Key Learning Objectives

To define and understand the attributes of a

corporation
To recognize the purpose of the modern
corporation and the contrasting views on
corporate purpose
To identify what is a stakeholder and who are
the corporation’s market and nonmarket and
internal and external stakeholders
Analyzing the forces of change that continually
reshape the business and society relationship
 What is Corporate Governance?
Framework of rules, systems, and processes in the
corporation that governs the performance of the board of
directors and management of their respective duties and
responsibilities to:
stockholders and other stakeholders
customers,
employees,
suppliers, financiers,
Government, and
community in which it operates.
SEC memorandum circular no. 9
Series of 2014
“amendment to the revised code of corporate governance”
 What is a corporation?
• “A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.” (Section 2, Corporation Code of the Philippines)

Attributes of a Corporation
• Artificial Being – fiction of law, juridical person whose personality
is separate and distinct from its owners;
• Created by Operation of Law – came into existence through a
charter or grant from the state;
• Right of Succession – it can continue to exist even in death,
incapacity or insolvency of any stockholder or member;
• Powers, attributes, and properties – it is authorized to do activities
within the purpose/s of its creation.
 PARTIES WITH CLAIMS OVER THE
CORPORATION
 Shareholders - an owner of shares in a company.

 Bondholders - is an individual or institution that

owns a certain government or company's bonds

 Board of Directors - team of people elected by a

corporation's shareholders to represent the
shareholders' interests and ensure that the
company's management acts on their behalf.
 PURPOSES OF A CORPORATION
 Early Stage Survival;

 To Increase Profit;

 To offer Vital Services to

the General Public; and

 To offer Goods and

Services to the Mass
Market
 Shareholders
an owner of shares
in a company

Stakeholder
persons or groups that affect, or are
affected by, an organization’s
decisions, policies, and operations
1. Can shareholder and director be the same person?
2. Can stakeholder be a shareholder?
3. Can shareholder be a stakeholder?
3. Who will be prioritized in case of bankruptcy,
bondholder or stockholder?
Bondholders have higher seniority
than stockholders in the event that a
company declares bankruptcy or liquidates.
That means that the company has to pay
back its obligations to bondholders before it
compensates stockholders.Oct 20, 2011
 Two contrasting views:
“Shareholder Theory of “Stakeholder Theory of
the Firm” the Firm”
 The firm is seen as the property of its  Argues the corporation serves a
owners (shareholders) broader purpose, to create value for
society
 Argues the owners’ interests are  Must make profit for owners to survive,
paramount and take precedence however, creates other kinds of value
over the interests of others too
 The purpose of the firm is to  Corporations have multiple obligations,
maximize its long-term market value, all “stakeholder” groups must be taken
that is, to make the most money it into account
can for shareholders
 Different Kinds of Stakeholders
Stakeholder groups can be divided into two
categories:

 Market stakeholders are those that engage

in economic transactions with the company
as it carries out its primary purpose of
providing society with goods and services

 Nonmarket stakeholders are people or

groups who—although they do not engage in
direct economic exchange with the firm—are
affected by or can affect its actions
 Internal stakeholders are those, such as employees and managers,
who are employed by the firm
 They are “inside” the firm, in the sense that they contribute their
effort and skill, usually at a company worksite
Management
Employees
 External stakeholders are those who—although they may have
important transactions with the firm—are not directly employed by it
Creditors The external environment of
business is dynamic and ever
Shareholders changing
Clients The purpose of the firm is not
Government simply to make a profit, but to create
value for all its stakeholders – a
Public successful business must meet both its
economic and social objectives
The Stakeholders of Business
Forces that Shape the Business and Society Relationship
 KEY LEARNING OBJECTIVES
PART 2
CORPORATE GOVERNANCE
 To define corporate governance and its
fundamental objectives;
 To be aware of the benefits of corporate
governance
 To examine key issues to consider in
corporate governance systems
 To provide information on the future of
corporate governance
 What is Corporate
Governance?
Corporate governance is a system by which corporations are directed,
controlled, and held accountable in order to remain:

COMPETITIVE, SUSTAINABLE, RELEVANT AND

LEGITIMATE.

• GOOD CORPORATE GOVERNANCE PROVIDES A LEVEL

OF DISCLOSURE AND TRANSPARENCY REGARDING
THE CONDUCT OF CORPORATIONS, THEIR BOARDS
AND DIRECTORS IN THEIR RESPECTIVE
ACCOUTNABILITIES.
 Pillars of Corporate Governance
• ACCOUNTABILITY • TRANSPARENCY
- “NOTHINGTO HIDE”; ANYTHING CAN BE
- MANAGEMENT IS ACCOUNTABLE TO THE BOARD
CHECKED AT ANY GIVEN TIME BY AN
- BOARD IS ACCOUNTABLE TO THE SHAREHOLDERS OUTSIDE OBSERVER
- TIMELY, ACCURATE DISCLOSURE ON ALL
• Fairness MATERIAL MATTERS, INCLUDING THE
FINANCIAL SITUATION, PERFORMANCE,
- Protect stakeholders’ rights OWNERSHIP AND CORPORATE GOVERNANCE
- Treat all stakeholders including minorities, equitably
- Provide effective redress for violations • RESPONSIBILITY
- RESPONSIBILITY GOES HAND IN HAND WITH
• Independence ACCOUNTABILITY
- Procedures and structures are in place so as to minimize, or - ACCOUNTABILITY IS THE VESTED AUTHORITY
avoid completely conflicts of interest TO ACT IN BEHALF OF THE COMPANY;
- Independent directors and advisers, i.e., free from the RESPONSIBILITY IS BEING FULLY AWARE OF
influence of others THE CONSEQUENCES OF EXERCISING THOSE
POWERS.
 Benefits of Good Governance

• ENHANCED INVESTOR CONFIDENCE

• INCREASED STOCKHOLDER VALUE
• ENHANCED PERFORMANCE
• INCREASED OPERATIONAL EFFICIENCY
• ASSURED LONG-TERM PRODUCTIVITY AND
GROWTH
 Issues in
Corporate Governance Systems
• Board of Directors • Internal Control and Risk Management
• Independence • Internal and External Audits
• Quality • Control Systems
• Performance • Risk Management
• Financial Misconduct
• Shareholders and Investors
• Shareholder Activism • Executive Compensation
• Social Investing
• Investor Confidence
FUTURE OF
CORPORATE GOVERNANCE
• Business leaders and managers will need to embrace governance
as an essential part of effective performance.
• Governments will have a role to play in corporate governance.
National competitiveness depends on the strength of various
institutions, primarily on the effective performance of business and
capital markets.
• Other stakeholders may become more willing to use government
mechanisms to affect corporate strategy or decision making.
 End of class activity
(student interviews)
• Guide Questions:
• What was the most useful thing you learned today?
• What did you struggle most with?
• What will you ask for help with next class?
• What can you do to help somebody else learn better?
• What’s your learning goal for next class?