Good Governance

and
Social Responsibility
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.”
(The Corporation Code of the Philippines, Sec.2)
Stakeholders of a Corporation
• Management (implement policies) ex. Board of
directors, officers and other managers
• Creditors (who lend corporation goods, services
or money)
• Shareholders (people who invest their capital in
the corporation)
• Employees (these are the people who contribute
their skills, abilities, and ingenuity to the
corporation)
Stakeholders of a Corporation
• Clients (the reason for the existence of a
corporation)
• Government (taxes help the government stay
afloat and survive, “lifeblood theory” of taxation)
• Public (The public has a stake in corporation
considering that the latter provides the citizens
with essentials such as goods, services,
employment and tax money for public
programs)
Purposes of a Corporation
Early Stage Survival
• The main objective for the corporation is to
survive during the early years of existence.
To Increase Profit
• The social responsibility of business is “to increase
profit.” (Milton Friedman)
The corporation should earn for the following
purposes:
• To serve its purpose of existence which is to make
the stockholders happy.
• To perform its contractual obligation to
stakeholders imbedded in the grant or authority to
operate. (government, employees, community,etc.)
To Offer Vital Services to the General
Public
• Services that the Government cannot offer
without the help of private enterprises
To Offer Goods and Services to the Mass
Market
• Some corporations are run not only for the sole
purpose of generating profit but also to provide
service to masses.
• This endeavor will meet the needs of the lower
income class group by offering them something
at a price they can afford.
Multinational and Transnational
Corporations
• International corporations have several
categories depending on the business structure,
investment and product/service offerings.
• Multinational and Transnational are two of these
categories
Multinational Corporations
• Have investment in other countries, but do not
have coordinated product offerings in each
country.
• Focused on adapting their products and service
to each individual local market.
• Ex. Unilever, Proctor and Gamble, Mcdonald’s
and 7-11
Transnational Corporation
• “enterprises which own or control production or
service facilities outside the country in which
they are based.” (United Nations Commission on
Transnational Corporations and Investment)
Corporate Governance
• “It is the process and structure used to direct
and manage the business and affairs of the
company towards enhancing business prosperity
and corporate accountability with the ultimate
objective of realizing long-term shareholder
value, whilst taking into account the interests of
other stakeholders.” (Malaysian high level
finance committee report on Corporate
Governance)
Corporate Governance
• It refers to the joint responsibility imposed on the
Board of Directors and management to protect
shareholder rights and enhance shareholder value.
In practice, the Board is the real representative of
shareholders and acts as a check against
management. The Board must ensure, among other
things, that the company is accountable to
shareholders, that it gives equitable treatment to all
its “owners,” small as well as large, and that it acts
transparently. (the wall street journal, June 23,
1999)
Corporate Governance
• It refers to a system whereby shareholders,
creditors and other stakeholders of a corporation
ensure that management enhances the value of the
corporation as it competes in an increasingly global
market place. (SEC Memorandum Circular No. 2,
Series of 2002, Code of Corporate Governance)
Corporate Governance
• It is defined as the structures and processes by
which companies are directed and controlled.
• It helps companies operate more efficiently,
mitigate risk and safeguard against
mismanagement, and improve access to capital
that will fuel their growth.
• It also contributes to development.
What Good Governance
Promotes
Transparency
• It is vital with respect to corporate governance due to the
critical nature of reporting financial and non-financial
information.
• Failure in transparency issues could lead to many things.
• Information is the currency of democracy according to
Thomas Jefferson.
• It is a thing of huge concern in government setting since
it entails giving out the interest of the public.
• It lessens the likelihood of nepotism, corruption,
favoritism and the likes.
Accountability
• It is the recognition and assumption of
responsibility for the decision, actions, policies,
administration, governance and implementation of
programs and plans of the corporation and people
involved, including the obligation to report, explain
and be answerable for its resulting consequences.
Accountability
It is based on the premise that an accountable
organization will take action to:
• Set a policy
• Set goals and standards
• Disclose credible information
Prudence
• It is defined within the Code of Governance as
“care, caution and good judgment as well as
wisdom in looking ahead.”
• It is the management committee which is in
corporate setting, the board of director, who will be
the body responsible in safeguarding the interests
of the organization through good planning and
management of finances and other resources of the
organization.
BENEFITS OF GOOD
GOVERNANCE
The following are the specific benefits of
good governance:
• Reduced Vulnerability (improved system of
internal control)
• Marketability (enhancing corporate value)
• Credibility (when a company is credible, trust
comes next)
• Valuation
Agency Relationships and Costs
• The connection between owners and managers is
called a principal-agent problem and the conflict
is called an agency relationship.
• It exists whenever someone (the principal) hires
another (the agent) to represent his interests.
• The shareholders are the principals; the mangers
are their agents.
Agency costs are incurred when:
• 1) managers do not attempt to maximize firm
value and
• 2) shareholders incur costs to monitor the
managers and influence their actions.

Agency costs refers to the costs of the conflict of