Group 3:

Gabucan, Mary Ann B.

Coyoca, Judielyn P.
Desabille, Wendy
1 Ace
 Learning Objectives

1. Legal framework that affected corporate governance locally

2. Internal foundation of corporate governance

3. Functions, duties and responsibilities of board of directors, CEO, CFO and

shareholders

4. Different external environment of corporate governance

5. Anti-takeover defenses mean including its advantages and disadvantages

6. Shareholders’ imposable limitations

7. Leading behavior management theories that contributed to the understanding of

human behavior at work

2
The Phone Business:
Then and NOw
 PLDT
PHILIPPINE LONG DISTANCE
TELEPHONE
COMPANY

- Had a virtual monopoly in the voice business.

- In early 1990’s, the company controlled 95 % of the voice market with
the balance divided among rural telephone companies.
4
 A move to deregulate telecom industry:
The administration of FIDEL RAMOS, in a move to deregulate the
telecommunication industry, issued:

EXECUTIVE ORDER (E.O.) No. 109 in 1994 or PUBLIC TELECOMMUNICATIONS POLICY ACT
the Service Area Scheme (SAS) OF 1995 (R.A. 7925)

Aim: - Thereby setting the policy for competition

- To bring telephone services to rural areas of
the country and fast-track the roll-out of the
landline networks by various
telecommunication companies.
and liberalization of the telecommunications
sector.
Aim:
- To open up the paging and value added
service but continue regulating the rates for
local exchange carriers, international long
distance and the mobile telephone business, “
unless there is sufficient competition”.

5
 - Luzon and Metro Manila
- Nationwide franchise
- Central Luzon

Who
participated
in sas? - Mindanao

- Metro Manila and Bicol (SERVICE AREA SCHEME)

areas

- Metro Manila and

- Northern Luzon outlying areas

- Visayas - Mindanao
 “
While implementation of EO 109 was a success, there are two things that
resulted to the mergers among SAS participants.

1. The 1998 Asian financial crises

2. Advent of mobile phone technologies

Only PLDT, Digitel and Globe were left competing.

PLDT and Digitel negotiated a share swap

deal whereby PLDT would own 51.55% of
Digitel.
 o - Majority owner of Digitel
(Sun Cellular) from Gokongwei
family owning 51.55 %

o PLDT gained 15 M subscribers

with acquisition of total of
about 60 M users

Now: Pldt TO BUY INTO DIGITEL

 TV 5 – GMA 7 Deal ‘FINAL’ By end of 2012 says MVP

o Deal first erupted in December 2011

o The Pangilinan (TV 5) buy-in talks boosted
o Officials from both camp have since
the share price of GMA-7
made vague, even contrasting
statements o With a higher deal price, in effect, making
the transaction more expensive for
o GMA owner was quoted naming a
Pangilinan’s group.
spectacular deal price of P200 B.

o GMA is controlled by Duavit, Gozon and

Jimenez families
9
10
 Intellectual honesty of
directors and senior
management.

Foundation of good
corporate governance: Place your screenshot here

Expressed by acting in the

best interests of the
incapacitated company

11
 Corporation:
• A juridical person

• but is INCAPACITATED until its DIRECTORS are appointed and the same
appoints management for implementation of its collective decisions

• Needs the right people, team and processes:

BOD
• must determine a common understanding of the purpose of the
company, the values that drive its business and who are the
important stakeholders
• Identifies sustainability issues
MANAGEMENT
• Must communicate with the particular groupings of stakeholders
12
 CORPORATION
Long-term strategies must
Good governance:
follow considerations by
BOD on these aspects: oQuality of governance over quantity
oMindless compliance
S ocial oConnotes acting with FAIRNESS,
H uman ACCOUNTABILITY, RESPONSIBILITY AND
TRANSPARENCY ( F.A.R.T)
E nvironmental
oDirectors must ensure that they apply
F inancial
principles of good governance when taking
T echnological risks for reward

oAttracts capital

13
CORPORATE
GOVERNANCE
IN THE
PHILIPPINES
 Example: BW Resources Example: 900-M fraud
Corporation rocks Metrobank
-whose prices hit records high
and then collapsed in 1999

Philippine Corporate Scandals

RESULT: CAUSE:
1.Brought down stock markets image Have their roots in management’s desire to project a
false picture of performance, with the aim of driving
2. Weakened private sector
up the value of the corporation in a competitive
confidence
global market
15
 -Is needed to make corporate managements more
accountable, and their auditors more rigorous.

CORPORATE GOVERNANCE
• Philippine Securities and Exchange Commission issued:
MEMORANDUM CIRCULAR NO. 2, SERIES OF 2002, ( CODE OF GOVERNANCE)
under SEC Resolution no. 135 dated April 4, 2002
• Update:
SEC Memorandum Circ No. 19, Series of 2016 Code of Governance for Publicly- listed Companies
16
  Develop
capital  To promote
market corporate governance
reforms that will
raise investor
confidence
AIM OF
 Help achieve high
sustained growth
CORPORATE
for the corporate GOVERNANCE
sector and economy

17
 Corporate code of governance applies to:

1. Corporations whose securities are registered or

listed

2. Corporations who are grantees of permits/

licenses of secondary franchises from the
Commission

3. Public companies
4. Branches/ Subsidiaries of foreign corporations
operating in the Philippines whose securities
are registered/listed.

18
 S alient features of corporate
governance:
3.
2.
1. BOD constitute committees:
BOD should establish the
BOD shall a. Audit Committee
corporation’s vision and
primarily be
mission, strategic objectives, -inculcate the importance of a sound system of
responsible for internal control
policies and procedures that
the governance
guide and direct the activities b. Nomination Committee
of corporation.
for monitoring -review & evaluate the qualifications of all nominated
management’s performance for the Board
c. Compensation/ remuneration
committee
-establish a formal & transparent procedure for
developing a policy on executive remuneration

19
 S alient features of corporate
governance:
4.
Emphasize importance of the work of 5.
secretary ( who must be a Filipino)
Disclosure- vital &
dominant theme in
Respects the rights of the stockholders. the Code

Management may establish performance

evaluation system to measure BOD and top-
management performance.

20
o Corporations shall promulgate their corporate
governance rules and principles in accordance with the
Code.
o Rules shall be in MANUAL FORM, to be submitted to
SEC
o Failure to adopt will be subject to penalty of P100,000
after due notice and hearing

21
INTERNAL
FOUNDATION

OF
CORPORATE
G O V E R N A N C E

22
 BOD
o Body elected/ appointed by the shareholders who jointly oversee the activities
and the overall managerial and operational aspects of the corporation.

o Aforementioned activities are determined by powers, duties and

responsibilities delegated.

Authority and responsibility and purpose of bod

oTo protect the resources entrusted to them by shareholders and make sure
the latter receive a decent return on their investment

oIn European countries:

Responsibility is to protect employees of company first, the shareholders
second.
23
authority, responsibility and
purpose of bod
 individual men and women, the directors who are elected by
the shareholders
 ROTATING SYSTEM - only a fraction of the directors are
up for election each year

Directors either:
1. have vested interest in the company
2. work in the upper management
3. independent from the corporation but are known for their
business abilities
 INSTITUTION OF
AUDIT
 Audit Committee
- makes sure that company's  COMPENSATION
financial statements and reports are COMMITTEES
reasonably accurate and use fair estimates - places base
in accordance with applicable FRS compensation, stock option
 Board members select, hire and work award and incentives bonuses
with an outside auditing firm for the company's executives
 Firm- entity that actually does the including CEO
auditing and assurance services
 NO CONTROLLING
LARGE, SINGLE SHAREHOLDER
SHAREHOLDER EXISTS
EXISTS - directors should act
- can effectively as one as if one did
control the exist and attempt to
corporation protect the imaginary
entity at all times
 brings into line the
Singular organizational
company internally
person principally
and externally with makes it possible to
accountable in carrying
their long term engage business outside
out strategic policies directly under BOD thus
vision of the company while
and procedures as presents reports and
established by BODs output to the board directing employees,
managers and others
 PUBLIC RELATIONS (PR)- to package and
build a positive image of the company to
relevant shareholders

recommends
give information yearly budget for
and advice to borad's approval efficiently manages
board members administer design, and cautiously human capital
marketing manages based on sanctioned
should serve as promotion, delivery organizations personnel policies &
crossing point and quality of pps resources w/in procedures that
between board and BRAND BEARER- bounds of budget fully conform to
staff icon projects current laws

DELIVERY OF
SUPPORT TO THE FINANCIAL, RISK HUMAN
PROGRAM,
BOARD & TASK CAPITAL
PRODUCT AND
MANAGEMENT MANAGEMENT
SERVICE
Has responsibilities within corporation which are
essential in providing a strong financial foundation for
growing and expanding business
 conveys important financial controls to a
company
 provide supervision against fraudulent activities
 handles and supervises projects that require
significant quantitative and qualitative
interpretations and analysis
 carry out meticulous analysis of company's future
capital investment

 to institute good working relationship with banks and

other financial institutions that may impact on
company's ability to finance its operations
 includes regular meeting with officers at company's bank

 important member of management team

 facilitate and help business owners, executives and other
top managers make substantialnconnection between a
company's operations and its financial performance
 role of attending major strategic issues
- hatching the company
acquisition strategy which in the end would help
fuel and boost the company's additional growth
 seek investment from public or finanvcial
markets especially in time and IPO

 foresee risk, close to internal control system

and financial reports
 best position to anticipate high risk
transaction & adverse consequences of
changing external environment
 CFO is NUCLEUS in an organization with many
connections, works together with CEO, BOD, Audit
Committee, external auditor, internal auditor
 serves as bridge between these variety of parties

 demonstrates impartiality
 can and should be a trusted adviser in
matters of financial compliance reporting
 RESPONSIBILITIES
RIGHTS
 ensure that obligation
 share ownership, gives the
to provide info to
owner the right to a
shaehoders does not
share of company called
detract from
DIVIDEND and right to a
company's ability to
share of net proceeds on
compete in its
sale during liquidation
marketplace
 right to sell or transfer
 ensure that the right
share without need to
to attempt to
inform or getting consent
influence company does
from other stockholders
not translate into
 important right and
behavior that will
responsibility is TO VOTE
paralyze the company

SHAREHOLDERS
 REVIEWING THE ROLE OF SHAREHOLDERS

GENERAL:
Approval of shareholders is required on
the following matters:
 effecting certain merger or SHAREHOLDER ABILITY
reorganizations TO CHANGE THE BOARD
 selling all or substantially all of the  Shareholders who are
corporation assets dissatisfied with how
 adding or removing any restrictions directors are running
on the business the corporation may
 changing the corporation's share remove the directors or
capital refuse to re-elect them
 increasing or decreasing number of • Proxy battles occur
directors which result in
 confirming by-laws replacement of BOD
 adding or changing restrictions on
the issue, transfer or ownership of
shares
 EXTERNAL
ENVIRONMENT
OF
CORPORATE
GOVERNANCE
AUDITORS
LEGAL ENVIRONMENT
MARKETS
OTHER EXTERNAL FACTORS
 AUDITORS

helps ensure that firms run

1 efficiently by keeping public
records accurate, adhering
standards of reporting for public
purposes and paying taxes on time

2 attesting information provided by

management

may engage in consultancy services

which may include financial and
3 investement planning, information
technology consulting and limited
legal services.
DIMENSIONS:

DOMESTIC LAWS
OF HOME COUNTRY

DOMESTIC LAWS OF EACH

FOREIGN MARKETS

KEYS

INTERNATIONAL LAWS IN GENERAL

(most important institution
of corporate governance)
THREE CENTRAL AND FIRM'S PRODUCT
IMPORTANT POINTS MARKET
 most feared
disciplinarian by
manager, “no product,
no firm”
CAPITAL
MARKET
 favor those who have good
track records in terms of
governance

MANAGERIAL
LABOR MARKET
 also important in
selecting the right
people for positions in
company
 ANY ORGANIZATION THAT ADAPTS THE
EXTERNAL ENVIRONMENT WITHOUT DIFFICULTY
ESSENTIALLY SURVIVES AND THE ONES THAT
DO NOT ARE ELIMINATED IN THE COMPETITION
DIMENSIONS:
POLITICAL ENVIRONMENT
Major Pool from which human resource is
selected from and is likely to shape an
organization both internally and externally

TECHNOLOGICAL ENVIRONMENT
keep updating an organization on a
reiteratiive basis
becomes more relevant in businesses who rely
KEYS hily on technology and are technologically
sensitive
SOCIAL ENVIRONMENT
comprises general behavior of the society and
ethical learnings of individuals responsible for
the functioning and long term existence of
organization
CORPORATE
PROTECTION
WITHIN LEGAL
BOUNDARIES
 ANTI-TAKEOVER DEFENSES
DESIGNED TO MAKE A COMPANY
UNATTRACTIVE TO PREDATORS

 SHARK REPELLENT OR POISON

PILL

 ANOTHER INSTANCE IS WHEN

THERE IS HOSTILE TAKEOVER

- A SETTING WHERE A
BUSINESS IS ACQUIRED AGAINST
THE MANAGEMENT'S OR SOME OF
SHAREHOLDER'S WISHES
 WAYS TO PREVENT UNWELCOME TAKEOVER

 FLIP IN  A PROVISION WHICH

 FLIP OVER ALLOWS SHAREHOLDERS
TO SELL THEIR SHARES TO
 ACQUISITION OF TREASURY
A BIDDER FOR MORE
STOCK
THAN ONE MARKET PRICE
 PROVISION SUCH AS “
ONE CAN NEVER BE A  DEBT FACADE
BOARD MEMBER IF YOU  DEBENTURE SHELTERING
ARE ALREADY A BOARD  COMPANY OFFERS
MEMBER OF COMPETITOR EMPLOYEES STOCK
COMPANY OPTIONS, HIGH BONUSES
 SUPERMAJORITY VOTE  STAGGERED ELECTIONS BODS
 ADVANTAGES OF ANTI-TAKEOVER DEFENSES

ANTI-TAKEOVER ANTI-TAKEOVER SHORT-TERM

TACTICS ARE TACTICS ARE GOOD POISON PILLS MAY
POSITIVE WHEN WHEN THE HELP BUSINESS GO
COMPANY HAS THE PREDATOR THROUGH
SENSE TO BELIEVE COMPANY'S DIFFICULT
THAT ITS STOCK PURPOSE IS TO FINANCIAL
HAS A HIGHER ACQUIRE THE PERIODS WHEN
MARKET PRICE COMPANY AND THEY COULD BE
THAN REFLECTED THEN USE IT FOR DEFENSELESS
AND THUS MAY NOT GOOD
BECOME THE PURPOSES
TARGET FOR A
TAKEOVER
 DISADVANTAGES OF ANTI-TAKEOVER DEFENSES

IT WILL PREVENT A ANTI-TAKEOVER BOARD MEMBERS,

GENUINELY GOOD TACTICS ARE WHO ARE ALREADY
TAKEOVER PURPOSE SOMETIMES USED IN THEIR COMFORT
OR AIM TO EMBED ZONE , SOMETIMES
MANAGEMENT AND HIDE BEHIND
PREVENT POISON PILLS TO
SHAREHOLDERS RETAUN THEIR
FROM SELLING POSITIONS
THEIR STOCK AND
MAXIMIZING ITS
PRICE
 LIABILITY ISSUES
AND
INDEMNIFICATION OF OFFICERS
• Issues involving misappropriation PERSONAL
• Issues involving nondisclosure of conflict of LIABILITY
interest OF
• Issues on loyalty
OFFICERS
• Issues on non-separation of personal and
business concerns AND
• Issues on prudence DIRECTORS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-the act of the reimbursing officers and directors for expenses
incurred, liabilities accrued, and amounts paid in defending claims
brought to them for actions taken on behalf of the corporation.

DIRECTORS’ AND OFFICERS’INSURANCE

-there are matters that cannot be indemnified under the law or the
company does not have the enough resources
-appropriate remedy would be insurance coverage
SHAREHOLDERS’IMPOSABLE
SHAREHOLDERS’IMPOSABLE LIMITATIONS
LIMITATIONS

THROUGH
SUPERMAJORI
CLASSES OF TY
STOCK

SHAREHOLD SHAREHOLDER
ER VOTING S-
AGREEMENT MANAGEMENT
S AGREEMENTS
 •standard shares with no special rights or
Ordinary Shares
restriction

•typically carry a right that gives the holder preferential treatment

Preference Shares when annual dividends are distributed to shareholders

THROUGH CLASSES
OF STOCK

Cumulative •give holders the right that, if dividend cannot be paid one year, it
will be carried forward to the succeeding years
Preference Shares

•shares that comes with an agreement that the company can buy
Redeemable Shares them back at a future date
 -percentage of ownership that is way above the simple majority
which is, one half plus 1 share of the total shares outstanding.
SUPERMAJORITY Usually supermajority could mean 67% to 90%. Unlike other
percentage holding which can only have significant influence on
corporate affairs, supermajority can have full control on major
goings on in the corporation.
 -a legal contract among shareholders of a corporation involving
SHAREHOLDER voting of shares
VOTING
AGREEMENTS -frequently covers how members of the BOD are to be selected
and occasionally covers major corporate events such as mergers
and acquisitions
 Main features of a shareholders’ agreement:
• Board Appointment Rights
• Veto Rights
• Adoption and Amendment of Business Plans and Budgets
SHAREHOLDERS- • Scope of Business
MANAGEMENT • Intellectual Property Rights
AGREEMENTS • Right to Information
• Warranties from the Management Team
• Strategic Investor Rights
• Restrictions on Transfers of Shares
• Restrictive Covenants
• Exit Provisions
 TWO TYPES OF FACTORS:

Hygiene factors (leading to dissatisfaction) Motivators (leading to satisfaction)

• Company Policy • Achievement

• Supervision • Recognition
• Relationship with Boss • The work itself
• Work Conditions • Responsibility
• Salary • Advancement
• Relationship with Peers • Growth
 Herzberg also developed the concept that there are two distinct human needs:

• Physiological needs: avoiding unpleasantness or discomfort and may be fulfilled via money to buy
food and shelter, etc.
• Psychological needs: the need for personal development fulfilled by activities which cause one to grow.
 REFRAMING As organizations have become pervasive and
ORGANIZATION dominant, they have also become harder to
understand and manage. The result is that
managers are often nearly as clueless as the
Dilberts of the world think they are. The
consequences of myopic management and
leadership show up every day, sometimes in
small and subtle ways, sometimes in
organizational catastrophes. When the world
seems hopelessly confusing and nothing is
working, reframing is a powerful tool for
gaining clarity, regaining balance, generating
new options, and finding strategies that make
a difference.