. Refer the client to the government hospital to avail of prosthetic devices
and/or surgical intervention.
8. Whenever necessary, the transportation assistance shall be provided to
enable the disabled person to travel to and from the hospital. The Department
of Health shall adopt a standard on technical aids produced in the country both
by local and foreign manufacturers.
B. Provision of auxiliary aids and services.
38
The following services shall be provided by appropriate government and

non-government agencies:
1. Service of qualified interpreters and readers shall be provided by the
organizing agency when these services are necessary in their projects or
activities.
2. Training program shall be provided for direct service workers of agencies
where services of interpreters or readers would facilitate communication.
3. Program for training of specialist to facilitate the learning process of people
with mental disability.
4. Acquisition or modification of equipment or devices, like voice synthesizer, to
facilitate communication.
C. Provision of specialized training activities designed to improve functional

limitations of disabled persons related to communication skills. This service
shall assist the marginalized disabled person with hearing and/or speech and
visual impairment. The goal of the service is to enable the client to
communicate his needs and ideas thru skills learned and improved his social
interaction with people. The following procedures shall be undertaken by the
city/municipal social worker:
1. Identify disabled persons with communications skills problem and if feasible,
group
them together. If this is not possible, individualized training shall be provided.
These
disabled persons shall include:
a. visually impaired persons who need to learn Braille reading and writing
for social and economic functions
b. disabled person who has hearing and/or speech impairment and has not
developed a language to communicate and relate with other persons to
enable him to participate in family and community life
c. other disabled persons such as cerebral palsy shall be provided these
services if and when necessary.
39
2. Identify the pool of resource persons who will train the above-mentioned
disabled persons e.g. trained DSWD workers in Community Based Project for
Hearing Impaired (CBPHI) for the deaf or in Rehabilitation or Rural Blind
workers for visually impaired, Special Education teachers from the DECS and
NGOs involved in the development of communication skills for the disabled
persons.
3. Refer to the proper venue for the training as Specified by Sec.14 of the Code
e.g.
Day Care Centers, Day Centers for the Elderly, Barangay Halls and others
4. Set training schedule which is convenient and shall accommodate not only
disabled person but his family member/s as well. It is important for family
members to attend and learn in order for the whole family to be able to
communicate with disabled member. This is especially true for hearing
impaired person. The length of training will depend on the ability of the disabled
person to learn the skills. When necessary, in addition to Braille reading and
writing or total communication skills, these clients shall undergo social
academics which includes development of knowledge and understanding of
weights, measures, time, signing of name, use of public facilities such as
telephones, post office and public transportation. Disabled persons with speech
impairment not secondary to deafness, e.g. stroke victims, trauma, harelip etc.
shall be referred to speech training.
D. Development among disabled persons of a positive self-image through the

provision of counseling, orientation and mobility and strengthening of daily
living capability.
1. Individual and Group Counseling
The disabled person who is willing to undergo physical, social, vocational
rehabilitation shall be provided counseling services by the social worker either
through individual or group sessions. The goal of the service is encourage
disabled person to share their problems in order to have greater understanding
of their causes. From this understanding they will commit themselves to take
40
action that will solve their problems. As a result they will gain confidence in their
ability to decide and find solutions to their problems. When necessary, the
social worker shall conduct and refer the client to existing government and
nongovernment agencies providing counseling services in the area.
2. Orientation and Mobility Training – The Social Worker shall help disabled
person identify resource persons in the community, who can assist blind
persons and mentally retarded persons learn to travel independently and
safely.
3. Daily Living Skills – The Social Worker shall help disabled person develop
skills in daily living activities (DLA). She can do this by direct teaching of the
clients or through a member of the family. DLA training include skills in bathing,
getting dressed, washing clothes, cleaning the house and other things that
people do from the time they wake up to the time they sleep.
4. If skills of the Social Worker is inadequate to meet the training needs of the
disabled person, he shall assist the client identify persons or agencies in the
community who can respond to these needs.
E. Provision of Family Care Services is geared towards assisting the disabled

person who is not adequately cared for due to rejection or inadequate
knowledge and skills of the family in taking care of a disabled person. To
achieve this goal, the Social Worker shall undertake the following activities:
1. The Social Worker shall assist the family determine their strengths and
weaknesses in coping with the problems brought about by the clients disability.
2. The Social Worker shall work with the disabled person and his family,
develop a plan
of activities aimed at meeting the care giving needs of the disabled person .
Where knowledge and skills of the family in care giving is lacking, the Social
Worker shall help tap resources, such as the health authorities or other
members of the community to teach any family member of the disabled person,
the necessary care needed.
41
3. The Social Worker shall see to it that plans are implemented. Follow-up shall
be conducted to encourage the family and provide the moral support needed
thus helping reduce any stress that may arise as a result of prolonged care by
family members.
F. Provision of after care and follow-up services for the continued rehabilitation
on a community based setting of disabled persons who were released from
residential care or rehabilitation centers. This service is a continuation of the
rehabilitation process within the family and in community setting after the
disabled person is released from institutional care. The Social Worker shall
assist in the reintegration process by the disabled person into his family and
community, become productive, self-reliant and contributing member of
society.
1. The Social Worker shall work with the family of the disabled person in
preparationfor his release upon receipt notice from the referring institution.
2. The Social Worker shall prepare the family for the eventual return of the
disabled person utilizing her skills in case management.
3. Resources of the community should be mobilized to provide necessary
resources to help in the integration of the disabled in his family and community.
G. Provision of Day Care Services for disabled children of pre-school age. It is

the aim of this service to reintegrate the disabled child with existing day care
services in order for him to grow as normal a child as possible in spite of his
disabilities. The normal children in the center shall be helped to be more
understanding of the plight of the disabled child letting him participate in
everyday activities. The following activities shall be undertaken by the social
worker:
1. Prepare the disabled child and his family for integration in a regular day care
center nearest his residence. Advice them on what to expect, activities to be
done and the people the disabled child will be learning, playing and enjoying
with.
42
2. Coordinate with day care worker on how to handle a disabled child and what
activities can be given so that all the children can participate in. Assist the day
care worker in developing these skills.
3. Assist Day Care Worker in encouraging parents of disabled children to
participate in Day Care projects/activities.
H. Provision of Substitute Family cares services and the facilities therefore for
abandoned, neglected, abused and unattached disabled persons who need
custodial care. Substitute parental and family care shall be provided by the
State to abandoned, neglected, unattached, marginalized disabled persons in
residential care facilities.
1. Applicants or referrals from the field shall be assessed by the Social Welfare
Development Officer to ensure that the disabled person meets the criteria. The
disabled person shall be referred to the nearest available residential care
facility where he resides.
2. The residential care shall provide rehabilitation services with the aim of
acquiring skills on self-care, socialization and independent living for eventual
re-integration to the community.
The local government unit shall make sure that the necessary funds are
available for the implementation of the above service
VI. References
http://www.ncda.gov.ph/disability-laws/implementing-rules-and-regulations-irr/i
rr-of-ra-7277/
43
AMIEL FLORES
Republic Act 7277
TITLE TWO - RIGHTS AND PRIVILEGES OF DISABLED PERSONS
CHAPTER V- TELECOMMUNICATIONS
Sec. 22. Broadcast Media. — Television stations shall be encouraged to
provide a sign language inset or subtitles in at least one (1) newscast program
a day and special programs covering events of national significance.
Sec. 23. Telephone Services. — All telephone companies shall be encouraged
to install special telephone devices or units for the hearing-impaired and
ensure that they are commercially available to enable them to communicate
through the telephone system.
Sec. 24. Free Postal Charges for the Disabled. — Postal charges shall be free
on the
following:
(a) articles and literatures like books and periodicals, orthopedic and other
devices, and teaching aids for the use of the disabled sent by mail within the
Philippines and abroad; and
(b) aids and orthopedic devices for the disabled sent by abroad by mail for
repair: Provided, That the aforesaid items are for personal purposes only:
Provided, further, That the disabled person is a marginalized disabled as
certified by the Social Welfare and Development Office of the local government
unit concerned or the Department of Social Welfare and Development.
CHAPTER VI - ACCESSIBILITY
Sec. 25. Barrier-Free Environment. — The State shall ensure the attainment of
a barrier-free environment that will enable disabled persons to have access in
public and private buildings and establishments and such other places
mentioned in Batas Pambansa Bilang 344, otherwise known as the
"Accessibility Law". The national and local governments shall allocate funds
for the provision of architectural facilities or structural features for disabled
persons in government buildings and facilities.
44
Sec. 26. Mobility. — The State shall promote the mobility of disabled persons.
Disabled persons shall be allowed to drive motor vehicles, subject to the rules
and regulations issued by the Land Transportation Office pertinent to the
nature of their disability and the appropriate adaptations or modifications made
on such vehicles.
Sec. 27. Access to Public Transport Facilities. — The Department of Social
Welfare and Development shall develop a program to assist marginalized
disabled persons gain access in the use of public transport facilities. Such
assistance may be in the form of subsidized transportation fare. The said
department shall also allocate such funds as may be necessary for the
effective implementation of the public transport program for the disabled
persons. The "Accessibility Law", as amended, shall be made suppletory to
this Act.
Sec. 28. Implementing Rules and Regulations. — The Department of
Transportation and Communications shall formulate the rules and regulations
necessary to implement the provisions of this Chapter
CHAPTER VII- POLITICAL AND CIVIL RIGHTS

Sec. 29. System of Voting. — Disabled persons shall be allowed to be assisted
by a person of his choice in voting in the national or local elections. The person
thus chosen shall prepare the ballot for the disabled voter inside the voting
booth. The person assisting shall bind himself in a formal document under oath
to fill out the ballot strictly in accordance with the instructions of the voter and
not to reveal the contents of the ballot prepared by him. Violation of this
provision shall constitute an election offense. Polling places should be made
accessible to disabled persons during national or local elections.
Sec. 30. Right to Assemble. — Consistent with the provisions of the
Constitution, the State shall recognize the right of disabled persons to
participate in processions, rallies, parades, demonstrations, public meetings,
and assemblages or other forms of mass or concerned action held in public.
Sec. 31. Right to Organize. — The State recognizes the right of disabled
persons to form organizations or associations that promote their welfare and
advance or safeguard their interests. The National Government, through its
agencies, instrumentalities and subdivisions, shall assist disabled persons in
establishing self-help organizations by providing them with necessary
technical and financial assistance. Concerned government agencies and
offices shall establish close linkages with organizations of the disabled
persons in order to respond expeditiously to the needs of disabled persons.
National line agencies and local government units shall assist disabled
45
persons in setting up specific projects that will be managed like business

propositions. To ensure the active participation of disabled persons in the
social and economic development of the country, their organizations shall be
encouraged to participate in the planning, organization and management of
government programs and projects for disabled persons. Organizations of
disabled persons shall participate in the identification and preparation of
programs that shall serve to develop employment opportunities for the
disabled persons.
Republic Act 9442
Sec. 1. a new chapter, to be denominated as “Chapter 8. Other privileges and

Incentives” is hereby added to Title Two of Republic Act No. 7277, otherwise
known as the “Magna Carta for Disabled Persons”, with new Sections 32 and
33, to read as follows:
CHAPTER VIII - Other Privileges and Incentives
Sec. 32. Persons with disability shall be entitled to the following:
(a) At least twenty percent (20%) discount from all establishments relative to
the utilization of all services in hotels and similar lodging establishments;
restaurants and recreation centers for the exclusive use or enjoyment of
persons with disability;
(b) A minimum of twenty percent (20%) discount on admission fees charged by
theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture, leisure and amusement for the exclusive use of enjoyment of
persons with disability;
(c) At least twenty percent (20%) discount for the purchase of medicines in all
drugstores for the exclusive use or enjoyment of persons with disability;
(d) At least twenty percent (20%) discount on medical and dental services
including diagnostic and laboratory fees such as, but not limited to, x-rays,
computerized tomography scans and blood tests, in all government facilities,
subject to guidelines to be issued by the Department of Health (DOH), in
coordination with the Philippine Health Insurance Corporation (PHILHEALTH);
(e) At least twenty percent (20%) discount on medical and dental services
including diagnostic and laboratory fees, and professional fees of attending
doctors in all private hospitals and medical facilities, in accordance with the
46
rules and regulations to be issued by the DOH, in coordination with the

PHILHEALTH;
(f) At least twenty percent (20%) discount on fare for domestic air and sea
travel for the exclusive use or enjoyment of persons with disability;
(g) At least twenty percent (20%) discount in public railways, skyways and bus
fare for the exclusive use and enjoyment of person with disability;
(h) Educational assistance to persons with disability, for them to pursue
primary, secondary, tertiary, post tertiary, as well as vocational or technical
education, in both public and private schools, through the provision of
scholarships, grants, financial aids, subsidies and other incentives to qualified
persons with disability, including support for books, learning material, and
uniform allowance to the extent feasible: Provided, That persons with disability
shall meet minimum admission requirements;
(i) To the extent practicable and feasible, the continuance of the same benefits
and privileges given by the Government Service Insurance System (GSIS),
Social Security System (SSS), and PAG-IBIG, as the case may be, as are
enjoyed by those in actual service;
(j) To the extent possible, the government may grant special discounts in
special programs for persons with disability on purchase of basic commodities,
subject to guidelines to be issued for the purpose by the Department of Trade
and Industry (DTI) and the Department of Agricultural (DA); and
(k) Provision of express lanes for persons with disability in all commercial and
government establishments; in the absence thereof, priority shall be given to
them.
The abovementioned privileges are available only to persons with disability
who are Filipino citizens upon submission of any of the following as proof of
his/her entitlement thereto:
(I) An identification card issued by the city or municipal mayor or the barangay
captain of the place where the persons with disability resides;
(II) The passport of the persons with disability concerned; or
(III) Transportation discount fare Identification Card (ID) issued by the National
Council for the Welfare of Disabled Persons (NCWDP).
The privileges may not be claimed if the persons with disability claims a higher
discount sa may be granted by the commercial establishment and/or under
other existing laws or in combination with other discount programs/s.
The establishments may claim the discounts granted in sub-sections (a), (b),
(c), (f) and (g) as tax deductions based on the net cost of the goods sold or
47
services rendered: Provided, further, That the total amount of the claimed tax
deduction net of value-added tax if applicable, shall be included in their gross
sales receipts for tax purposes and shall be subject to proper documentation
and to the provisions of the National Internal Revenue Code (NIRC), as
amended.”
“Sec. 33. Incentives. – Those caring for and living with a person with disability
shall be granted the following incentives:
(a) Persons with disability shall be treated as dependents under the Section 35
(A) of the National Internal Revenue Code, as amended and as such,
individual taxpayers caring for them shall be accorded the privileges granted
by the code insofar as having dependents under the same section are
concerned; and
(b) Individuals or nongovernmental institutions establishing homes, residential
communities or retirement villages solely to suit the needs and requirements of
persons with disability shall be accorded the following:
(i) Realty tax holiday for the first five years of operation; and
(ii) Priority in the building and/or maintenance of provincial or municipal roads
leading to the aforesaid home, residential community or retirement village.”
Republic Act 10754
Sec. 1. Section 32 of Republic Act No. 7277, as amended, otherwise known as

the “Magna Carta for Persons with Disability”, is hereby further amended to
read as follows:
“Sec. 32. Persons with disability shall be entitled to:
“(a) At least twenty percent (20%) discount and exemption from the
value-added tax (VAT), if applicable, on the following sale of goods and
services for the exclusive use and enjoyment or availment of the PWD:
“(1) On the fees and charges relative to the utilization of all services in hotels
and similar lodging establishments; restaurants and recreation centers;
“(2) On admission fees charged by theaters, cinema houses, concert halls,
circuses, carnivals and other similar places of culture, leisure and amusement;
“(3) On the purchase of medicines in all drugstores;
“(4) On medical and dental services including diagnostic and laboratory fees
such as, but not limited to, x-rays, computerized tomography scans and blood
48
tests, and professional fees of attending doctors in all government facilities,

subject to the guidelines to be issued by the Department of Health (DOH), in
coordination with the Philippine Health Insurance Corporation (PhilHealth);
“(5) On medical and dental services including diagnostic and laboratory fees,
and professional fees of attending doctors in all private hospitals and medical
facilities, in accordance with the rules and regulations to be issued by the DOH,
in coordination with the PhilHealth;
“(6) On fare for domestic air and sea travel;
“(7) On actual fare for land transportation travel such as, but not limited to,
public utility buses or jeepneys (PUBs/PUJs), taxis, asian utility vehicles
(AUVs), shuttle services and public railways, including light Rail Transit (LRT),
Metro Rail Transit (MRT) and Philippine National Railways (PNR); and
“(8) On funeral and burial services for the death of the PWD: Provided, That
the beneficiary or any person who shall shoulder the funeral and burial
expenses of the deceased PWD shall claim the discount under this rule for the
deceased PWD upon presentation of the death certificate. Such expenses
shall cover the purchase of casket or urn, embalming, hospital morgue,
transport of the body to intended burial site in the place of origin, but shall
exclude obituary publication and the cost of the memorial lot.
“(b) Educational assistance to PWD, for them to pursue primary, secondary,
tertiary, post tertiary, as well as vocational or technical education, in both
public and private schools, through the provision of scholarships, grants,
financial aids, subsidies and other incentives to qualified PWD, including
support for books, learning materials, and uniform allowance to the extent
feasible: Provided, That PWD shall meet the minimum admission
requirements;
“(c) To the extent practicable and feasible, the continuance of the same
benefits and privileges given by the Government Service Insurance System
(GSIS), Social Security System (SSS), and Pag-IBIG, as the case may be, as
are enjoyed by those in actual service;
“(d) To the extent possible, the government may grant special discounts in
special programs for PWD on purchase of basic commodities, subject to the
guidelines to be issued for the purpose by the Department of Trade and
Industry (DTI) and the Department of Agriculture (DA); and
“(e) Provision of express lanes for PWD in all commercial and government
establishments; in the absence thereof, priority shall be given to them.
49
“The abovementioned privileges are available only to PWD who are Filipino
citizens upon submission of any of the following as proof of his/her entitlement
thereto:
“(i) An identification card issued by the city or municipal mayor or the barangay
captain of the place where the PWD resides;
“(ii) The passport of the PWD concerned; or
“(iii) Transportation discount fare Identification Card (ID) issued by the National
Council for the Welfare of Disabled Persons (NCWDP).
“The privileges may not be claimed if the PWD claims a higher discount as
may be granted by the commercial establishment and/or under other existing
laws or in combination with other discount program/s.
“The establishments may claim the discounts granted in subsection (a),
paragraphs (1), (2), (3), (5), (6), (7), and (8) as tax deductions based on the net
cost of the goods sold or services rendered: Provided,however, That the cost
of the discount shall be allowed as deduction from the gross income for the
same taxable year that the discount is granted: Provided, further, That the total
amount of the claimed tax deduction net of value-added tax, if applicable, shall
be included in their gross sales receipts for tax purposes and shall be subject
to proper documentation and to the provisions of the National Internal
Revenue Code (NIRC), as amended.”
Sec. 2. Section 33 of Republic Act No. 7277, as amended, is hereby further
amended to read as follows:
“Sec. 33. Incentives. – Those caring for and living with a PWD shall be granted
the following incentives:
“(a) PWD, who are within the fourth civil degree of consanguinity or affinity to
the taxpayer, regardless of age, who are not gainfully employed and chiefly
dependent upon the taxpayer, shall be treated as dependents under Section
35(b) of the NIRC of 1997, as amended, and as such, individual taxpayers
caring for them shall be accorded the privileges granted by the Code insofar as
having dependents under the same section are concerned; and
“x x x.”
IRR of R.A 7277
RULE VI
A. The National Telecommunications Commission shall coordinate with the
Kapisanan ng mga Brodkaster sa Pilipinas, as far as those TV stations that are
members thereof, or to the concerned TV stations as far as those that are not
50
members thereof the implementation of the provision of SECTION 22,

CHAPTER 5 of R.A. 7277
B. The TV stations, at its option, may decide as to whether they shall provide a
sign language inset or subtitles in its newscast program.
C. The TV stations shall have the sole discretion as to the time of the day that
they shall provide either a sign language inset or subtitles in their newscast
program.
D. On special programs covering events of national significance, the TV
stations shall likewise have the sole discretion to provide a sign language inset
or subtitles in the coverage thereof.
E. All TV stations, whether KBP members or not, shall inform the National
Telecommunications Commission their willingness to cooperate in the
implementation of this noble undertaking through the prescribed form that can
be secured from the National Telecommunications Commission Office.
F. The National Telecommunications Commission, through its regulatory
power over the broadcast media, shall encourage all TV stations to provide a
sign language inset or subtitles in at least one (1) newscast program a day and
special programs covering events of national significance. It shall also
encourage all radio and television stations and national dailies to allot a
percentage of free air time/space for information dissemination on disability
and its prevention. The NCWDP in coordination with other agencies shall
develop key messages for this purpose and monitor the same.
G. The National Telecommunications Commission shall coordinate with the
telephone
operators all over the country, the implementation of the provision of SECTION
23, CHAPTER 5 of RA No. 7277
H. All telephone operators in the country upon request of the
agencies/institutions concerned with the welfare of disabled persons shall
provide type approved special telephone devices and improvisations for the
hearing-impaired or handicapped persons at the offices of the said agencies or
institutions.
I. The National Telecommunications Commissions through its regulatory
power of the telephone operators shall encourage the said operators to put up
telephone devices, services and improvisations for the disabled persons to
enable them to communicate through the telephone system.
J. For purposes of the provision of SECTION 24, CHAPTER 5 of RA No. 7277,
the words “postal charges” whether the same is ordinary or special. Provided,
51
that the articles, parcels, and/or packages are for personal uses or purposes
only.
K. The following articles, parcels and/or packages free of postal charges are
as follows,
inclusive:
a) articles and literatures like books and periodical, orthopedics and other
devices, and teaching aids for the use of the disabled persons sent by mail
within the Philippines and abroad; and
b) aids and orthopedic devices for the disabled persons sent abroad by mail for
repair.
L. The following are the requirements for the availment of this privilege, to with:
1. That the disabled person is a Filipino citizen.
2. That the disabled person is a marginalized disabled person as certified to by
the Social Welfare and Development office of the municipality or city
government unit where the disabled person is a resident or by the
representative of the Department of Social Welfare and Development in the
municipality or city government unit where the disabled person is a resident.
3. That the disabled person either as the sender/or addressee has the
necessary accreditation certificate as such issued by the Postmaster General
or his representative of the Philippine Postal Corporation.
4. That the definition of marginalized disabled person as referred to in this
article is one who lack access to rehabilitation services and opportunities to be
able to participate fully in socioeconomic activities and who have no means of
livelihood or whose income fall below the poverty threshold.
5. That it is understood that the articles and literatures like books and
periodicals, orthopedic and other devices, teaching aids, are for the exclusive
use of the disabled person and that the same when mailed is unsealed and
may be opened for postal inspection and does not contain commercial
advertising materials.
6. That the envelop or wrapper of the franked mail shall bear on the left upper
corner the name of the sender with its complete address and on the upper right
corner the words “Free Master for Disabled Person” . Private or unauthorized
use to avoid payment of postage is penalized by a fine or imprisonment or
both.
RULE VII
Sec. 1. Mobility
52
The State shall promote the mobility of disabled persons. Disabled persons
shall be allowed to drive motor vehicles, subject to the rules and regulations
issued by the Land Transportation Office pertinent to the nature of their
disability and the appropriate adaptations or modifications made on vehicles.
1.1 Rule and Regulations in the Application of Driver’s License for Disabled
Persons
A. Scope and Application
Any disabled person who desires to apply for a driver’s license shall file with
any Land Transportation Office (LTO) licensing center or district office an
application form prescribed by the LTO containing certain information and
compliance with the requirements hereinafter set forth.
B. Requirements
The requirements that have to be complied with by an applicant/disabled
person for
driver’s license are the following:
1. Medical Certificate/Recommendation from a government accredited
physician;
2. The applicant/disabled person must take and pass written and practical
examinations;
3. New applicant must secure student permit and undergo driving instruction
for 60 days;
4. All disabled drivers/applicants may use a customized vehicle provided that it
meets the standard/specifications set and duly requested at LTO.
C. Who may Apply for License
1. Partially blind - person with poor visual acuity due to partial loss of
vision/sight.
2. Orthopedically Impaired -person with amputated left or right leg; amputated
left or right arm; post-polio victims; paralyzed legs; weak legs but not
paralyzed;
3. Speech and Hearing Impaired - person unable to speak but can hear; can
partially
Hear All applications approved and granted by LTO shall be valid for three (3)
years starting 1993 using prescribed credit card type driver’s license for
disabled persons. Those previously issued licenses may apply for its
conversion.
53
Sec. 2. Access to Public Transport Facilities

The Department of Social Welfare and Development shall develop a program
to assist marginalized disabled persons gain access in the use of public
transport facilities. Such assistance may be in the form of subsidized
transportation fare. The following guidelines shall govern a subsidized
transportation scheme:
A. Scope
This section shall cover only marginalized disabled persons which is so
defined in the Act as disabled persons who lack access to rehabilitative
services and opportunities to be able to participate fully in socio-economic
activities and who have no means of livelihood or whose incomes fall below
the poverty threshold.
a.1 Lacking in access to rehabilitative services would mean those who have
limited or no ability to obtain medical, social, educational, vocational an
livelihood opportunities.
a.2 Poverty threshold means income cutoff for a family of six (6) based on
NEDA findings. The subsidized transportation scheme can only be availed of
by:
a.3 Marginalized disabled persons who will be undergoing training on
vocational and/or livelihood skills enhancement programs in vocational
rehabilitation centers managed by government and non-government agencies.
a.4 Marginalized disabled persons who want to resettle in their place of origin
with the intention of finally residing there.
a.5 Marginalized disabled persons who are to avail of prosthetic devices,
surgical intervention and other domestic travels related for educational needs.
B. Provisions
b.1 These provisions are limited to domestic travels only.
b.2 The social welfare officer or any officer designated to implement social
welfare services in the municipality shall determine:
b.2.1 Nearest venue for education, training or hospital which will provide the
prosthetic devices;
b.2.2 Practical and most convenient mode of air, land or sea transportation to
be used by the disabled persons.
54
b.2.3 The DSWD managed rehabilitation centers giving the training shall
provide for transportation assistance to disabled persons during the period of
training.
b.2.4 Except those who are receiving transportation assistance in DSWD
vocational rehabilitation centers, the disabled person seeking this can avail of
it from the Office of the Mayor of the municipality of this residence. The local
social welfare development officer or any other officer designated to implement
social welfare services shall facilitate the giving
of transportation assistance to qualified disabled persons.
b.2.5 The eligibility requirements on the provision of vocational training and/or
prosthetic devices given to disabled persons are provided for in the
implementing rules and regulations of
Chapter 1 (Employment) Section 9 and Chapter 4 (Auxiliary Social Services)
Section 21 Letter (1) respectively of this Act.
b.2.6 The local government unit shall make sure that necessary funds for the
transportation assistance to be given to the disabled persons are included in
their budget. Exception to this provision are those disabled persons who are
undergoing training in DSWD managed vocational rehabilitation centers and
other non-government managed centers.
RULE VIII
Sec.1. System of Voting
1.1 Registration
a. On the day specified by law for registration, a qualified disabled person may
register as a voter by accomplishing the required voter’s affidavit, and such
other forms as may be required by the Commission on Elections with respect
to need of assistance and access.
b. The voter’s affidavit of a disabled person may be prepared:
i. Any relative within the fourth civil degree of consanguinity or affinity; or
ii. Any member of the board of election inspectors.
c. Any person above-mentioned who assists a disabled person in the
preparation of the voter’s affidavit shall;
i. Prepare voter’s affidavit in accordance with the data supplied by the
applicant; and
ii. Take an oath before the board of election inspectors that he shall fill up such
affidavit in accordance with the instructions given by said disabled person.
55
d. The fact of disability and/or the inability of a registrant to prepare the voter’s
affidavit and/or vote and the name of the person assisting in the preparation of
the form shall be duly recorded in the Minutes of Registrations.
e. When circumstances so warrant, the Chairman of the Board may authorize
the registration of a disabled person in designated accessible areas within the
same polling place. No person shall be denied registration by reason of the
inaccessibility of the precincts.
1.2 Voting
a. A disabled person shall be allowed to be assisted by a person of his choice
in the preparation of the ballot provided that such assistor is:
i. A relative, by affinity or consanguinity within the fourth civil degree;
ii. Any person of his confidence, whether or not belonging to the same
household; or
iii. Any member of the board of election inspectors.
b. A disabled voter shall be allowed to vote with the assistance of another
person when the fact of the inability to vote is indicated in the voter’s
registration record.
c. No person may assist disabled persons in voting more than three (3) times
except members of the board of election inspectors.
d. The person chosen to assist a disabled voter shall prepare the ballot for the
disabled voter inside the voting booth.
e. The person assisting shall bind himself in a formal document under oath to
fill out the ballot strictly in accordance with the instructions of the voter and not
to reveal the contents of the ballot prepared.
f. The fact of voting with the assistance of another person and the oath taken
by the assistor shall be indicated in the Minutes of Voting and Counting of
Votes.
g. The proper election shall designate accessible areas within the polling place
where disabled voter’s may cast their votes. No person shall be denied the
right to vote by reasons of the inaccessibility of the precinct or polling place.
1.3 The Commission on Elections shall promulgate rules and regulations,
incorporating new methods and technologies, which shall facilitate and
enhance the exercise of the right to suffrage by disabled citizens.
Sec. 2. Right To Assemble
56
Consistent with provision of the Constitution, the States shall recognize the
right of disabled
persons to participate in procession, rallies, parade, demonstrations, public
meetings, and assemblage or other forms of mass or concerted action held in
public.
SECTION 3. Right To Organize
The State shall recognizes the right of disabled persons to form organizations
or associations that promote their welfare and advance or safeguard their
interests. The National Government, through its agencies, instrumentalities
and subdivisions, shall assist disabled persons in establishing self-help
organizations by providing them with the necessary technical and financial
assistance. Concerned government agencies and offices shall establish close
linkages with organizations of
disabled persons in order to respond expeditiously to the needs of disabled
persons. National line agencies and local government units shall assist
disabled persons in setting up specific projects that will be managed like
business propositions. To ensure the active participation of disabled persons
in the social and economic development of
the country, their organizations shall be encourage to participate in the
planning, organization and management of government programs and projects
for disabled persons. Organizations of disabled person shall participate in the
identification and preparation of programs that shall serve to develop
employment opportunities for the disabled persons.
REFERENCES:
mplementing-rules-and-regulations-of-republic-act-no-9442/
rr-of-ra-7277/
http://www.gov.ph/2016/03/23/republic-act-no-10754/
57
LUZ CELESTINO
TITLE III
PROHIBITION ON DISCRIMINATION AGAINST DISABLED PERSONS
CHAPTER I
DISCRIMINATION ON EMPLOYMENT
Sec. 32. Discrimination on Employment. — No entity, whether public or private,

shall discriminate against a qualified disabled person by reason of disability in
regard to job application procedures, the hiring, promotion, or discharge of
employees, employee compensation, job training, and other terms, conditions,
and privileges of employment.
The following constitute acts of discrimination:
58
(a) Limiting, segregating or classifying a disabled job applicant in such a

manner that adversely affects his work opportunities;
(b) Using qualification standards, employment tests or other selection criteria

that screen out or tend to screen out a disabled person unless such standards,
tests or other selection criteria are shown to be job-related for the position in
question and are consistent with business necessity;
(c) Utilizing standards, criteria, or methods of administration that:
(1) have the effect of discrimination on the basis of disability; or
(2) perpetuate the discrimination of others who are subject to common

administrative control.
(d) Providing less compensation, such as salary, wage or other forms of

remuneration and fringe benefits, to a qualified disabled employee, by reason
of his disability, than the amount to which a non-disabled person performing
the same work is entitled;
(e) Favoring a non-disabled employee over a qualified disabled employee with

respect to promotion, training opportunities, study and scholarship grants,
solely on account of the latter's disability;
(f) Re-assigning or transferring a disabled employee to a job or position he

cannot perform by reason of his disability;
(g) Dismissing or terminating the services of a disabled employee by reason of

his disability unless the employer can prove that he impairs the satisfactory
performance of the work involved to the prejudice of the business entity:
59
Provided, however, That the employer first sought to provide reasonable

accommodations for disabled persons;
(h) Failing to select or administer in the most effective manner employment

tests which
accurately reflect the skills, aptitude or other factor of the disabled applicant or
employee that such tests purports to measure, rather than the impaired
sensory, manual or speaking skills of such applicant or employee, if any; and
(i) Excluding disabled persons from membership in labor unions or similar

organizations.
Sec. 33. Employment Entrance Examination. — Upon an offer of employment,

a disabled applicant may be subjected to medical examination, on the
following occasions:
(a) all entering employees are subjected to such an examination regardless of

disability;
(b) information obtained during the medical condition or history of the applicant
is collected and maintained on separate forms and in separate medical files
and is treated as a confidential medical record; Provided, however, That:
(1) supervisors and managers may be informed regarding necessary

restrictions on the work or duties of the employees and necessary
accommodations;
(2) first aid and safety personnel may be informed, when appropriate, if the
disability may require emergency treatment;
(3) government officials investigating compliance with this Act shall be

provided relevant information on request; and
60
(4) the results of such examination are used only in accordance with this Act.
CHAPTER II
DISCRIMINATION ON TRANSPORTATION
Sec. 34. Public Transportation. — It shall be considered discrimination for the

franchisees or operators and personnel of sea, land, and air transportation
facilities to charge higher fare or to refuse to convey a passenger, his
orthopedic devices, personal effects, and merchandise by reason of his
disability.
CHAPTER III
DISCRIMINATION ON THE USE OF PUBLIC ACCOMMODATIONS AND
SERVICES
Sec. 35. Public Accommodations and Services. — For purposes of this

Chapter, public accommodations and services shall include the following:
(a) an inn, hotel, motel, or other place of lodging, except for an establishment
located within a building that contains not more than five (5) rooms for rent or
hire and that is actually occupied by the proprietor of such establishment as
the residence of such proprietor;
(b) a restaurant, bar, or other establishment serving food or drink;
(c) a motion picture, theater, concert hall, stadium, or other place of exhibition
or entertainment;
61
(d) an auditorium, convention center, lecture hall, or other place of public

gathering;
(e) a bakery, grocery store, hardware store, shopping center, or other sales or
rental establishment;
(f) a bank, barber shop, beauty shop, travel service, funeral parlor, gas station,
office of a lawyer, pharmacy, insurance office, professional office of a health
care provider, hospital or other service establishment;
(g) a terminal, depot, or other station used for specified public transportation;
(h) a museum, gallery, library or other place of public display or collection;
(i) a park, zoo, amusement park, or other place of recreation;
(j) a nursery, elementary, secondary, undergraduate, or post-graduate private

school, or
other place of education;
(k) a gymnasium, health spa, bowling alley, golf course; or
(l) other place of exercise or recreation.
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--------------
SECTION 3. Discrimination on the Use of Public Accommodations and

Services
62
1. For purpose of this section, public accommodation and services, please

refer to the Implementing Rules and Regulations of Batas Pambansa Blg. 344,
otherwise known as the Accessibility Law.
2. Discrimination on the use of a terminal, depot or other stations used for

specified public transportation. The discrimination on disabled persons
referred in this section, is the impartial treatment of the owner, lessee or
operator of public transport terminals, stations and depot or the partial or
non-provision of services, facilities, privileges, advantages or accommodations
to disabled passengers on the basis of disability which are afforded to
able-bodied individual. The following constitute acts of discrimination whether
directly or through contractual, licensing or other arrangement, to wit:
1. denying the disabled passenger to enter the terminal, station or depot

premises; purchase travel tickets; prepare waybills; secure boarding passes;
claim tags for baggage’s and other transactions which an able bodied
passenger may do.
2. failure to provide accessibility features such as ramps, signage and stickers

inside the terminal, station or depot;
3. failure to designate seats in the waiting area for disabled passengers if there
are seats available.
4. denying the disabled passenger to use the toilet/washrooms or failure to

make such facilities accessible.
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--------------
Sec. 36. Discrimination on the Use of Public Accommodations. — (a) No

disabled person shall be discriminated on the basis of disability in the full and
63
equal enjoyment of the goods, services, facilities, privileges, advantages or

accommodations of any place of public accommodation by any person who
owns, leases, or operates a place of public accommodation. The following
constitute acts of discrimination:
(1) denying a disabled person, directly or through contractual, licensing, or

other arrangement, the opportunity to participate in or benefit from the goods,
services, facilities, privileges, advantages, or accommodations of an entity by
reason of his disability;
(2) affording a disabled person, on the basis of his disability, directly or through
contractual, licensing, or other arrangement, with the opportunity to participate
in or benefit from a good service, facility, privilege, advantage, or
accommodation that is not equal to that afforded to other able-bodied persons;
and
(3) providing a disabled person, on the basis of his disability, directly or

through contractual, licensing, or other arrangement, with a good, service,
facility, advantage, privilege, or accommodation that is different or separate
form that provided to other able-bodied persons unless such action is
necessary to provide the disabled person with a good, service, facility,
advantage, privilege, or accommodation, or other opportunity that is as
effective as that provided to others;
For purposes of this Section, the term "individuals or class of individuals"

refers to the clients or customers of the covered public accommodation that
enters into the contractual, licensing or other arrangement.
(b) Integrated Settings — Goods, services, facilities, privileges, advantages,

and accommodations shall be afforded to individual with a disability in the most
integrated setting appropriate to the needs of the individual.
64
(c) Opportunity to Participate — Notwithstanding the existence of separate or

different programs or activities provided in accordance with this Section, an
individual with a disability shall not be denied the opportunity to participate in
such programs or activities that are not separate or different.
(d) Association — It shall be discriminatory to exclude or otherwise deny equal

goods, services, facilities, advantages, privileges, accommodations or other
opportunities to an individual or entity because of the known disability of an
individual with whom the individual or entity is known to have a relationship or
association.
(e) Prohibitions - For purposes of this Section, the following shall be

considered as discriminatory:
(1) the imposition or application of eligibility criteria that screen out or tend to
screen out an individual with a disability or any class or individuals with
disabilities from fully and equally enjoying any goods, services, facilities,
privileges, advantages, or accommodations, unless such criteria can be shown
to be necessary for the provision of the goods, services, facilities, privileges, or
accommodations being offered;
(2) a failure to make reasonable modifications in policies, practices, or

procedures, when such modifications are necessary to afford such goods,
services, facilities, privileges, advantages, or accommodations to individuals
with disabilities, unless the entity can demonstrate that making such
modifications would fundamentally alter the nature of the goods, facilities,
services, privileges, advantages, or accommodations;
(3) failure to take such steps as may be necessary to ensure that no individual
with a disability is excluded, denied services, segregated or otherwise treated
65
differently than other individuals because of the absence of auxiliary aids and
services, unless the entity can demonstrate that taking such steps would
fundamentally alter the nature of the good, service, facility, privilege,
advantage or accommodation being offered or would result in undue burden;
(4) a failure to remove architectural barriers, and communication barriers that

are structural in nature, in existing facilities, where such removal is readily
achievable; and
(5) where an entity can demonstrate that the removal of a barrier under clause
(4) is not readily achievable, a failure to make such goods, services, facilities,
privileges, advantages, or accommodations available through alternative
methods if such methods are readily achievable.
Sec. 37. Use of Government Recreational or Sports Centers Free of Charge.

—
Recreational or sports centers owned or operated by the Government shall be
used, free of charge, by marginalized disabled persons during their social,
sports or recreational activities.
Sec. 38. Implementing Rules and Regulations. — The Department of Public

Works and
Highways shall formulate the rules and regulations necessary to implement the
provisions of this Chapter.
TITLE IV
FINAL PROVISIONS
Sec. 39. Housing Program. — The National Government shall take into
consideration in its national shelter program the special housing requirements
of disabled persons.
66
Sec. 40. Role of National Agencies and Local Government Units. — Local
government units shall promote the establishment of organizations of disabled
persons in their respective territorial jurisdictions. National agencies and local
government units may enter into joint ventures with organizations or
associations of disabled persons to explore livelihood opportunities and other
undertakings that shall enhance the health, physical fitness and the economic
and social well-being of disabled persons.
Sec. 41. Support from Nongovernment Organizations. — Nongovernment

organizations or private volunteer organizations dedicated to the purpose of
promoting and enhancing the welfare of disabled persons shall, as they, are
hereby encouraged, become partners of the Government in the
implementation of vocational rehabilitation measures and other related
programs and projects. Accordingly, their participation in the implementation of
said measures, programs and projects is to be extended all possible support
by the Government.
The Government shall sponsor a volunteer service program which shall

harness the involvement of private individuals in the provision of assistance to
disabled persons.
Sec. 42. Tax Incentives. — (a) Any donation, bequest, subsidy or financial aid
which may be made to government agencies engaged in the rehabilitation of
disabled persons and organizations of disabled persons shall be exempt from
the donor's tax subject to the provisions of Section 94 of the National Internal
Revenue Code (NIRC), as amended and shall be allowed as deductions from
the donor's gross income for purposes of computing the taxable income
subject to the provisions of Section 29 (h) of the Code.
67
(b) Donations from foreign countries shall be exempt from taxes and duties on
importation subject to the provisions of Section 105 of the Tariff and Customs
Code of the Philippines, as amended, Section 103 of the NIRC, as amended
and other relevant laws and international agreements.
(c) Local manufacturing or technical aids and appliances used by disabled

persons shall be considered as a preferred area of investment subject to the
provisions of Executive
Order No. 226 otherwise known as the "Omnibus Investments Code of 1987"
and, as such, shall enjoy the rights, privileges and incentives as provided in
said Code such as, but not limited, to the following:
(1) repatriation of investments;

(2) remittance of earnings;
(3) remittance of payments on foreign contracts;
(4) freedom from expropriations;
(5) freedom from requisition of investment;
(6) income tax holiday;
(7) additional deduction for labor expense;
(8) tax and duty exemption on imported capital equipment;
(9) tax credit on domestic capital equipment;
(10) exemption from contractor's tax;
(11) simplification of customs procedures;
(12) unrestricted use of consigned equipment;
(13) employment of foreign nationals;
(14) tax credit for taxes and duties on raw materials;
(15) access to bonded manufacturing/traded warehouse system;
(16) exemption from taxes and duties on imported spare parts; and
(17) exemption from wharfage dues and any export tax, duty, impost and fee.
68
Sec. 43. Continuity Clause. — Should any department or agency tasked with
the enforcement or formulation of rules and regulations and guidelines for
implementation of any provision of this Act is abolished, merged with another
department or agency or modified, such shall not affect the enforcement or
formulation of rules, regulations and guidelines for implementation of this Act
to the effect that —
(a) In case of abolition, the department or agency established to replace the

abolished department or agency shall take-over the functions under this
Act of the abolished department or agency.
(b) In case the department or agency tasked with the enforcement or

formulation of rules, regulations and guidelines for implementation of this Act is
merged with another department or agency, the former shall continue the
functions under this Act of the merged department or agency.
(c) In case of modification, the department or agency modified shall continue

the functions under this Act of the department or agency that has undergone
the modification.
Sec. 44. Enforcement by the Secretary of Justice. —
(a) Denial of Right
(1) Duty to Investigate — the Secretary of Justice shall investigate alleged

violations of this Act, and shall undertake periodic reviews of compliance of
covered entities under this Act.
(b) Potential Violations — If the Secretary of Justice has reasonable cause to

believe that —
69
(1) any person or group of persons is engaged in a pattern or practice of

discrimination under this Act; or
(2) any person or group or persons has been discriminated against under this
Act and such discrimination raises an issue of general public importance, the
Secretary of Justice may commence a legal action in any appropriate court.
Sec. 45. Authority of Court. — The court may grant any equitable relief that
such court considers to be appropriate, including, to the extent required by this
Act:
(a) granting temporary, preliminary or permanent relief;
(b) providing an auxiliary aid or service, modification of policy, practice or

procedure, or alternative method; and
(c) making facilities readily accessible to and usable by individuals with

disabilities.
Sec. 46. Penal Clause. — (a) Any person who violates any provision of this Act
shall suffer the following penalties:
(1) for the first violation, a fine of not less than Fifty thousand pesos
(P50,000.00) but not exceeding One hundred thousand pesos (P100,000.00)
or imprisonment of not less than six (6) months but not more than two (2) years,
or both at the discretion of the court; and
(2) for any subsequent violation, a fine of not less than One hundred thousand
pesos (P100,000.00) but not exceeding Two hundred thousand pesos
70
(P200,000.00) or imprisonment for not less than two (2) years but not more
than six (6) years, or both at the discretion of the court.
(b) Any person who abuses the privileges granted herein shall be punished
with imprisonment of not less than six (6) months or a fine of not less than Five
thousand pesos (P5,000.00), but not more than Fifty thousand pesos
(P50,000.00), or both, at the discretion of the court.
(c) If the violator is a corporation, organization or any similar entity, the officials
thereof directly involved shall be liable therefor.
(d) If the violator is an alien or a foreigner, he shall be deported immediately

after service of sentence without further deportation proceedings.
Sec. 47. Appropriations. — The amount necessary to carry out the provisions
of this Act shall be included in the General Appropriations Act of the year
following its enactment into law and thereafter.
Sec. 48. Separability Clause. — Should any provisions of this Act be found
unconstitutional by a court of law, such provisions shall be severed from the
remainder of the Act, and such action shall not affect the enforceability of the
remaining provisions of this Act.
Sec. 49. Repealing Clause. — All laws, presidential decrees, executive orders
and rules and regulations inconsistent with the provisions of this Act are
hereby repealed or modified accordingly.
Sec. 50. Effectivity. — This Act shall take effect fifteen (15) days after its
publication in any two (2) newspapers of general circulation.
Approved: March 24, 1992
71
Amendments and Additions in Title III and IV of RA 7277 as amended by

RA 9442
SEC. 2. Republic Act No. 7277 is hereby amended inserting a new title,
chapter and section after Section 38 be denominated as title 4, chapters 1 and
2 and Sections 39, 40, 41 and 42 to read as follows:
“Title Four
Prohibitions on Verbal, Non-verbal Ridicule
and Vilification against Persons with Disability
“CHAPTER 1. Deliverance from Public Ridicule
“SEC. 39. Public Ridicule. – For purposes of this chapter, public ridicule shall
be defined as an act of making fun or contemptuous imitating or making
mockery of persons with disability whether in writing, or in words, or in action
due to their impairment/s.
“SEC. 40. No individual, group or community shall execute any of these acts of
ridicule against persons with disability in any time and place which could
intimidate or result in loss of self-esteem of the latter.
“CHAPTER 2. Deliverance from Vilification
“SEC 41. Vilification. – For purposes of this Chapter, vilification shall be

defined as:
(a) The utterance of slanderous and abusive statements against a person with
disability; and/or
(b) An activity in public which incites hatred towards, serious contempt for, or
severe ridicule of persons with disability.”
72
“SEC. 42. Any individual, group or community is hereby prohibited from

vilifying any person with disability which could result into loss of self-esteem of
the latter.”
SEC. 3. Section 46 of Republic Act No. 7277 is hereby amended to read as

follows:
“SEC. 46. Penal Clause. – (a) Any person who violates any provision of this
Act shall suffer the following penalties:
(1) For the first violation, a fine of not less than Fifty Thousand pesos
(P50,000.00) but not exceeding One hundred thousand pesos (P100,000.00)
or imprisonment of not less than six months but not more than two years, or
both at the discretion of the court; and
(2) For any subsequent violation, a fine of not less than One hundred thousand
pesos (P100,000.00) but not exceeding Two hundred thousand pesos
(P200,000.00) or imprisonment for not less than two years but not more than
six years, or both at the discretion of the court.
(b) Any person who abuses the privileges granted herein shall be punished
with imprisonment of not less than six months or a fine of not less than Five
thousand pesos (P5,000.00), but not more than Fifty thousand pesos
(P50,000.00), or both, at the discretion of the court.
(c) If the violator is a corporation, organization or any similar entity, the officials
thereof directly involved shall be liable therefore.
73
(d) If the violator is an alien or a foreigner, he shall be deported immediately

after service of sentence without further deportation proceedings.
Upon filing of an appropriate complaint, and after due notice and hearing, the
proper authorities may also cause the cancellation or revocation of the
business permit, permit to operate, franchise and other similar privileges
granted to any business entity that fails to abide by the provisions of this Act.
References:
mplementing-rules-and-regulations-of-republic-act-no-9442/
http://fil.wikipilipinas.org/index.php/Batas_Republika_7277
rr-of-ra-10524/
http://www.bsp.gov.ph/regulations/laws.asp
https://www.google.com.ph/search?q=ra+7277+irr&oq=ra+7277&aqs=chrome
.3.69i57j69i59j0l4.4978j0j7&sourceid=chrome&ie=UTF-8#q=ra+9442+pdf+irr
.3.69i57j69i59j0l4.4978j0j7&sourceid=chrome&ie=UTF-8#q=ra+9442+pdf
.3.69i57j69i59j0l4.4978j0j7&sourceid=chrome&ie=UTF-8#q=irr+of+ra+10754+
pdf
https://www.google.com.ph/search?q=other+laws+related+to+RA+10574&oq=
other+laws+related+to+RA+10574&aqs=chrome..69i57.9999j0j7&sourceid=ch
rome&ie=UTF-8
JENILYN TAN
The Internal & External Institutions of Corporate Governance

74
A. Choices with legal constraints: anti-takeover defenses, derivatives and

class actions
 Anti-Takeover Defenses
Definition: A takeover is a form of an acquisition, wherein the company offers a
bid for the purchase of a certain block of the equity of another company (target)
to exercise complete control over its affairs. Practically, the acquirer must buy
at least 51% or more paid up equity of the acquired company to enjoy full
control over its operations.
A Takeover can either be friendly or hostile. When the management of the

target company does not support such acquisition and the acquirer uses
unfavorable tactics with an intention to buy a significant stake in the target
company without informing the incumbent management, is said to have
indulged into a hostile takeover.
In order to resist such takeover, the target company’s management and

board of directors may adopt several anti-takeover tactics in one of the
following forms:
1. A company might allot its equity shares or convertible securities on a

preferential basis, thereby giving rights to the holder to convert its shares any
time into the equity stake of the company, thereby, diluting the ownership in the
firm and making the takeover unfavorable for the acquiring firm.
2. The target company may be amalgamated with the other company promoted
by the same group to form a larger company. By doing so, the acquisition
becomes expensive, and thus, the acquirer finds difficult to acquire the bigger
firm relative to the smaller firm.
3. If the company finds, that it possesses certain valuable assets or other
belongings which are the cause for such an acquisition, may sell those and
become less lucrative for the acquiring firm. This strategy is called as “selling
crown jewels.”
4. A company may seek help from its friends or find a white knight who might
rescue the target firm from the clutches of the acquirer.
However, when both the companies consider the takeover as a positive step
taken towards the success of both the businesses individually, is said to have
opted for a friendly takeover often called as an acquisition.
 Class action
75
A class action, class suit, or representative action is a type of lawsuit where

one of the parties is a group of people who are represented collectively by a
member of that group.
In a typical class action, a plaintiff sues a defendant or a number of defendants
on behalf of a group, or class, of absent parties. This differs from a traditional
lawsuit, where one party sues another party for redress of a wrong, and all of
the parties are present in court. Although standards differ between states and
countries, class actions are most common where the allegations involve a
large number of people who have been injured by the same defendant in the
same way. Instead of each injured person's bringing his or her own lawsuit, the
class action allows all the claims of all class members—whether they know
they have been injured or not—to be resolved in a single proceeding.
 Derivatives
A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of
a corporation against a third party. Often, the third party is an insider of the
corporation, such as an executive officer or director. Shareholder derivative
suits are unique because under traditional corporate law, management is
responsible for bringing and defending the corporation against suit.
Shareholder derivative suits permit a shareholder to initiate a suit when
management has failed to do so. Because derivative suits vary the traditional
roles of management and shareholders, many jurisdictions have implemented
various procedural requirements to derivative suits.
B. Mitigation and indemnification of director and officer liability

Should a civil, criminal, administrative or regulatory charge be brought against
a director or officer acting in his/her corporate capacity, the corporation may
indemnify such director or officer for defense costs, damages, judgments and
settlements arising from any claims in the exercise of their duties and
responsibilities as such directors and officers. There is no limitation or
prohibition by law or any other regulation for a corporation to indemnify its
directors and officers in the event they are held liable in the discharge of their
duties as such. However, should the director or officer act beyond the authority
granted to them, the corporation is justified in not indemnifying them for any
costs or damages incurred. (Angara Abello Concepcion Regala & Cruz )
Mitigating Liability for Directors and Officers
Although there is no substitute for acting in good faith and being diligent, there
are strategies and practices available to help directors and officers mitigate
76
their personal liability, most importantly: indemnification from the company,

good corporate governance practices and proper insurance coverage.
Where permitted by federal and provincial statutes, directors and officers
should consider protecting themselves from personal liability with indemnities
from the company. Such indemnities may be set forth in the governing
documents of the company (e.g. articles or by-laws) or in a separate
agreement. However, it should be noted that these forms of indemnity are
limited by statute. For example, it is not typically permitted for a company to
indemnify a director or officer for any damages that arise as a result of actions
performed in bad faith. In addition, it may be appropriate to seek an indemnity
from a principal shareholder of the company or other major stakeholder.
Good corporate governance practices are also important. For example,
keeping minutes of meetings which clearly demonstrate the decision making
process of directors. Board committees should adopt charters or guiding
principles that are annually reviewed. Legal advice should be sought by
directors and officers where there are concerns that practices being followed
may be insufficient or if there are specific questions with respect to conflicts of
interest or the degree of care being used.
Insurance coverage is available to directors and officers for any liabilities which
may arise, even those against which the company is not statutorily entitled to
indemnify them. However, insurers often limit such policies much in the same
way as is the case in statute (e.g. exclusions for wilful acts, etc.). Each such
policy must be reviewed and negotiated to ensure that it appropriately covers
the company (to the extent that it may be offering contractual or other
indemnities), director and/or officer. Often, directors’ and officers’ insurance is
supplemental in nature to the indemnities offered by the company.
A director’s or officer’s duty is to prudently represent the interests of the
shareholders, as well as other corporate constituencies, in directing the
business and affairs of the corporation within the law.
Corporate governance often requires executives to delicately balance the
competing interests of various company constituents. Shareholder concerns
need to be kept at the forefront, while the needs, desires, and requirements of
employees, customers, lenders, regulators, community groups, and others
should also be considered. Directors and officers need not be flawless in their
decision-making, but they must fulfill three essential duties while performing
their corporate functions:
1. Duty of diligence—Also called the duty of care, this duty requires executives
to act in good faith and consistent with what a reasonably prudent person in a
comparable position would do under similar circumstances. Prior to making a
business decision, directors and officers need to obtain and consider all
77
material information reasonably available to them. In addition, they should

make a reasonable effort to monitor corporate activities.
2. Duty of loyalty—This duty precludes directors and officers from engaging in
personal conduct that would injure or take advantage of the corporation. They
should seek to avoid any appearance that they have misused their position of
trust for their private interests. Examples of prohibited actions include:
■ Gaining a secret profit or unfair gain through personal transactions
with the corporation.
■ Competing against the corporation to its detriment or usurping a
corporate opportunity.
■ Profiting from the use of material, non-public corporate information.
3. Duty of obedience—This duty requires directors and officers to conform both
their own conduct and the corporation’s activities to applicable statutes and the
corporate charter. Directors and officers may be liable if they cause a
corporate action that is either illegal or ultra vires (i.e., outside a company’s
authority).
C. Shareholder Limitations Through Classes of Stocks;
Supermajorities
 Shareholder Limitations Through Classes of Stocks
Two classes of corporate stock shares are fundamentally different: common
stock and preferred stock. Here are two basic differences:
 Preferred stockholders are promised (but not guaranteed) a certain
amount of cash dividends each year, but the corporation makes no such
promises to its common stockholders. Each year, the board of directors
must decide how much, if any, cash dividends to distribute to its common
stockholders.
 Common stockholders have the most risk. A business that ends up in
deep financial trouble is obligated to pay off its liabilities first, and then its
preferred stockholders. By the time the common stockholders get their
turn, the business may have no money left to pay them.
Neither of these points makes common stock seem too attractive. But consider
the following points:
 Preferred stock shares usually are promised a fixed (limited) dividend
per year and typically don’t have a claim to any profit beyond the stated
amount of dividends. (Some corporations issue participating preferred
78
stock, which gives the preferred stockholders a contingent right to more

than just their basic amount of dividends.)
 Preferred stockholders generally don’t have voting rights, unless they
don’t receive dividends for one period or more. In other words, preferred
stock shareholders usually do not participate in electing the
corporation’s board of directors or vote on other critical issues facing the
corporation.
The main advantages of common stock, therefore, are the ability to vote in
corporation elections and the unlimited upside potential: After a corporation’s
obligations to its preferred stock are satisfied, the rest of the profit it has earned
accrues to the benefit of its common stock.
 Supermajorities
- A supermajority, or a qualified majority, is a requirement for a proposal
to gain a specified level of support which is greater than the threshold of
one half used for majority.
- A percentage larger than a simple majority; often
67%. Company charters often require a supermajority
of shareholders to approve an important proposal, such as
a merger or sale. It exceeds the simple majority used for most
voting-based decisions, and is often included as an amendment to the
charter.
Related concepts regarding alternatives to the majority vote requirement

include a "majority of the entire membership" and a "majority of the fixed
membership".
 Majority of the entire membership

A majority of the entire membership is a voting basis that requires
that more than half of all the members of a body (including those absent
and those present but not voting) vote in favor of a proposition in order
for it to be passed. In practical terms, it means an absence or an
abstention from voting is equivalent to a "no" vote. It may be contrasted
with a majority vote which only requires more than half of those actually
voting to approve a proposition for it to be enacted. An absolute
79
majority may also be the same as a majority of the entire membership,

although this usage is not consistent.
In addition, a supermajority could be specified in this voting basis, such
as a vote of "two-thirds of the entire membership".
By way of illustration, in February 2007 the Italian Government fell after it
won a vote in the Italian Senate by 158 votes to 136 (with 24
abstentions). The government needed an absolute majority in the 318
member house but fell two votes short of the required 160 when two of
its own supporters abstained.
 Majority of the fixed membership
A majority of the fixed membership is based on the total number of
the established fixed membership of the deliberative assembly. It is
used only when a specific number of seats or memberships is
established in the rules governing the organization.
A majority of the fixed membership would be different from a majority of
the entire membership if there are vacancies. For example, say
a board has 12 seats. If the board has the maximum number of
members, or 12 members, a majority of the entire membership and a
majority of the fixed membership would be 7 members. However, if there
are two vacancies (so that there are only 10 members on the board),
then a majority of the entire membership would be 6 members (more
than half of 10), but a majority of the fixed membership would still be 7
members.
It is possible for organizations that use a majority of the fixed
membership to be caught in a stalemate if at least half the membership
consists of vacancies, making it impossible to perform any actions until
those vacancies are filled. The requirement for a minimum number of
members to be present in order to conduct business, called a quorum,
may be used to avoid such a possibility.
Similar to the voting basis for the entire membership, a supermajority
could be specified for this basis, such as a vote of "two-thirds of the fixed
membership".
D. Contractual matters such as management agreement; voting

agreements; VC and other investment
80
 Management Agreement
- A contract between the owner of income property and a management firm or
individual property manager that outlines the scope of the manager's authority.
A contract between the owner of incomeproducing property and another, who
will manage the property. Managementcompanies offer a wide variety of servi
ces and fee schedules,some charging a percentage of collected rents in retur
n for apackage of services and others charging a different fee for minimal serv
ices and then a menu of extras for varyingcharges.There is often a minimal m
onthly fee.(Always determine if there are additional charges for any of the serv
ices.)
Services can include some or all of the following:
• Collection of rents
• Leasing space to new tenants
• Collection activities including evictions
• Management of on-site personnel such as resident managers (who may be t
he employee of the property owner or theemployee of the management comp
any)
• Management of outside repair and maintenance service providers
• In-house repair and maintenance services
• Preparation and filing of all tax reports, such as rent taxes
• Payment of all or some bills
• Physical property inspections
• Periodic reporting of the property condition, revenues, and expenses
• Periodic recommendations regarding changes to the property or rental rates
• Brokerage services for the acquisition of additional properties or the sale of e
xisting properties.
 Voting Agreement
Voting agreement is an agreement or plan under which two or

more shareholders pool their voting shares for a common objective.
It is also known as pooling arrangement.
A voting agreement is defined by one state statute as follows:
“A. Two or more shareholders may provide for the manner in which
they will vote their shares by signing an agreement for that
purpose.
B. Unless otherwise provided in the voting agreement, a voting

agreement created under this section is specifically enforceable”.
[A.R.S. § 10-731]
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 VC and other investment

What is 'Venture Capital'?
Venture capital is financing that investors provide to startup companies and
small businesses that are believed to have long-term growth potential. For
startups without access to capital markets, venture capital is an essential
source of money. Risk is typically high for investors, but the downside for the
startup is that these venture capitalists usually get a say in company decisions.
The purpose of the Investment Agreement, in the context of a venture capital

investment, is to provide a legal framework for the relationship of the
parties. Consequently, it will deal with the principal obligations of the
management, the Company and the investor at the time the investment is made
as well as ongoing obligations for the life of the investment. Typically, a venture
capital investor will be subscribing for a minority stake of voting share capital
and will therefore not have control of the board. However, the investor will
want to ensure that they are suitably protected.
Top six key issues to consider:

Due Diligence
The investor will undertake a detailed due diligence process to investigate the
affairs of the Company. The investor should insist that any problems
discovered are rectified before investing. Intellectual Property is a common
area where difficulties can occur.
Failsafe Conditions
It is vital to ensure that the investor’s equity is not subscribed until, for example,
the bank facilities are in place and management equity has been
subscribed. The investment agreement will be conditional upon completion of
these matters so that the investor does not find itself in the position of having
subscribed for the equity and then the Company finding itself without funds for
the project because of a last minute hitch. Care is required when drafting these
conditions to ensure that they are not circular.
Rights to Information
One of the most important functions of the investment agreement is to regulate
how the Company conducts its business. Following completion, an investor will
need to monitor its investment but will not be involved in the day to day affairs
of the Company. Company law delegates management of the business to
the board. It is usual, therefore, for the investor to have the right to appoint at
82
least one non-executive director. The Investment Agreement will also often
contain a right for the investor to appoint an observer to attend board meetings,
where no director has been appointed by the investor.
The investment agreement should therefore provide that regular board
meetings are held and that an agenda is circulated at least 7 days
beforehand. Monthly management accounts should be prepared within 21
days of each month end and circulated to the investor.
Restriction on Management
The investment agreement will contain a number of negative covenants to
prevent the management or the Company from undertaking certain actions
without the investor’s consent. There is a standard list of these restrictions
which include, for example, issuing further shares, amending the
Memorandum or Articles, borrowing more than a specified amount of money,
incurring major capital expenditure, expanding into new business areas,
entering into transactions outside the ordinary course of business, amending
the management’s service agreements or the bank facility letter and taking on
employees over a certain salary.
Warranties by Shareholders
The extent of the warranties is the area which usually causes the most debate
in the negotiation of an investment agreement. In theory, the warranties could
be given by the Company itself but any payment by the Company for damages
in respect of the breach would only reduce the value of the Company. The
warranties, that the Company and its business are as the investor expects
them to be, should be given by the existing shareholders.
The purpose of warranties is two-fold. Firstly to compel disclosures of any
“nasties” before completion of the investment and secondly as a means of
redress should matters not turn out as warranted.
Underperformance of Management
The investor will have relied on the projections contained in the business plan
when making its investment. However, these projections cannot be
absolutely warranted by management, other than that they were prepared
based on reasonable assumptions. It is therefore entirely possible that the
Company will not achieve the projections in the business plan. Management
will be in control of the Company’s business and an investor with a minority
interest will need certain rights of control to kick in if things start to go wrong.
83
In addition to the investment agreement there will be a number of other

documents that will need to be agreed such as the Articles of Association and
the terms of management’s service agreements. The investment agreement
should be drafted with these documents in mind to ensure that they are
consistent.. As subsequent rounds of investment are often required for
venture capital backed companies, getting the investment agreement right can
assist with future funding. Remember also that the parties will continue to
work with each other so retaining a harmonious relationship during the
negotiations is key. Venture capital investment is an inherently risky business
and the terms of the investment agreement can play an important part in
minimizing those risks from the investor’s point of view.
References:
http://businessjargons.com/anti-takeover-defenses.html
https://litigationessentials.lexisnexis.com/webcd/app?action=DocumentDispla
y&crawlid=1&doctype=cite&docid=2-14A+Moore%27s+ManualFederal+Practi
ce +and+Procedure
+14A.syn&srctype=smi&srcid=2BB4&key=4685f72b70ee513e626954c93b73
3544
http://www.murphyandcompany.com/liability-of-directors-and-officers/
https://en.wikipedia.org/wiki/Class_action
https://en.wikipedia.org/wiki/Derivative_suitfile:///C:/Users/pc/Downloads/dand
o%20corporate%20indemnification%20a%20reference%20guide%20by%20c
ountry%20(1).pdf
https://www.gbainsurance.com/sites/default/files/2016-06/D&O%20-%20Chub
b%20D&O%20Loss%20Prevention.pdf
http://www.dummies.com/business/operations-management/classes-of-stock-
shares-in-a-business/
http://www.investorwords.com/6692/supermajority.html
https://en.wikipedia.org/wiki/Supermajority
http://www.investorwords.com/14506/management_agreement.html
http://financial-dictionary.thefreedictionary.com/management+agreement
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https://definitions.uslegal.com/v/voting-agreements-corporate-law/
http://www.glovers.co.uk/news-articles284.html
http://www.investopedia.com/terms/v/venturecapital.asp
https://www.coursehero.com/file/p5co8a9/4-Question-ID-97565-agency-proble
m-takeover-defense-Which-of-the-following/
TONY DS
I. The external institutions of corporate governance:
regulators, markets, auditors, and others.
Corporate governance may refer to the structures and processes for the
efficient and proper direction and control of companies (both public and private)
in the interest of all stakeholders, though the bottom line of it all is
responsibility.
Responsibility to other stakeholders such as the government, markets,
environment and the general public by securing that their interests are given
equal attention and action and not just being left on the bottom of their
priorities.
Since a corporate entity, a major contributor and creator of wealth to the
society, is the pivot player on our economic activities, they too, have the most
critical responsibilities to name a few. These “critical requirements” are the
price they have to pay for using the society’s key sources, such as people
(human resources), the environment (natural resources), the government
(political resources), and money (economic resources). They have to
guarantee that whatever is taken, is given back, in its form or another, and to
ensure that at the end of the day, everyone is happy and fulfilled. Having
forenamed all of these, external institutions are given the power and much
greater responsibility to check and account if the corporate governance of an
entity is fulfilling its responsibility. To encapsulate therefore, external
institutions has the “Responsibility over Responsibility”. Top of the list are the
regulators. They consist of government and some other institutions that
ultimately articulate accurately the community’s voice concerning power
relationship, accountability and responsibility.
REGULATORS AND GOVERNMENT
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Specifically, government agencies regulate corporate governance through

formulation and implementation of rules and regulations on the operations of
corporate institutions within of course its jurisdiction. In instance, the Corporate
Code of the Philippines or the Batas Pambansa 68 is where all other laws and
interpretations are derived concerning a corporation and corporate
governance. It is the mother of all corporation laws, bylaws, rules and
regulations and policies.
Aside from this constitutional law, the government also provided special laws;
most of them enable the government to create agencies, commissions, and
overseeing committees to help them ensuring that all laws are practiced, are
incorporated to its activities, and that the interest of the people (by saying
people it is because our government is by the people, of the people and for the
people) are taken into account. The list go on and on, from Securities and
Exchange Commission, Bangko Sentral ng Pilipinas, Department of Trade and
Industry to name a few.
We have government agencies such as the DENR to overlook and ensure
environment laws and policies are followed by these companies. Again, it is
concept versus action. Yes, the burden lies on the government, because it is
for the fact that they will be heavily benefited from these activities, from their
share on the mine extraction down to taxes. They just have to make sure that
all laws and policies are sound and effective. On this point, aside from the
corporations, the government should also take responsibilities of its actions
towards the betterment of life of all.
In addition to company law and listing rules, some companies and industrial
sectors are subject to further external control by government-appointed
regulators or by governments themselves. This usually applies to companies
or sectors involved in areas considered strategically or politically important by
governments; these include the control of monopolies or the supply of utilities
(such as water or energy).
In some countries, this also applies to military equipment and medical supplies.
When this is the case, regulation typically applies to pricing and supply
contracts. In some countries, many large companies are owned, directly or
indirectly, wholly or partially, by the host government. Nationalized companies
are part of the economic fabric of many developing countries but tend to
feature less prominently in more developed countries. It is generally believed
that the profit motive, created by the agency relationship in a conventional
shareholder–director arrangement, creates and stimulates greater economic
efficiency than in nationalized companies.
Governments control corporate governance through the imposition of
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legislation and the enforcement (through a judiciary) of common and statute

laws. Although governments usually have a range of political and social
objectives in mind when controlling business, they also rely heavily on tax
revenues levied on company profits and, where relevant, sales and other
transaction taxes. One reason for the deregulation of much economic activity
is the need to increase tax revenues and create employment by gaining the
economic efficiencies offered by competition and executive reward packages
that are aligned to added shareholder value.
MARKETS
The market has one of the most vital positions on the list of external institutions
of corporate governance. It is where the core business process is centered. In
a manufacturing or service companies, market serves as the meeting place
where product and services sold, consumed and rendered. In capital markets,
it is the location where demanders and makers of fund met for capital
transaction where firms can generate additional funding requirements for
investments, expansion and for other reasons where the company sees fit to
acquire further capitalization.
Furthermore, as they integrated on the business process, the corporation must
take responsibility on ensuring that these markets are dealt with utmost
forbearance and care that their intention for existence is equally satisfied as
much as the company’s desire to gain required sales volume and funding.
Differing market requirements requires congruent company action and policy
making strategies so as to ensure continuing satisfaction of both parties’
intentions.
AUDITORS
Users of these entities’ financial information such as investors, government
agencies and the general public rely on the external auditors to present an
unbiased and retain transparency among the internal and external users of
financial information who wants their interest on the company be protected
from inside misjudgment and misinformation. They are the silent reminders to
any company that there are eyes looking on them to ensure that interest of
others are protected and enables the company to act consciously, with proper
diligence and conscientious.
In effect, this feeling of being watched can lead the company to formulate
strategies, policies and corporate governance practice in ensuring
transparency and reliability is observed at all times.
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The most obvious role of audit in corporate governance is to report to

shareholders that, having audited the company’s accounts, the accounts are
accurate (‘a true and fair view’ is the term used in some countries). Audit is
also a legal requirement in compliance with company law as a condition of
company registration and the granting of limited liability.
In addition to a normal audit, however, auditors perform a vital service to

shareholders in highlighting issues in the governance and reporting of the
company. A qualified audit report, while being a serious matter for a company,
is also an important signal to markets about the company. Some auditors also
offer additional services to clients and these sometimes include social and
environmental advice and audit.
MEDIA
One of the most prominent other external institutions is the media. The media
can turn both ways the fate of the corporation, the good, and the bad. The
media can sensationalize, and will sensationalize everything from simple
employer-employee relation, waste management issues, down to malicious
conclusion on corporate policies, leaders and their personal ventures, all in the
name of public information and lurid news report.
SHAREHOLDERS
Shareholders and other investors (eg fixed-return bond-holders) are usually
considered the most important external actors in corporate governance. In the
agency relationship that exists between shareholders and directors, the
shareholders are the principals. They have the right to expect agents (directors)
to act in their best economic interests and to observe a fiduciary duty towards
them.
Shareholders incur agency costs in monitoring the activities and actions of

agents (directors). These are the costs of monitoring and checking on directors’
behavior. Examples of agency costs are attending relevant meetings (AGMs
and EGMs), studying company results and analysts’ reports, and making direct
contact with companies through investor relations departments. When a
shareholder holds shares in many companies, the total agency costs can be
prohibitive; shareholders therefore encourage directors’ rewards packages to
be aligned with their own interests so that they feel less need to continually
monitor directors’ activities.
The Paper P1 Study Guide considers two types of shareholder: small investors
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and institutional investors. Small investors are individuals who hold shares in
unit trusts, funds and individual companies. They typically buy, hold or sell
small volumes and tend to have fewer sources of information on companies
than institutional investors. They also often have narrower and less robust
portfolios, which can mean that agency costs are higher, as the individuals
themselves study the companies they have invested in for signs of changes in
strategy, governance or performance.
Institutional investors are by far the biggest investors in companies, and they
dominate the share volumes on most of the world’s stock exchanges. Pension
funds, insurance companies, unit trust companies and similar financial
institutions hold large numbers of shares in individual funds with each fund
being managed by a fund manager. Individuals, either directly or through
investment products (such as pensions or endowments) buy into investment
funds that are then managed, by selectively buying, holding or selling shares
and other investments. When the fund grows or reduces in value, the member
gains or loses value as a result. Fund managers do have some influence over
the companies that they hold shares in, with greater influence obviously being
associated with higher proportionate holdings. Fund managers need to be
aware of the performance and governance of many companies in their funds,
so agency costs can be very large indeed. To reduce these, they make use of
information from several sources on the companies and also seek to have
directors’ benefit packages aligned with their own interests as much as
possible.
II. Merit-Based Regulation VS. Disclosure-Based

Regulation
There are two basic models of regulatory system which is the supervision
framework for securities market which is a merit based regulation and
disclosure based regulation. These regulation systems are important to provide
adequate investor protection and regulate business practices or codes of
conduct that reduces systemic risks. There are several countries which have
adopted the disclosure based regulation which are Malaysia, Hong Kong and
Singapore. The countries which are still following the merit based systems are
China and Philippines but to certain extend.
Merit-Based Regulation
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One regulatory philosophy may be characterized as merit-based. In

accordance with this philosophy, the regulatory authorities seek to protect the
investor from abuse and ensure that the securities are offered to them at a fair
price by intervening substantively in the offering process. The public offering,
and listing, cannot proceed until the securities have been “approved” by the
authority. Before giving such approval the authority will review the commercial
terms of the offering, including the business prospects of the issuer and the
offer price. Merit regulation has been defined as,
“ ⋯a regulatory system that authorizes [the regulator] to deny
registration to a securities offering unless the substantive terms of the
offering and the associated transactions (i) ensure a fair relation
between promoters and public investors, and (ii) provide public
investors with a reasonable relation of risk to returns.”
On the face of it, these are laudable aims. However, criticisms can be made of
the merit-based approach. On what basis could a regulator decide whether the
relation of risk to returns was “fair”? Such decision would depend on
commercial judgement which a regulator may lack; even if he has it, why
should his judgement be substituted for the judgement of the promoter?
Deciding the “fairness” of the promoter-investor relation may likewise involve
the regulator in discretionary judgement. How can it be ensured that the
regulator would apply such discretion even-handedly? And, more
philosophically, is it right for the regulator to prevent two parties from
transacting as they see fit? One opponent of merit regulation put it bluntly,
“Simply stated, merit regulation unnecessarily constrains the freedom of
people to do business as they see fit, discourages entrepreneurial
initiative and impedes the flow of capital to its most efficient use.”
The recognition of the need for a securities regulator to ensure investor

protection and market integrity is located in the Securities Commission Act
1993 (SCA), under which the Securities Commission (SC) is established.
Section 15(1) of the SCA requires the SC to, which control all matters relating to
securities and to take all reasonable measures to preserve the confidence of
investors in the securities market by ensuring sufficient security for such
investors. The principal thrust of the regulatory framework currently applied by
the SC is merit-based. Section 32(4) of the Securities Commission Act 1993
(SCA), give power that all proposals that involve issues or offers of securities to
the public be subjected to the SC's prior approval. The SC has the discretion to
approve the proposals with such revisions and subject to such terms and
conditions as it deems fit. The SC also has the power to reject corporate
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proposals if it is reasonably satisfied that these proposals are not in the best
interest of the public company and/or the investing public.
Authorities regulate securities offering
Under the MBR, The authorities regulate the securities offering by protecting
and shielding the investor by ensuring that the offering of the securities of the
company's is judged by the authorities to be fair, just and equitable. Under this
approach, the regulators or the authorities would make an assessment
regarding the company's viability, quality and capabilities of the company's
management, its suitability for listing and taking regard of the public interest
before approving any issuance proposal regarding the company's securities.
For example, section 34(4) of the SCA, issues or offers of securities is
subjected to the approval from the SC.
Issuers and advisers disclose to authorities
Under the MBR model, the issuers and advisers disclosed all information
regarding the company's business to the authorities or the market regulators.
These are because under this type of model, the market regulator needs to
approve first the securities before the investor can be allowed to invest in the
company's. This is for the purpose to protect the investor.
Authorities' reviews investment merits of offering
Regulators review each transaction according to its perceived merits. The

evaluation is completed in two stages which is firstly, adequacy of disclosure is
assessed then, and the merits of the transaction are subjected to value
judgment. Merit-based regulation assumes that the market regulators are
better informed than investors and can better decide the merits of transactions
on their behalf. These merit judgment is the indication whether the companies
can provide safe securities in making business in order to protect the
investment made by the investor.
Advantages of MBR Model
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In merit based regulation, it is a paternalistic attempt to improve or to develop

the fairness between the relationship between the sellers and buyers of the
securities in the capital market. These models also act as a shield to protect the
public investors from the risks involved in acting on impulse. This is because
the authorities had made deep valuation and merits regarding the company's
business in order to approve the securities issued by the company's.
This model or regulatory system is particularly suitable to be adopted for

Malaysia's emerging capital market which has a large proportion of financially
unsophisticated retail investors. This is also reduce or minimizing the possibility
of promoters of public companies exploiting these less sophisticated investors
to use as to their own advantages.
In the securities market, the Securities Commission is also able to ensure that
mechanism in place is working well in order to prevent unscrupulous and
unethical practices in the issue or offer of the securities by the companies. By
ensuing that the mechanism place is working, the investor would have
minimized the risk of losing their investment by the unscrupulous and unethical
practices of some companies who would provide false or inadequate
information regarding their business.
But, the ultimate decision still lies within the investor. This is because the
decision and the evaluation of the security offered lies with the investing public.
The securities commission will not give a guarantee that the investment made
by the investor would get a return or profit.
The SC has the power to check and ensure that the securities that are offered
by the issuers are fairly and reasonably priced.
Disadvantages of MBR Model
This is regards to the public interest where the public investor would make their
decision in investing their money in the company's based on the SC. The
approach of MBR posed a problem of moral hazard. This is because when the
market regulators or the SC gives their approval of the merits of a particular
company, it exist danger that investors will perceive that the corporation will be
a good investment as the SC had given their approval after making some merits
regarding the business of the company's. This would lead to an impression
whereby the investor did not need to individually evaluate the merits or risk of
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investing in that company. The investor would totally leave it to the market
regulator to make the research.
By using these models, the regulatory approach of MBR restricts entrepreneurs

and investor's choice in making decision in choosing the right company to
invest by limiting the scope of investment that is offered to them. This is
because only SC will give and provide the necessary approval in order to make
the issued security to be approved. If the company's does not comply the
guideline given and the SC does not approve the issue offered, thus limiting the
option available to the investor in investing their money.
This approach also denies certain ventures of access to public funds unless the
issuer of securities agrees to modify their offering according to the pre-requisite
set by the SC. The issue that always arises is that the SC and the issuers of
securities tend to have conflicting views as to how and the extent to which a
proposed venture or transaction will be beneficial to investor in general.
The SC is also known to be more conservative in its judgment and normally will
not approve highly risky securities to be offered to the public. The merit based
regulation also provided that by giving much protection to the investor, this will
take the bargaining power from the securities offeror or issuers and the power
will be switch to the investor instead. The protection is significant because the
issuers of the securities need to raise funds at a substantial discount from the
actual price of their securities. From this
Market philosophy, this "over-protection" of the investing public had compelled
issuers to raise funds at a substantial discount from the actual value of their
securities or add to the perception of initial investors that they would be
"guaranteed" a premium when the corporate body is launched onto the
marketplace.
Disclosure-Based Regulation
Disclosure-based regulation takes a diametrically-opposed approach. Under
disclosure-based regulation, the issuer is required by the regulatory framework
to make full disclosure of its affairs to the investor, and it is then up to the
investor to take responsibility for his own investment decision. The regulator no
longer intervenes paternally in the issuer-investor relationship, but concerns
himself with the design and enforcement of a framework that will empower the
parties to negotiate fairly with one another. A disclosure-based regime will
mandate extensive disclosure by the issuer. However, it will not concern itself
with the substance of these disclosures. Shortcomings of the issuer, provided
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appropriately disclosed, are not a bar to public offering: it is up to the investing

public to make its own decision.
The basic principle of DBR is the need for the issuers and intermediaries
offering securities to provide investors with sufficient, accurate and timely
disclosure of all relevant information regarding the company's business,
prospects, finances and the terms of the securities in order to allow investors to
better evaluate the risks and merits of their investment. This is to allow the
investor to make they own informed investment decisions. Usually is done
through the use of prospectus which focuses whether the companies comply
with the standard of disclosure required. For example, in Malaysia, the
companies that is listed in Bursa Malaysia, one of the listing requirements of the
standard disclosure is to have at least two annual reports that can be inspect by
the investors in order to make their decision to invest. The investor are
expected to carry out their own due diligence or with the assistance of expert or
professional such as lawyers and accountant because the investor hold a
higher level of responsibilities in evaluating the risk or particular offering based
on the disclosed information before investing.
Authorities regulate disclosure of information in securities offering
Under DBR, the regulation of the disclosure or the standard of the disclosure in
securities offering is on the authorities where the authorities will provide the
guidelines for the company in disclosing the relevant information pertaining the
company's business, finances, prospects and terms of securities. The burden is
put on the issuers of the securities and advisers and not on the authorities.
Issuers and adviser disclosed to investor
Under the model Of DBR, the issuers of the securities will provide sufficient
information according to the Securities Commission Guidelines regarding the
disclosure of information regarding their business. The advisers which are
normally experts or professionals such as accountants, lawyers and other
technical experts need to have play their role in the preparation of prospectus
for the investing public. These are because each of these adviser or experts
can be held liable for a defective prospectus under the DBR. The due diligence
process is for the purposes of preparing good and complete prospectus and
involves performing reasonable investigate work in order to determine that the
prospectus does not contain any material omission or false information.
Financial advisers and experts in particular are expected to have a very high
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standard of reasonable care. An adviser has an obligation to make a

reasonable investigation not just for the purpose of its own due diligence
defense but also as a duty to the investing public who will be relying on the
opinion and recommendations of the advisers. In order to minimize their
potential risk, the expert of professionals must make due diligence enquiries.
Investors determine investment merits of offering
In the DBR System, the investor cannot expect that the securities regulator to
protect them forever. In order to invest, the investor cannot invest blindly. The
investor must make their own research and collect data and information
regarding the company's business. Investors have to evaluate and assess the
merits of any security being issued or offered before making any investment
decision
It would become more apparent that investors would have to change their
laid-back attitude. They can no longer take for granted that securities being
issued or offered have already passed the regulators' investment merit review.
Instead, the information necessary for the investors themselves to evaluate the
investment merit of a security will be available. Investors must also take a more
active interest in the companies they invest in emphasis should always be
placed on fundamentals and long-term performance rather than short-term
profit. Investors should be concerned about ensuring that their rights and
interests as shareholders are protected, and that greater transparency and
accountability are shown by the directors or principal officers of the companies
concerned. Ultimately the effectiveness of the disclosure regime to be adopted
in Malaysia will depend on investors themselves. They must also rise to the
occasion by paying closer attention to the affairs of the corporations in which
they invest.
Under a disclosure-based regulation, investment analysts and financial

journalists would have access to more relevant information to enable them to
make more detailed analysis, research and assessment of each security issue
or offering and can conclude at a better finding and recommendation. This is of
particular importance in Malaysia in view of the large proportion of retail
investors, some of whom lack the technical expertise and or the time needed to
evaluate the web of information disclosed by issuers of securities. These
investors may need to rely on the analysis disseminated by the investment
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analysts and financial journalists to make better informed investment

decisions.
Advantages of DBR
There are several advantages of the DBR regulatory model system. Basically,
this would result in a more transparent and informed market whereby
companies have to improve their quality of disclosure to facilitate potential
decision making by potential investors. By upgrading the quality, the investors
have more choice and more information pertaining the business and the
finances of the companies before making any investment in the companies.
Investor must know and get the information given by the issuer of securities to
because the investor will hold the burden of all the responsibility towards their
investment decision.
One of the major advantages of DBR, the companies can raise more funds at a
lower or cheaper cost. This is because it is based on the assumption that the
higher level of transparency will lead to a greater evaluation risk by
underwriters which would then contribute to a lesser cost in raising the fund
which give the issuers companies the power to price it assets at a higher
premium rates.
Another advantage under the DBR is where the role of the regulator is to
ensure that the structure of the market is consistent and efficient for the market
In order for the investor to make a decision. The regulators will ensure that the
information given by the companies are disclosed so that the investor will
become the judge in making judgment of the merits of alternative investment,
so that the regulator would only emphasis on disclosure and eradication of
fraud.
According to analysis, by shifting towards the disclosure based regulation, the

benefit that the securities market will enjoy is that the increased of efficiency of
the Malaysian capital market by removing the barriers to competitiveness which
is present in the old merit regulatory system.
A higher standard of disclosure by the companies is ensuring by the regulatory

bodies. This is because the companies are expected to follow the guidelines of
disclosure of the information according to the SC. This would give more chance
to the investor in making their own research of the accountability of the
companies before making any investment.
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Disadvantages of disclosure-based regulation

There are potential disadvantages to a disclosure-based approach. It relies on
litigation, and so may be less palatable to certain cultures. Since it relies on
indirect measures, ie actions by private individuals rather than direct action by
the regulator, US-style disclosure-based regulation may be less suitable in
markets where the framework supporting such indirect measures is lacking.
The US system relies heavily on the professionalism of the various advisers to
the issuer, the integrity of the legal system, the institutions of class action and
contingency fees. These are not features of every market. The system may
also generate excessive disclosure difficult for the lay investor to understand.
This problem has been recognised by the US authorities, and has been
addressed, with some success, by a Plain English campaign. The physical
mechanisms for collecting and disseminating disclosures are also important,
although in the day of the Internet these are coming within reach even of
developing countries.
A further potential disadvantage would be frivolous litigation, ie claims against
the issuer which are without merit but which the issuer is nonetheless forced to
settle in order to avoid negative publicity. This has been perceived to be a
problem even in the US environment. The Private Securities Litigation Reform
Act of 1995 was intended to restrict the filing of frivolous suits.
Disclosure-based regulation in Asia

There is a general trend in the region from merit- to disclosure-based
regulation.
Singapore
Driven by the 1997 Asian financial crisis, Singapore launched a fundamental
review of its financial sector. The May 1998 report of the Government-initiated
Corporate Finance Committee characterises the then-governing regulatory
philosophy as “somewhere between merit and disclosure, but with a tendency
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towards the merit. The Committee was of the view that it was necessary to
adopt “… a predominantly disclosure based philosophy of regulation to
promote Singapore’s growth as an international capital centre, and to foster a
market-driven environment, with greater efficiency, innovation and
entrepreneurship.”
The committee saw the need for fundamental changes in the policy and legal
framework to support the new philosophy. These changes include the
establishment of a strong legal obligation for issuers to disclose, investigative
and enforcement powers vested in the securities regulator, and adequate civil
remedies for investors. Noting that instituting rights of class action would
encourage frivolous litigation, the committee proposes instead to provide the
securities regulator with the power to take up civil actions where it is in the
public interest to do so. Exchange practices are to be codified to promote
transparency and certainty. The Monetary Authority of Singapore is to become
the primary securities regulator, largely subsuming the role of the Stock
Exchange of Singapore.
Japan
In 1996, the Japanese Prime Minister issued a directive concerning financial
system reform, the so-called “Big Bang”. In June 1997, the Securities and
Exchange Council (renamed Financial System Council in June 1998)
published a report 11 setting out its recommendations. The thrust of reform is
very broad; however, one important thrust is a change in regulatory philosophy
from a paternal approach in which regulators vet and approve each new
instrument to one in which investors have the freedom to choose based on full
disclosure of information, and take responsibility for their choice. The market is
thus to become the main disciplinary force. A number of reforms are proposed
to realize this philosophical change. They include relaxation of restrictions on
new types of securities, improvements in accounting standards and auditing
practices, strengthening of penalties for insider dealing, improving access to
disclosure information, providing mechanisms for settlement of civil disputes,
and educating investors, for example through encouraging the formation of
investment clubs. Some of these measures have been enacted.
Hong Kong
The Stock Exchange’s 1998-2001 Strategic Plan sets the goal of seeking to
evolve the issuer regulatory regime towards a more disclosure-based model.
The new Growth Enterprise Market (GEM) launched by the exchange in
November 1999 seeks to foster a culture of self-initiative on the part of issuers
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and sponsors to fulfil their responsibilities without relying on the exchange. On

GEM, disclosure requirements are tightened, reporting being quarterly instead
of half-yearly, and within 45 days after the period end instead of 3 months.
Malaysia
Formerly a highly merit-based regime, in which the authorities had a major role
in determining the price and recipients of share issues, Malaysia is in the
process of implementing a five year plan, running from 1996 to 2001, to move
to disclosure-based regulation. The Securities Commission is established as
the main securities regulator, and the role of other regulators, such as the
stock exchange, is reduced or refocused. SC is given greater surveillance and
enforcement powers, investors are provided with civil remedies, standards and
best practice guidelines are introduced, and educational programmes are
launched for investors.
The Ground for the shift of regulatory model from MBR to DBR
The Securities Commission continues to play an important role in providing

direction on broad policy matters and in enforcing the securities laws and
regulations. Its role is to ensure that the incentives and structure of the market
are consistent with efficiency, fairness and stability.
Three Tenets of DBR
Disclosure
The responsibility of directors of public companies is to ensure that all material

information required by the public to make investment decisions is provided
accurately, in full and on a timely basis.
In disclosing such information, the question that is need to be asked is whether

Has any important piece of information been omitted?
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Is any part of the information misleading?
Is the information complete and accurate?
Investors rely on available information when deciding where and when they
should invest their money. There is a need for information when new securities
are offered in the primary market.
There is also a need for information when dealing in securities already traded in
the secondary market.
Disclosure of information therefore benefits investors by facilitating them to

make investment decisions.
Companies intending to offer securities to the public are required to fully

disclose information about the affairs of the companies and the securities which
are being offered, in the offering documents or prospectuses. For a public listed
company, disclosure obligations are stipulated in the Listing Rules of the stock
exchanges.
Due Diligence
In preparing the information to be disclosed to the public, directors of public

companies must undertake a due diligence exercise to verify and ensure that
the information to be released is accurate and timely.
Due diligence is a process by which inquiries are conducted to ensure that

information to be disclosed is true, sufficient and timely. Due care must also be
given to ensure that there is no omission of material information. Material
information is information which would reasonably be expected by rational
investors to facilitate their investment decisions.
Information that can affect the trading activities and prices of the company's
securities must be released immediately. The onus then lies with the investor to
consider and weigh the information provided before making decisions.
Following amendments to the Securities Commission Act 1993 (SCA) in 1995,

which placed a higher standard of responsibility on promoters, directors, and
advisers in respect of disclosures, the Securities Commission released a
publication on Due Diligence Practices in August 1996.
The publication is intended to explain the importance of due diligence,

especially given the criminal liabilities imposed on persons responsible for
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submission of proposals to the Securities Commission under section 32 of the

SCA.
In March 1999, another publication on "Due Diligence Guidelines on

Submission of Proposals to the Securities Commission" was published. It was
jointly issued by the Association of Merchant Banks in Malaysia, Federation of
Public Listed Companies, MIA, MACPA and MAICSA. The publication, in
detailing the due diligence process, the question whether
1) Who will be held responsible for conducting the due diligence?
2) Who should be included in a Due Diligence Working Group(DDWG)?
3) What should the terms of reference and role of the DDWG be?
4) What is the methodology used in conducting the due diligence exercise?
The publication also includes a due diligence checklist for an initial public
offering and sets out clearly the roles and responsibilities of the various parties
involved in the exercise.
Corporate Governance
The timely, accurate and transparent disclosure of material information is an
integral component of ensuring good corporate governance. Boards of
directors of companies need to be open about the businesses they direct and
this includes transparency in corporate activities and transactions. This is
essential so that shareholders can exercise their rights constructively. However,
they can only do so if they are provided the relevant information. Apart from
compliance with laws and regulations that constitutes one aspect of ensuring
that directors perform their fiduciary duties properly, there are also codes of
best practices which the directors are expected to observe. Among the codes to
be observed are The Malaysian Code on Corporate Governance, issued by the
Finance Committee on Corporate Governance and The Company Director's
Code of Ethics issued by the Registry of Companies.
III. Alternative Models of Corporate Governance

Corporate governance comes into play in cases where the management of the
organization has to be carried out by a manager or a group of managers who
are not the owners of the organization. In essence, corporate governance is
implemented by a business' financers in order to monitor and regulate the
101
organization's utilization of their investments (Becht, Chapelle & Renneboog,

2000). In this case, the individuals hired to manage the business are paid
employees and are responsible for the effective execution of the organization's
processes. As a result of this arrangement, it is only natural for a separation to
exist between the ownership of the organization and the management of the
organization (Brickley, Coles & Jarrell, 1997). While this may appear to be a
simple concept, modern day business models have allowed corporate
governance models to develop rapidly over the last few years and this has led
to the development of differing corporate governance models. The
implementation of these corporate governance models generally varies in
accordance with the region in which the organization is functioning and the
nature of business of the organization.
Different models of corporate governance differ according to the variety of
capitalism in which they are embedded. The Anglo-American "model" tends to
emphasize the interests of shareholders. The coordinated or [Multistakeholder
Model] associated with Continental Europe and Japan also recognizes the
interests of workers, managers, suppliers, customers, and the community. A
related distinction is between market-orientated and network-orientated
models of corporate governance.
Continental Europe (Two-Tier Board System)

Some continental European countries, including Germany, Austria, and the
Netherlands, require a two-tiered Board of Directors as a means of improving
corporate governance. In the two-tiered board, the Executive Board, made up
of company executives, generally runs day-to-day operations while the
supervisory board, made up entirely of non-executive directors who represent
shareholders and employees, hires and fires the members of the executive
board, determines their compensation, and reviews major business decisions.
United States, United Kingdom
The so-called "Anglo-American model" of corporate governance emphasizes

the interests of shareholders. It relies on a single-tiered Board of Directors that
is normally dominated by non-executive directors elected by shareholders.
Because of this, it is also known as "the unitary system". Within this system,
many boards include some executives from the company (who are ex
officio members of the board). Non-executive directors are expected to
outnumber executive directors and hold key posts, including audit and
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compensation committees. In the United Kingdom, the CEO generally does not
also serve as Chairman of the Board, whereas in the US having the dual role
has been the norm, despite major misgivings regarding the effect on corporate
governance. The number of US firms combining both roles is declining,
however.
In the United States, corporations are directly governed by state laws, while the
exchange (offering and trading) of securities in corporations (including shares)
is governed by federal legislation. Many US states have adopted the Model
Business Corporation Act, but the dominant state law for publicly traded
corporations is Delaware, which continues to be the place of incorporation for
the majority of publicly traded corporations. Individual rules for corporations are
based upon the corporate charter and, less authoritatively, the
corporate bylaws. Shareholders cannot initiate changes in the corporate
charter although they can initiate changes to the corporate bylaws.
It is sometimes colloquially stated that in the USA and the UK 'the shareholders
own the company'. This is, however, a misconception as argued by Eccles &
Youmans (2015) and Kay (2015).
Before moving on with the discussion, it is essential to come to terms with the
role of the board of directors of the organization. The board of directors play a
pivotal role in corporate governance models. This is because of the fact that
they serve as the bridge between the stakeholders of the organization and the
management team responsible for the organization's processes (Brickley,
Coles & Jarrell, 1997). The sensitivity of the role of the board of directors can be
judged through the fact that an extensive degree of research has been
performed on the functions and composition of the board of directors.
Regardless of the corporate culture in the organization, the board of directors
remains present as a critical connection between the organization's human
capital and the organization's stakeholders. Another reason because of which
the board of directors are given extensive relevance is the fact that almost all
corporate governance models look towards the board of directors when it
comes to the implementation of the corporate governance models (Becht,
Chapelle & Renneboog, 2000). The characteristics of the board of directors
tend to vary with regard to the size of the organization, the region/regions in
which the organization is functioning, the existence of the company as a listed
or unlisted company and the industry/industries in which the organization is
operating.
103
A practical example of the implementation of the European model of corporate

governance and the Anglo-American model of corporate governance can be
observed in the case of the US and Europe respectively (Brickley, Coles &
Jarrell, 1997). In Europe, a small number of investors are capable of making
pivotal investment decisions and these decisions are generally aligned with the
interests of the selected investors responsible for the decisions. In comparison,
the system generally followed and proffered in the US calls for the inclusion of
multiple opinions and perspectives (Becht, Chapelle & Renneboog, 2000). The
corporate strategy that is developed and eventually implemented is not
finalized until all the investors are and shareholders are in unanimous
agreement.
Management's role
In the case of the Anglo-American countries, it is often considered that the

Anglo-American system of corporate governance gives unquestioning support
to the management (Becht, Chapelle & Renneboog, 2000). This creates a
scenario in which the management appears to have a role that is limited to the
short run and does not encompass the long run. It can therefore be surmised
that the management, in the case of the Anglo-American system of corporate
governance, frequently communicates with the stakeholders. As a result,
managers in the Anglo-American system of corporate governance try to
implement strategies that will show outcomes within the span of a year or two
(Brickley, Coles & Jarrell, 1997). In comparison, when the management
implements the European model of corporate governance, decisions are taken
with outcomes expected around five years. In such cases, the shareholders
generally hold more decision making authority than that which is given to the
managers. Furthermore, controlling and holding structures are significantly
common in organizations making use of the European model of corporate
governance. In such cases, the European model of corporate governance is
also often referred to as the concentrated shareholder model because of the
extensive authority that it gives to the shareholders. This concentration of
ownership can often lead to the development of complications in cases where
financial resources have to play their part (Becht, Chapelle & Renneboog,
2000). The number of equity suppliers is generally deficient in the European
model of corporate governance because of the concentration of ownership.
Another characteristic of the European model of corporate governance that
merits highlighting at this point is that which pertains to the role of the capital
104
market. The capital market holds importance for corporate governance on

account of the fact that the developments in the capital market have a direct
influence on the corporate controls of the organization (Brickley, Coles & Jarrell,
1997). While the Anglo-American model of corporate governance relies heavily
on the capital market and seeks to takeover threats in the capital market, the
European model of corporate governance gives primary relevance to the
stakeholders.
Internal Differences
Labour motivation is a critically important factor when it comes to the

organization's performance. Since labour in the European model of corporate
governance is always a part of the decision making process, it is generally more
motivated than the labour force in the Anglo-American model of corporate
governance. Since the labour is relatively highly motivated, they choose to
contribute to the organization's development aggressively (Brickley, Coles &
Jarrell, 1997). This active participation on the labour's part tends to place a
limitation on the degree to which the supervisory board can exercise authority
(Hanson & Song, 2000). Influences of the labour's active participation can
generally be seen in the development of the organization's human resource
management policies.
The realist theory of codetermination understands co-determination as labour

representation. Labour as the most important stakeholder group besides the
shareholders should be represented and have a right to participate in the
decision making on the level of the second board, i.e. the advisory board in the
two-tier-board system (Hanson & Song, 2000). Co-determination as
representation does not aim at consent about all matters of corporate
governance. It is rather geared towards the right to participate and to be
included and heard in corporate governance for the sake of workers'
recognition as well as for the sake of other stakeholders of the firm because
workers' participation in decision-making enhances the quality of board
decisions. If the shareholders prevent the shirking of the employees of the firm
according to the theory of the firm introduced by Alchian and Demsetz (1996),
codetermination by labour results analogously in the prevention of shirking by
shareholders and managers that causes damage to labour as shirking by
employees causes damage to the shareholders. If the shareholders and/or
managers do not perform optimally labour will prevent them from shirking, from
not making their contractual contributions to the firm. Industrial relations are
105
traditionally better in continental Europe than in the USA which leads to higher
work place satisfaction and higher identification with the firm (Becht, Chapelle &
Renneboog, 2000). These, in turn, cause higher productivity rates. In the last
two decades since 1988, the process of the globalization of capital markets
seemed to support the shareholder principle, not the participation principle.
In the context of globalization
As globalization continues to influence the development of the global economy,

corporate governance also becomes subjected to standardization based on the
successful implementation of strategies by management teams around the
world (Hanson & Song, 2000). The case of General Motors and Ford presents
an excellent example in this regard. General Motors and Ford have produced in
Germany in huge production sites for over seventy years and did not find it
unprofitable to adjust to codetermination legislation which is about 35 years old
in 2008. In the European institutional setting, there is a greater complexity on
the second board level that causes certain additional costs. There is, however,
also the gain of additional information about the firm and of greater labour
alignment with the aims of the firm as a result of labour representation in
corporate governance on the level of the second board level. The participation
or co-determination principle can increase corporate performance if it is
understood as a principle of representation and not as a consensus principle
and if it is instituted together with the control principle of hostile takeovers
(Hanson & Song, 2000). Codetermination as representation of the employees
on the board increases the learning capacity of the organization and also fulfils
a pacification function in conflict situations within the enterprise as long as the
majority vote of the shareholders or owners is safeguarded. The synthesis
between the Anglo-American principle of the capital market as the market for
corporate control and the German principle of co-determination as employee
representation in corporate governance on the second board level is possible,
even under conditions of globalization (Becht, Chapelle & Renneboog, 2000).
The point to which the two systems of corporate governance, the USA and the
Continental European, converge to is the strengthening of capital market
control of management in Europe and the strengthening of labour
representation in corporate governance in the USA.
The purpose of the firm
106
Another difference between the Anglo-American and the Continental European

theories of corporate governance concerns the idea of the purpose of the firm
(Lipton & Lorsch, 1992). The purpose of an institutional part or subsystem of a
society is the major resource from which ethical analysis and decision-making
draws from since the purpose of action is the most important and defining
feature of an action. The purpose of any human action is the major criterion for
the ethical assessment of an action or institution (Becht, Chapelle &
Renneboog, 2000). The reason is that the purpose or aim of an action or
institution is the central cause of an action or institution and, therefore, the
central criterion for its success and value in economic, cultural and ethical
respect.
Ethics gives the conditions under which value creation must take place as
constraining and as enabling conditions (Hanson & Song, 2000). Value
creation can take place under the neglect of the personal right of the person or
of human dignity if the market conditions cause such groups of individuals to
have a weak competitive position. If there is an over-supply of labour its
competitive position is weak. The law might have to protect human dignity
against exploitation and abuse when competition in the market does not
preserve the human rights of the market participants (Becht, Chapelle &
Renneboog, 2000). Situations of prisoners' dilemma in which it is
advantageous for the individual to behave opportunistically require the
affirmation of ethical and legal rules independent of the utility calculus of the
acting individual. Loyalty to contracts e.g. is a principle that cannot be derived
from individual utility maximization for each act but must be asserted by the
individual on its own merit for ethical reasons (Thompson & Wright, 1995). It
can only be justified by rule utilitarianism for the general rule and not by act
utilitarianism for each single act. This implies that one has the duty to be loyal to
a contract even if a more advantageous contract is available instead. The
non-conditional hyper-norm of the economy must be distinguished from the
second order positive norms of the institutional setting of business. Some of
these positive norms are sometimes suggested to be ethical or normal rules of
the first order although they are in fact norms or virtues of economic
organization that imply some degree of freedom of specification although their
organization touches on ethical virtues, or norms of the second order. The
European model of the firm emphasizes that the firm is a multi-purpose
institution in which shareholder value plays the central but not the only role
(Becht & Röell, 1999). The Anglo-American model of the firm emphasizes
shareholder value as the only or last purpose of the firm to which the other
107
(stakeholder) purposes are instrumental or, at least, functional. At this point, the
development will go in the direction of the European model since it is more
inclusive and interprets the stakeholders to be of more than instrumental value
to the firm.
The recent global recession has led to the development of a scenario in which it
has become imperative for organizations to exercise corporate governance. It
therefore comes as no surprise that the last few years have seen a significant
increase in the volume of literature on corporate governance. Furthermore, the
increasing trends in globalization and the rapid developments in international
businesses have placed organizations in a position where it has become crucial
for them to revisit their corporate governance methodologies (Becht & Röell,
1999). These recent changes in corporate governance, and the processes of
globalization that have induced them, are obviously of historic proportion,
radically altering as they have economic, political and social structures. The
stakes in these reforms are high and they may be literally life and death for the
most vulnerable organizations.
IV. Case Study of Corporate Governance in Local

Scene
Below are summary accounts of the five recent corporate failures in the
Philippine financial services sector as reported in the business media which
raise governance issues:
Orient Commercial Banking Corporation
This bank acquired its commercial banking license in February 1996. At the end
of 1996 and 1997, total assets of Orient Commercial Banking Corporation
amounted to P2.8 billion and P7.8 billion. As of 1997, it had 52 branches. On
February 14, 1997, Orient Bank declared a bank holiday due to liquidity
problems. The BSP discovered some P5.44 billion of the bank’s total loan
portfolio of P6.1 billion in unrecorded loans to the bank’s directors, officers,
shareholders and other related interests (DOSRI) including loans of
P50,000.00 each to eight newly-founded companies. Disbursements were
made to these eight companies even before their registration was approved by
the SEC. The last examination of the bank’s records by the BSP was in 1996,
108
when it was still a thrift bank. Books of banking institutions are subject to an
annual examination by monetary authorities.
Monte de Piedad and Savings Bank
The bank had 30 branches and a deposit base of P6 billion from 80,000
individuals and corporate depositors at the time of its closure. The bank
suspended its operation on April 23, 1997, 115 years after it was established.
At the end of 1996 and 1997, total assets of the bank amounted to P6.69 billion
and P5.98 billion. Through a conduit lending investor firm, the bank incurred
P1.8 billion of bad loans to public utility operators and drivers. This conduit firm,
with only P100,000.00 capitalization was able to discount its papers with the
bank from 1991 to 1995. BSP did not discover this arrangement during its
regular examinations. Anomalous loans and irregularities were also not
reflected in the audited reports. In 1995, 70% of MPSB’s equity was acquired
by the Vicente Tan group. The former owners reportedly paid themselves, 33
some P87 million in cash dividends between 1990 and 1994. An audit of MPSB
ordered by BSP after operations were suspended also revealed that the bank’s
ledgers of individual accounts were not properly maintained and that BSP had
to rely on the records of MPSB’s primary conduit, Strategic Lending Investors,
Inc. (SLI), for the outstanding loan balances. At this point, the management of
MPSB led by Vicente Tan, blamed BSP for its late discovery of “anomalous
loans and irregularities” committed since 1992.
Westmont Investment Corporation (WINCORP)
Wincorp collapsed in the year 2000. Wincorp violated on a large scale the
DOSRI policy in financial institutions. The biggest borrower was also the
second largest stockholder of Wincorp – the Sta. Lucia Realty and
Development Inc. Sta. Lucia owned 20.3% of the total outstanding shares and
cornered P943 million loans. Furthermore, stockholders of Unioil Resources &
Holdings Company Inc., a major stockholder of Wincorp, were also borrowers
of Wincorp in over 50% of the pooled investment accounts. Wincorp skirted the
“19 lender rule” of the Revised Securities Act – prohibiting nonbanks from
collecting deposits or investments from more than 19 clients – by collecting
investments from its 2200 lenders or investors and combining them to less than
20 accounts.7 Wincorp also entered into a few large loan transactions related
to the government privatization program. (Wincorp and Westmont Bank were
109
linked to the Secretary of Finance during the years 1998-1999.) Wincorp

loaned P1.5 billion to Malaysian Hottick Holdings Corp. at 17% interest over a
one year repayment period. Hottick was to buy the governmentowned National
Steel Corp. However, the deal of NSC and Hottick was the subject of a legal
battle and consequently, Hottick was unable to pay Wincorp. Another big
borrower of Wincorp is Power Merge which had P2.5 billion debts to the firm.
Other borrowing firms related to directors/owners amounted to P3.7 billion.
Most of the borrowers were also shareholders of Unioil Resources and
Holdings Co., Inc. which owns 100% of Wincorp.
Urban Bank
On April 26, 2000, Urban Bank closed. Total assets of bank as of the end of
1999 was P12.2 billion. According to the regulators, deposits held by Urban
Bank had been used to service the heavy withdrawals from its sister company,
Urbancorp Investment Inc. (UII). UII sold to Urban Bank P2.8 billion worth of
receivables described by regulators as “trash” or “doubtful and substandard”
real estate projects. Urbancorp operated as an investment house without
quasi-banking functions and engaged in trust operations pursuant to its trust
license issued by the BSP. UII also carried between P5 billion and P10 billion in
off-balance sheet items or transactions mostly in the form of marketable
securities – managed and brokered by the firm but not reflected in its books. As
of April 27, 2000, Urban Bank’s deposit base stood at P9.1 billion. It had 24
branches.
The Philippine National Bank (PNB)
PNB had the largest amount of NPLs as of the end of the first quarter of CY
2000 at P36.8 billion representing 33% of its total loan portfolio. PNB is partly
government-owned. Based on published data, the bulk of its nonperforming
loans have been granted to only a small number of big corporations which
included government-related firms owned by individuals close to government
officials and property firms. In a special audit by Price Waterhouse Coopers
(December 1991), it was found that 10 business groups have exceeded the
BSP’s single borrower lending limit which is 25% of a bank’s unimpaired capital.
It was also disclosed in the audit report that many of PNB’s creditors were
adversely affected by the significant deterioration of the peso due to the Asian
crisis. 34 PHILIPPINE CORPORATE GOVERNANCE:ISSUES AND
110
REFORMS In 1997, when the Asian crisis occurred, PNB had total assets of
P242.3 billion (as of the end of December 1997) and was ranked the No. 2
commercial bank in terms of total assets.
WEAKNESSES IN CORPORATE GOVERNANCE MECHANISMS
The cases discussed in the previous section are clearly indicative of

weaknesses in government regulatory structures and corporate governance
mechanisms of financial institutions. These weaknesses allowed the
expropriation of small investors by a few stockholders and management. These
weaknesses may be categorized as follows:
1. Decision Processes;
2. Violation of Regulations;
3. Weaknesses of Regulatory Agencies; and
4. Financial Reporting Standards
Decision Processes
When a significant portion of the outstanding shares is owned by a few

individuals, such as the Wincorp, Orient Bank and Urban Bank, it is likely that
there is no separation of decision management and decision control which is of
utmost importance in banks particularly in the loan approval process and in the
determination of the loan portfolio. It could be seen in the cases discussed, that
the owners and directors effectively centralized and combined these functions
at the board level. For example, Wincorp extended a few large loans to Hotlick
and Power Merge totaling P4 billion. These two loans were both unpaid by the
borrowers. PNB, likewise, granted big loans to only small number of big
corporations. Thus, as of the first quarter of CY 2000 (a few years after the
Asian financial crisis), it had the largest NPLs at P36.8 billion.
Violation of Regulations and Weaknesses of Regulatory Agencies
The cases also illustrated various ways of violating the Restriction on Bank
Exposure to Directors, Officers, Stockholders and their Related Interests
111
(DOSRI) rule in the Philippine General Banking Act (see Table 1). The case of
Urban Bank demonstrated a weakness in of the regulators and/or Philippine
laws. For example, in the Urban Bank case, it was not clear which agency, BSP
or SEC should supervise investment banks like Urbancorp. While Urbancorp
had a trust license to engage in trust banking activities and operate common
trust funds, it was not under BSP supervision but under SEC.
Financial Reporting Standards
Wincorp violated the “19 lender rule” of the revised Securities Act and violated
prudential limits on lending to DOSRI despite audits by the firm’s external
auditors and audits by the BSP. In 1997, a study conducted by the UP College
of Business Administration of 122 publicly-listed firms found violations by these
publicly-listed firms such as:
1. overstatement of earnings per share;
2. failure to consolidate subsidiaries;
3. non-disclosures or inadequate disclosures as required by financial reporting

standards; and
4. overstatement of assets and income.
Agustin reviewed 239 financial statements in the years 2001 and 2002 of 163
companies listed with the Philippine Stock Exchange. The study revealed that:
1) external auditors gave qualified opinions to 14% of the financial statements
reviewed, and 2) only 7% of the ERLINDA S. ECHANIS 35 statements were
found to be compliant with all the prescribed rules issued by SEC and the ASC.
Dyball and Valcarcel (1999) concluded in their study that accounting regulation
in the country (Philippines) is still more of the “tradionalist” and not a
“corporatist”. The latter means that the profession must be able to modify
self-interested behavior and to uphold public interest. The authors noted that
the biggest accounting firm has the biggest representation in Philippine Institute
of Certified Public Accountants (PICPA) which in turn has the largest
representation in the body that formulates the accounting standards in the
country, the Financial Reporting Standards Council. Cayanan (2006) in his
study of 152 annual reports of 79 companies (17 banks and 62 holding
companies) for the years 2002-2003 concluded that the monitoring systems of
Philippine regulatory agencies such as the SEC, the BSP and PSE are weak
and must be strengthened. Cayanan also observed that there is a high
112
concentration of financial reports being audited by one accounting firm.

Industry practice may be dictated by one firm and may become part of GAAP.
Cayanan also noted that eight (8) out of 14 members of the Financial Reporting
Standards Council (FRSC) come from the PICPA whose membership is
composed of top accounting firms. This can clearly give rise to conflict of
interest and lack of independence on the part of some FRSC members.
CONCLUSIONS AND RECOMMENDATIONS
Weaknesses in corporate governance mechanisms in selected Philippine firms

discussed in this paper have been partly addressed by regulations issued by
government and other agencies, and by laws recently enacted by Congress
such as banking laws and the securities regulation code. SEC also issued a
code of corporate governance for publicly-listed firms.
These reforms have focused mainly on the board structure – the inclusion of
independent directors as well as the choice of directors in the case of financial
services firms supervised by the BSP. Reforms in the preparation of financial
statements were also prescribed by the Financial Reporting Standards Council.
These reforms, however, are not sufficient to protect the “outsiders” for the
following reasons:
1. The market share of just one dominant accounting firm still concerns
investors and other foreign credit watchdogs because of the possibility of
limiting the rotation of the handling partner within the dominant accounting firm
every five years as prescribed by the Code of Governance. Furthermore, the
independence of FRSC is affected by the dominance of one accounting firm;
2. Enforceability of laws is also weak. Philippine courts take years to resolve

cases and violators are aware of this. Thus, some firms prefer the resolution of
financial reporting cases by international arbitrators to Philippine courts.
However, international arbitration is very expensive and may not be affordable
by many;
3. More diversified ownership in banks is also lacking, ownership in banks is

concentrated in few individuals and families and the industry is dominated by
few banks controlling 71.2% of system-wide assets as of 2005 (see Table 5). In
2005, top 10 commercial banks accounted for 71.21% of the total assets of the
commercial banking system. Of these top 10 banks, more than 50% are
controlled by families and their affiliates, and two are wholly owned by the
113
government. The concentration of ownership in banks in few individuals or

families makes possible the violation of the DOSRI 36 PHILIPPINE
CORPORATE GOVERNANCE:ISSUES AND REFORMS banking rule which is
a common cause of bank failure in the Philippines. This can also lead to
decisions that are centralized at the board level that are not properly evaluated
at various decision levels in the organization;
4. It seems that the monitoring system by regulatory/ supervisory bodies should

be strengthened. Regulatory agencies should have more frequent
examinations of firms that are most likely to violate rules/regulations due to
ownership structure.
5. The regulators (SEC and BSP), the Philippine Stock Exchange, the Credit
Rating Agencies and the Accounting Standards Council must play a stronger
role to improve financial reporting practice for the protection of the investing
public.
V. Case Study of Corporate Governance in

International Scene
WORKING PAPER January 2008 School of Accounting College of
Business Administration Florida International University 11200 SW 8th
Street Miami, FL 33199 USA
CORPORATE GOVERNANCE IN ASIA: A COMPARATIVE STUDY
Robert W. McGee, Florida International University
The World Bank (2003; 2004a & b; 2005a, b & c; 2006a & b) has conducted a
number of studies of corporate governance practices in various countries all
over the world. It has conducted eight studies of Asian countries. This part of
the paper summarizes some of the components of those studies. Noticeably
absent are China and Japan. It classified the extent of the observance of
various corporate governance practices into five categories. The following
tables show the classification for each of the eight Asian countries in ten
categories. The categories are as follows:
O = Observed LO = Largely Observed PO = Partially Observed
114
MNO = Materially Not Observed NO = Not Observed
Basic Shareholder Rights
Table 1 shows the scores for the category Basic Shareholder Rights. India was
the only country earning the highest score. Five countries largely observed
basic shareholder rights. Indonesia and Vietnam only partly observed basic
shareholder rights.
Participation Rights
Table 2 shows how the countries scores in the area of participation rights. This
time both India and Korea had the top ratings. Indonesia, Pakistan and the
Philippines largely observe participation rights, whereas Malaysia, Thailand
and Vietnam only partly observe these rights.
115
Market for Corporate Control

In the area of the market for corporate control the only country that got the
highest rating was India. Table 3 shows the relative ratings. Five of the eight
countries did poorly in this category, although none of them earned the lowest
possible rating.
Equal Treatment of Shareholders

None of the countries earned the top rating for equal treatment of shareholders,
as can be seen in Table 4. Korea and Pakistan had the next highest rating.
Vietnam had the lowest, with a rating of materially not observed.
Disclosure of Interests
116
None of the countries had the top rating in the category of disclosure of
interests. Malaysia, Pakistan and Thailand had the next highest rating;
Vietnam had the lowest rating. Table 5 shows the ratings.
Access to Information
India and Korea give their shareholders the best access to information.
Indonesia, the Philippines and Vietnam give their shareholders the least
access, although none of these countries earned the lowest or second
lowest rating in this category. Table 6 shows the ratings.
Disclosure Standards
Disclosure standards were not particularly good for any of the countries.
None of them earned the top rating. Vietnam had the lowest rating in
this category. Table 7 shows the results.
117
Accounting & Audit Standards

Table 8 shows the ratings for accounting and audit standards. Malaysia
was the only country that had the top rating. There is a lot of room for
improvement in this category. Half of the countries only partly observed
these standards.
Independent Audits
As Table 9 shows, none of the countries observed the guideline for
independent audits, although half of them largely observed it.
118
Fair & Timely Dissemination

India and Korea were the only countries that observed the guideline for
fair and timely dissemination of information. Vietnam scored the lowest
in this category. Table 10 shows the results.
119
CONCLUDING COMMENTS
None of the countries earned a perfect score of 50, which means they
all have some work to do to meet the corporate governance guidelines.
But some countries have more work to do than others. Vietnam can be
excused for having such a low score. It is a relatively new entrant to the
market and has not been trying to attract foreign investment from the
private sector as long as have some of the other Asian countries. The
private sector in Vietnam is still in the fledgling stage and will probably
continue at this level of development for some time, although the
country has a relatively high growth rate. But it is starting from such a
low level of economic activity that it has a way to go before becoming
competitive in international capital markets.
The relatively high scores of India and Korea do not come as a surprise.
Although India is noted for bureaucracy and corruption, its corporations
are making progress in the area of corporate governance. Korea is one
of the Asian tigers. It has ready access to capital, partly because of its
relatively good corporate governance practices but also because of the
structure of the Korean economy. The good old boy network is still alive
and well there.
The scores for each of these countries will likely improve with time.
There is internal pressure to improve corporate governance as well as
external pressure. The market provides incentives to improve and to
compete in practically every area of economic activity, including the
realm of corporate governance. Those who do not clean up their act will
be left behind as corporations in other countries improve their corporate
governance practices.
120
VI. REFERENCES
https://en.wikipedia.org/wiki/Corporate_governance#Models
https://www.ukessays.com/essays/commerce/anglo-american-and-
european- model-of-corporate-governance-commerce-essay.php
https://educheer.com/the-external-institutions-of-corporate-governa
nce- regulators-markets-auditors-and-others/
http://www.12manage.com/forum.asp?TB=corporate_governance&
S=11
http://elibrary.worldbank.org/doi/abs/10.1596/0-8213-4741-1
http://www.studymode.com/essays/Internal-External-Institution-Of-C
orporate- 1673365.html
https://www.slideshare.net/amie1987/corporate-governance-813290
7
https://graduateway.com/auditing-and-corporate-governance-in-the-
uk/
https://organizationsandmarkets.com/2009/12/07/internal-and-exter
nal- corporate-governance/
http://smallbusiness.chron.com/three-types-corporate-governance-
mechanisms-66711.html
https://studymoose.com/the-external-institutions-of-corporate-gover
nance- regulators-markets-auditors-and-others-essay
http://www.accaglobal.com/za/en/student/exam-support-
resources/professional-exams-study-resources/p1/technical-articles/c
orporate-governance.html
121
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Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

REPUBLIC ACT NO. 7277

productive and satisfying life. To reach out to a greater number of disabled

(e) To facilitate integration of disabled persons into the mainstream of society,

(b) Impairment is any loss, diminution or aberration of psychological,

(c) Disability shall mean

1) a physical or mental impairment that substantially limits one or more

(d) Handicap refers to a disadvantage for a given individual, resulting from an

(e) Rehabilitation is an integrated approach to physical, social, cultural,

(f) Social Barriers refer to the characteristics of institutions, whether legal,

(g) Auxiliary Aids and Services include:

(h) Reasonable Accommodation include

1) improvement of existing facilities used by employees in order to render

(i) Sheltered Employment refers to the provision of productive work for

(o) Covered Entity means an employer, employment agency, labor

(p) Commerce shall be taken to mean as travel, trade, traffic, commerce,

Sec. 5. Equal Opportunity for Employment. — No disable person shall be

Related Implementing Rules and Regulations

RULE II. SECTION 1. Equal Opportunity for Employment

1.1 Opportunity for suitable employment.

1.2 Discrimination in employment.

a) Limiting, segregating or classifying a disabled job applicant in such manner

b) Using qualification standards, employment tests or others selection criteria

c) Utilizing standards, criteria or methods of administration that:

d) Providing a lower compensation, salary, wage or other forms of

e) Favoring a non-disabled employee over a qualified disabled employee with

f) Re-assigning or transferring a disabled employee to a job or position he

g) Dismissing or terminating the services of the disabled employee by reason of

involved is impaired by reason of the disability to the prejudice of the business

h) Failing to select or administer in the most effective manner employment tests

i) Excluding disabled persons from membership in labor unions or similar

1.3 Pre-employment medical examination.

a.) Workers to be hired are subjected to such medical examination regardless

b) Information obtained concerning the medical condition or history of the

1.4 Compensation and other benefits.

1.5 Reserved positions for the disabled.

Sec. 6. Sheltered Employment — If suitable employment for disabled persons

Related Implementing Rules and Regulations

RULE II. SECTION 2. Sheltered Employment

2.1 Provisions of sheltered employment.

2.2 Sheltered workshop.

2.3 Entitlement to sheltered employment.

Sec. 7. Apprenticeship. — Subject to the provisions of the Labor Code as

found satisfactory in the job performance, they shall be eligible for

Related Implementing Rules and Regulations

RULE II. SECTION 3. Apprenticeship and Learnership

3.1 Qualification for Apprenticeship.

3.2 Apprenticeship agreement.

(h) A commitment by the employer to make the apprentice a regular employee if

3.3 Apprenticeship programs.

3.4 Learnership agreement.

3.5 Learnership in piece work.

Sec. 8. Incentives for Employers. —

Related Implementing Rules and Regulations

RULE II. SECTION 4. Incentives for Employer

4.2 Requirement for entitlement to incentives.

The following shall be the requirements for entitlement to the incentives:

A. For employing disabled workers:

B. For improving or modifying physical facilities for reasonable accommodation

Sec. 9. Vocational Rehabilitation. — Consistent with the principle of equal

Related Implementing Rules and Regulations

SECTION 5. Vocational Rehabilitation

5.1 Principle of equal opportunity.