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Chapter 4: Models of Corporate - Directors

Governance - Shareholders
- Government agencies
Essence of Model: - Stock exchanges- play important role in
o L continuous Learning by establishing listing, disclosure &
o O - Oversight other req.
o G - Guidance - Self regulatory organizations
o I - Information - Consulting firms
o C Culture Developed within the context of free
Aim: market economy- Assumes the
o To incorporate not only structural separation of ownership and control in
aspects of governance but also most publicly held corporations.
behavioural aspects. Agency Costs - cost of the separation of
o To check whether there is sound, ownership and control.
integrated approach to governance. *Investor avoid legal liability by giving
Factors that determined Corp. up management control and paying
Governance: management for acting.
o Legal and Regulatory framework Composition of Board of Directors:
o Public acceptance of realities o Insiders person who is either
o Each corporations articles of employed by the corporation or
association somebody who has significant
Models in Developed Capital Markets personal/business relationship with
o Anglo-US Model management. Ex. Executive, Manager
o Japanese Model o Outsiders person or institution w/c
o German Model
has no direct relationship with the
ANGLO-US MODEL corporation or management.
o Same person as Chairman & CEO-
Characterized by share ownership of Led to abuses, including:
1. Concentration of power in 1 hands
individual and increasingly institutional,
investors not affiliated with the
2. Concentration of power in small
corporation known as outsiders.
group of persons.
Equity Financing- common method of 3. Attempts to retain power over a
raising capital for corp. in UK & US. long period of time
US 4. BOA disregard for interest of
- largest capital market in the world and outside shareholders.
home of most developed system of Disclosure Requirements: Included in
proxy voting & shareholder activism by the Annual report in the Annual
institutional investors. General Meeting (Proxy Statement) are:
- London Stock Exchange is the third o Corporate financial data (quarterly)
largest stock exchange next to New o Breakdown of Capita Structure
York & Tokyo. o Substantial Background of all nominee
- Has the most comprehensive disclosure to BOD
requirement & a complex, well- o Aggregate compensation of executive
regulated system for shareholder officers
communication. o All shareholders holding 5% of CS
Key Players: o Information on proposed mergers
To balance powers of: o Proposed amendments to articles
CORPORATE GOVERNANCE o Names of auditors
TRIANGLE Corporate Actions Requiring
- Management Approval of Shareholders
Routine Actions: % of foreign ownership in Jap. Stock is
o Election of directors Small.
o Appointment of Auditors
Non Routine Actions: Key Players:
o Establishment or amendment of stock
option plans To link relationships of:
o Mergers or takeover Main Bank is generally a major
o Restructuring shareholder in corp. unlike is U.S
o Amendment of Articles Keiretsu/Affiliated company
Shareholder proposal shareholder Management
are allowed to submit proposal to be Government
included on agenda AGM. OPEN ENDED HEXAGON
(Annual General Meeting). Shareholder Jap.System of Corporate
owning 10% may convene in EGM Governance is many-sided.
(Extraordinary General Meeting). It center around MAIN BANK &
Note: Voting for Dividend proposed is KEIRETSU OR FINANCIAL/INDUSTRIAL
not allowed for BOD in US but allowed NETWORK they are different yet
in UK. overlapping and complementary.
link rather than balance of power .
Monitors of Performance and In contrast to Anglo-US model non-
Corp. Governance affiliated shareholders have little or no
Specialized investment funds voice in Japanese govt.
Venture capital funds
Funds that target investment in Financial institutions &
bankrupt and problem corporations Corporations firmly hold ownership
of the Equity market.
Note: All registered shareholder receive In Japanese & German Model
mail to agenda of meeting including BANKS are key shareholders and
background of all proposal. Shareholder may develop strong relationship to
vote by proxy- they exercise right to vote w/o Corporation. In contrast to Anglo-US
attending AGM. which relationship is prohibited by
Antitrust Legislation.
Composition of Board of Directors:
Characterized by a high level of stock
of ownership by affiliated banks and o Almost completely of Insiders
companies o Average of 50 members
Legal, public policy and industrial
policy framework designed to promote Note: If profits fall, main bank and
KEIRETSU- Refers to industrial group keiretsu may remove directors and appoint.
linked by trading relationship, : Appointment of retiring government
crossholding of debt and equity & bureaucrats to board is common.
informal business contracts. : Government ministries have
BOA composed almost solely of traditionally been extremely influential in
insiders and comparatively low developing industrial policy.
sometimes non-existent of outside REGULATORY FRAMEWORK
shareholders. Government Ministries been extremely
Equity Financing is also important in influential in developing industrial policy
Comprehensive Industrial Policy AGM is always pro forma and corp.
weakens due to: discourage shareholder to dissent
o Growing role of Jap. Corp Shareholder Activism is restricted
o Increasing internationalization of Jap.
Corp made them less dependent on
domestic market. Corporate Actions Requiring Approval of
o Growth of Japanese capital market Shareholders

Disclosure Requirement Routine Actions:

o Payment of dividends and allocation
Included in the Annual report in the of reserves
Annual General Meeting are: o Election of directors and
Appointment of Auditors
o Corporate financial data (semi - annual) o Capital Authorization
o Breakdown of Capital Structure o Amendment of Articles
o Background information on each o Payment of retired bonuses to
nominee to BOD directors and auditors
o Aggregate compensation of executive o Increase of aggregate composition
officers and BOD ceilings for directors and auditors
o Information on proposed mergers Non Routine Actions:
o Proposed amendments to articles o Mergers, takeovers and restructuring
o Names of indv. and/or companies
proposed as auditors. Note: Shareholder proposal is
relatively new phenomenon in Japan after
DIFFERENCE IN US AND JAPAN 1981. Registered shareholder holding at least
DISCLOSURE: 10% of company share may propose an issue
included in AGM & EGM.
Semi-annual disclosure in Japan;
Quarterly in US.
Aggregate disclosure of executive &
Used in Germany, Austria, Netherlands,
board compensation; indv. data on
Scandivania, France and Belgium.
executive compensation in US
Prefers Bank Financing
Disclosure of ten largest shareholder; In
Uses AG (Volkswagen AG) following their
US it disclose all shareholders holding
more than 5% of company total share
Designed to include interests of labour,
Japanese acctg standard and US GAAP.
corporations, banks and shareholders in
the corporate governance system.
Interaction among key player generally
links and strengthens relationship.- o BOARDS (Two tiered Board
Fundamental Charac. Of Japanese model.
Jap.Corp prefer that majority of its o Supervisory Board is set by law and
shareholder be long term, preferably cannot be changed.
affiliated parties. o Voting rights restrictions are legal
Annual reports and material available to to a certain % regardless of ownership
all shareholders. position.
Shareholder may attend the AGM, vote
by proxy or vote by mail.
Note: Shareholder proposal and
Composition of Board of Directors: Shareholder counter proposal are common in
Management Board (Vorstand): Germany.
o Responsible for daily management
o Insiders and executives
Supervisory Board (Aufsichtsrat)
o Appoints and dismisses Man. Board,
approves major decisions and advisor
to the former
o Labor/ Employee/ Sha8reholders
Disclosure Requirements
: Included in the Annual report in
Chapter 5: Agency Problems and
the Annual General Meeting are:
Accountability of Corporate Managers
o Corporate financial data (semi - annual)
o Breakdown of Capital Structure and Shareholders
o Limited Background of all nominee to
BOD Agency Theory viewed as a loosely
o Aggregate compensation of executive defined contract between resource
officers and BOD providers and resource controllers;
o Substantial shareholders holding 5% of relationship that came into being
CS occasioned by the existence of one or
o Information on proposed mergers more individuals (principals) employ other
o Proposed amendments to articles individuals (agents) to carry out some
o Names of auditors service and decision making rights.
Note: Corporations are permitted to
o Diversification free cash flow where
amass considerable reserves
managers prefer this fund to be invested
Corporate Actions Requiring in additional product
o Dividends funds to be declared
Approval of Shareholders
Routine Actions: dividends
o Allocation of Net Income o Managerial Opportunism
o Ratification of MBs acts for the o Power Supremacy -principals waiting
fiscal year for the ultimate result
o Ratification of SBs acts for the o Technical Expertise agents doing the
fiscal year real things
o Election of Supervisory board o Trust kind of comfort that agents are
o Appointment of Auditors taking pleasure from that would
o Capital Authorization sometimes make them lose their balance
o Affiliation agreements with IDENTIFIED AGENCY PROBLEMS
subsidiaries o Adverse Selection insufficiency of
o Amendments to the articles information obtainable to the principal
o Increase of the aggregate and to the agents. It also may be done
compensation ceiling for SB by principal
o Agency Costs resources sacrificed to
Note: Ratification is a seal of keep an eye on things that are perceived
approval or vote of confidence or need to be closely controlled from the
perception of the principal
Non Routine Actions:
o Conflict of Interest
o Mergers, takeovers and restructuring
o Legal requirement
o Opportunistic behaviour o Hostile Takeover permits the
o Self interested behaviour when acquirer to be to bypass the
agents have the capability to operate in targets management if
their own self interest rather than the uncooperative to agree to a
firms. merger; persistent to pursue
Remedies Within Shareholders even if the target opposes.
o Proxy Voting Tender offer makes a public
exercise of voting in behalf of offer of w/c is higher than the
shareholders through the use of a current market price. Type of
special authority given by the takeover proposal that is public
shareholder/principal. and open invitation.
It normally limited to voting at the Proxy Fight acquiring company
annual meeting for directors for the persuades enough shareholders.
sanctioning of acts of the directors, for Simple majority is sufficient.
the increase or decrease of capital and Creeping quietly purchasing
amendments of policies. enough stock in the open market.
The one who cast vote either another Its purpose is to gather holding
shareholder or fund manager. enough holdings that can
The proxy has the right to vote but does influence decision of corp. (20% is
not have the right to debate or already enough)
participate in proceeding. o Reverse Takeover merger used by
o Benefits of Proxy voting private companies to become publicly
Routine Decision
traded w/o passing an initial public
offering. Private comp. shareholder uses
Issue on Anti-takeover
their share in private comp. to exchange
o Derivative suit lawsuit filed by a
for shares in public comp.
shareholder on behalf of the corporation
Financing a Takeover
against a third party (insider of a
o Debt Financing leveraged buyouts;
corporation, directors and senior officer
borrowing form a bank or raising funds
in company).
through issuance of bonds then the
It allows a shareholder to bring an
acquired company has to pay back the
action in the name of the corp. against
parties that may cause harm to corp.
o Partial or Full Equity Conversion
Directors, officers and senior managers
giving the target markets shareholders
are mandated to be partly responsible
an offer that include a debt instrument in
defending the corp. against suit.
o Takeover transfer of control of a firm partial or in full payment of shares.
o Share Swap/ All Share Deal no
from one group of shareholders to
money involved. bidder company issues
another group of shareholders. It usually
its own new shares to the acquired to
informs the BOA first before the
be companys shareholders then
acquiring comp. will end up as majority
TYPES: shareholder.
closely held or private GOVERNANCE
corporations; BOD and o Competitors other companies w/ the
shareholders usually the same same product offerings
o Financiers- person or entity that
people or closely related. It
manages routinely huge amount of
usually inform first BOD of
company to be taken over.
o Regulatory agencies public authority Facilitates raising capital for the
that is responsible for existing Govt- SE is serving as one of govt
autonomous authority over some area avenue to raise funds through
for corporate activity. issuance of bonds and other paper.
o Watchdogs independent organizations Indicator of economy- SE is
that tries to police a particular industry residence of advance thinkers of the
o Predator Companies companies that economy and business.
are always on the watch to takeover Financial Press newspapers,
o Information enhancers, providers magazines, TV channels. Broadcast
and gatekeepers independent third programs and other media specializing in
party whose cooperation is important financial news and updates.
because they have the capability to at
least deter misconducts of corp.
Gatekeeper independent 3rd party
persons or entity whose cooperation is
important because they have the
capability at least deter, if not prevent
misconducts of corp.
o Investment Bankers is an individual
or entity which acts as an agent for
corporation issuing securities. Have a
larger role in assisting interested parties
on mergers and acquisition.
Stock Exchange entity w/c offers
trading services and facilities for stock
brokers and traders. To buy and sell
shares and other securities. One of the
most vital components of stock market.
Raise Capital- SE offers comp. to
facility to raise capital for expansion.
Mobilize savings- investing in SE
means pulling out money from
deposit and have it part of
Facilitates growth- simplest way
for comp. to step on takeover bid for
merger or acquisition is through
stock market.
Distributes profit
Improves Corp. Governance
Comp. that are listed are following
stricter standard and requirements
set by SE.
Creates opportunities for small
investors- It offers chance for small
investors to own shares of the same
comp. being invested in by large
Chapter 6: Corporate Social Govt in past rely in strict legislation and
Responsibility regulations to deliver social and
environmental services. There is now
Basic Premises of CSR
what we call govt disconnection or
Business Leaders- long term company failure of regulations.
values is based on capability of
Borderless transactions and the
enterprise to respond to society
increasing influence of the media on
changing needs.
global perspective. There is power in
Consumers- search for products &
number. Consumer can easily initiate
services to companies they believe
collective action.
doing the right thing Pressure From Investors
Employees- have preference to work Ethical standard is part of the system in
for companies whom share similar assessing company performance.
values & mission. Supplier Relations
Investors- look for companies that Stakeholders are more concern in
recognize & manage risk and are business dealings, companies take step
entrepreneurial in terms of attitude. in make certain that their partners do
Local Communities- want to know that things in a socially responsible approach
businesses are being good citizens. possible.
Media- expose some examples best or Wealth and Vulnerabilities
worst practices to spotlight Consumer can afford to be choosy and
NGO- expose these examples of picky on the products they buy,
irresponsible corporate conduct and corporations therefore has to
campaign greater corporate operationally align itself w/ this
accountability consumer tendencies.
Regulators- want to make certain that
business activities not only generate Ethical Leadership
business opportunities, jobs but also
Is a leadership that is concerned in leading a
help solve serious problems.
manner that respect the rights, dignity and
Specific Relevance of CSR stake of others. It focuses how leaders
employ their business and political power in
Changing Social Expectation the decisions they make and actions they
Consumer & public expect more from engage into.
companies who produce product and
services. Ethical Decision Making Process in
Competitive Labor Markets Organization
Employees nowadays are more concern
not only on other benefits and take Ethics in an organization refers to the
home pays but also business philosophy system , values, philosophies and principle
that match their principle. that govern the behavior of organizational
Disclosure Demands by Stakeholders member which are the consequences of
Stakeholder know their roles and right it organizational pronouncement.
includes right to be informed. People
Ethical decision making is the process of
can demand information about
trying to established organizational values
corporate conduct w/ more pressure
from which ethical decision will based from.
than before.
Dwindling Government Role Decision making is essential process for
organizational effectiveness. The ff. may
help decision makers of organizations lay Find Win-Win Solution
down decisions aligned w/ CSR principle: Decision maker should detach himself
from the diff. partialities of the issue for
Withdraw him to arrive at objective decision.
Before you look objectively, step back
first. Have a calibrated response for Myths about Organization Ethics
thrilling, rushed and demanding
scenarios whether self-imposed or Being Ethical is Easy
1st Ethical means business conduct most
outside sourced. Solutions should spring
instead of imposing decisions which of the time in legal requirement. 2nd
might make some parties unhappy. there is no such thing as cost-free
Be an Archivist compliance effort 3rd ethical means bee
Organizational history may have much to flying towards huge web of unethical
learn from. Review how previous entities.
situations are handled to reduce making It is hard to withstand the pressure when
mistake. History is a good warehouse of almost everybody deviates and their
already invented wheels w/c can save deviation is already part of system.
you time & pain in making a new one. Being carried into this bandwagon
The Option of Doing Nothing mentality entice the decision makers to
Gather the facts from all available find justification for some acts that is
standpoints. Issues offer 3 alternatives unethical
1st is personal view, 2nd main alternative Being Ethical is not part of Doing a
option & 3rd normally under estimated Business
doing nothing. In large number of Being ethical is part & parcel of doing
circumstance doing nothing is the truly business. When state grants authority to
wise way. operates it also mandate to comply in
Be Conscious of Long-term Effects ethical standard.
Do some base-case modeling and think Being Ethical Brings No Benefit
of what if scenarios. History can again Ethical companies standout it bring
be a good source of models for any given success and stability. It is not true being
situations. ethical has no reward. Only investment
Consider Legalities and Ethics w/out loss is being ethical.
Basic to check law first once you clear
legal bar check its ethical issue. Not all
legal are ethical.
Ask Around Ethics is not the same as feelings
Consult with people or party most Feelings provide important info for our
affected by situation, when you do ethical choices.
examination and assessment analysis Ethics is not a Religion
make sure instrument is balanced and Many people are not religious but Ethics
objective. applies for everyone
Be Comprehensively Sensitive Ethics is not Just Following the Laws
Be concern about the effect as deeply as Good system of law does not incorporate
possible. many ethical standards but law can
Do Not be A Dangerous Alpha Male deviate what is ethical.
Decision makers should defy the illusion Ethics is not Following the Culturally
and arrogance that power & authority Accepted Norm
tends to be associated with it. Good Some cultures are ethical but some are
number unethical decision are product of corrupt & blind. Ex.When in Rome, do as
arrogance & delusion. the Romans do
Ethics is not Science Develops future workforce
Science can provide data to help make Benefits to Community
better ethical choices. It provide Improves quality of life of community
explanation for what humans are like but members
Ethics provides reason for how humans Provides human and capital resources
ought to act. to non-profit organization.

Corporate Citizenship Social Screening of Investment

It refers to the acceptance by business of SCARE-OFF FROM STRATEGY

a conscious effort in focusing and The most rigid way of screening of
satisfying the economic, legal, investment. It can be characterized by
philanthropic and social responsibility & hard policies such as no investment to
other acts expected from the corp. to do companies w/ questionable
its stakeholders. environmental records, engage in child
It recognizes that a company or org is not labor, discrimination, use animals in
and should not act in separation of product testing and many other anti-
community w/in it operates. earth or anti- green policies.
Key elements of Corporate IMPACT MITIGATION
citizenship: Some socially concerned investors deal
Commitment to Quality w/ the problems inherent in absolute
Ethics and Legal Compliance screening by using the strategy of
Stewardship and Governance balance w/ benefit.
Superior Employee Relation It is founded upon the idea that for
Social Advocacy everything the company does there is
Environmental Advocacy always impact to stakeholders.
Community Involvement WHOEVER IS THE BEST
This strategy involves a kind of free
Philanthropy and Social Initiatives
market model where companies w/in the
Philanthropy is practice of giving money same industries compete w/ one another
for the best records on a variety of social
and time to help make life better for other
people. It manifest of love and mankind.
Corporate Philanthropy is key *Human Nature 1st Filipino company to
component of corporations broader social receive prestigious cruelty- free recognition
responsibilities. It serves as a major link from PETA (People for the Ethical Treatment
between the corporation and of Animals).
communities it serves.
Enhances corporate reputation. This strategy requires investors to decide
Improves relation w/ the govt, the whether or not they are concerned if an
community & stakeholders. investment has a secondary involvement
Supports company strategic business w/ social problem.
goals. It involves asking how far back in the
industrial process one wants a particular
social screen to go.
Benefits to Stakeholders
Corporate Greenwashing
Build employee morale
Enlarge sense of community & social It refers to the practice of companies
obligation characterized by deceptively making it
appear that their product, services and
policies are environmentally friendly.
Green marketing tactics refers to the
deceiving use of green PR to win the
hearts of consumer for purpose of
improving image, building goodwill and
drawing more revenue.

Greenwashing Sins:

1. Sin of Hidden Trade-off

Energy efficient electronics that
contain hazardous material.
Candies, drinks and other sweets w/ no
sugar label.
Electric Cars appreciated for zero
omission but forget these need
2. Sin of No Proof
Shampoo claimed certified organic w/ no
verifiable certification
Shampoos w/ aloe vera extract added
claim w/ little or no actual extract added.
Paints, sprays and aerosols claiming to
be freshner
3. Sin of Vagueness
Product claiming 100% natural when
many naturally occurring substance are
hazardous like arsenic and
Capitalized term biodegradable in
paper bags, cups and other packaging to
improve image
4. Sin of Irrelevance
Product claiming CFC-free even though
CFC were banned 20 yrs ago.
5. Sin of Fibbing
Product falsely claiming to be certified
by an internationally recognized
environmental standard like EcoLogo.
6. Sin of Lesser of Two Evils
Organic cigarettes or environmental
friendly pesticides.
7. Sin of Worshipping False Labels
This is penetrated by a product wherein
by either words or image, gives the
impression of third party endorsement
while in fact and in reality no such
endorsement happen.
development model that would
It refers to something much more secure needs of current generation
fundamental. It is about how companies without giving any concession on
take responsibility for their actions in the chance of future generation to enjoy
world at large. theirs.
To address the social problems or the HUMAN AND LABOR RIGHTS
problems of the stakeholders on the
business community evolved new Corporations particularly larger ones has
approach called CSR. significant influence in economy but also on
CSR strike balance between economic social and political life of country.
and social goals, where resources are Entrepreneurial strategy of these large
used in a rational manner and social enterprise should be based on ff. CSR
needs are addressed responsibly. demands:
CSR can be viewed as a comprehensive
set of policies, practices and programs Be Compliant
that are integrated into business - Operational conduct of the enterprise
operations, supply chains and decision should not be lower than the standards of
making process throughout the company the host country.
and include responsibilities for current Be Consistent
- Have partners the same kind. Human and
and past actions as well as adequate
labor rights are ought to be respected
attention to future impacts.
CSR is not a legal obligation but rather a anywhere , multinationals company
voluntary social and environmental should press hard on their partners both
positive initiative to establish image of local and international.
environmentally and socially responsible
- International enterprises can bring
business that also encompasses Msme as
extraordinary impact on development of
well giant corp.
CSR aims to examine the role of business less-developed countries.
- Good number of international companies
in society and to maximize the positive
have visible initiatives that can be called
societal outcomes of business activity.
CSR in Action they are manifested by
JUSTIFICATION FOR CSR giving out a portion of their income for
projects like maintenance of roads,
Defensive justification relates to improvements of public hospital. These
minimizing the potential adverse effects kind of activities would give a good
of CSR on local communities, feedback from the community, create a
environments and markets when it is good reputation for the company
imposed through international supply TRANSPARENCY
chains and investment. - Corporate transparency is a form of deep-
Proactive justification for public sector rooted managerial initiative which
to engage with CSR is provided by the evolved into a philosophy of removing
opportunity to increase the domestic walls and facilitating free and easy public
public benefits of CSR practices in access to corporate info.
economic, social and environmental - Success of corporate policy is closely tied
terms. to accountability which indicates
attitude to render account of its -Bribing the high officials ensure profits and
objective. help off-load risks.
- Adherence to the applicable set of laws in Bypassing Local Democratic Process
force is the minimum requirement. - Bribery can be useful way of getting
- Enterprises prefer CSR strategy to declare around local opposition to a project and of
to public and to the stakeholder that they bypassing the usual democratic way
do not participate in illegal engagements. processes involved in awarding contracts.
CONSUMERS Destroying the Environment and
- Consumer organizations point out Getting around Regulations
importance of reliable information on Promoting Arm Sales
conditions of production and sale of Hiding the Loot
products including potential risk arising Private banking services and offshore
from their consumption. financial centers are major conduits and
- Not only a client but also a collaborator repositories for bribes and corrupt gains.
in pursuing CSR. Estimate of US$40 billion from poor and
- Aware consumption approach to the communist economies find its way into
social responsibility of enterprise and of US or Europe banks every year,
consumer that are acquiring growing illegitimately gain.
importance in market by promoting a Private Banking
production that is safe and compatible. - Increasingly used for confidential services
SUPPLY CHAINS to international elites believed to be
- Due to market globalization supply chain worth as much $17 trillion worldwide.
become more complex, often outsourced - Private banking boom has its origin in the
in countries where human right protection debt crisis and is a major reason for
is low or there are no environmental continued indebtedness of many poor
regulations or tolerance of hard labor is countries.
high due to absence of choices. - Average return to banks for private
- Companies guarantee observance of banking accounts is over 20%.
ethical behaviors binding all supply chain - Although private banking boom global
partner has positive effect: phenomenon biggest beneficiaries are US
o Improve market reputation through banks.- US become the largest repository
specific certifications of ill-gotten gains in the world.
o Confidence of ethical investors and of Offshore Banks and Companies
consumers - It is another part of the system through
o Good relations with institutions and social which money is siphoned out of poor
org. countries and hidden well away from its
CORRUPTION IN INTERNATIONAL - Morgan Guaranty Trust study of capital
BUSINESS flight from developing countries found
that in one year alone total $198 billion
How corruptions affect other
countries? - Offshore centers impose little or no taxes,
Increasing the Debts offer themselves to non-residents to
- Bribes increase the prices of project. escape taxation I their own country, do
When these project are paid for with not exchange information, lack
money borrowed internationally, bribery transparency and attract shell companies
adds to countrys debt. business with no substantial activities.
Benefitting the company, not the - Because of secrecy which they operate
offshore centers have become excellent
places to launder the proceeds of crime 5 yrs. it also banned all firms associated
and corruption. When money disappear with it.
from offshore it becomes more difficult for
govt. to tackle corruption. Resistance
Recovering stolen wealth Mobilize Ordinary People
- International pressure has been mounting - Civil society groups needs to be prepared
in recent years to return money which has to take on govt. in innovative and
been stolen from public treasuries and confrontial ways they also need to be
stashed away in Western banks and committed to being transparent and
offshore tax havens. accountable themselves.
Closing the Loopholes Push for Freedom of Information
- More sweeping attempts to recover stolen - Enable people to use information.
Help Increase Citizen Participation in
money will require both promulgating an
international convention and closing Decision-Making
- In Uganda abantu babisi meaning
loopholes that allow ill-gotten wealth to
people do not know what is going on. It is
leave country first.
- Closing down of offshore center is vital in used to show mistrust govt. decision
- Greater participation by groups represent
stopping laundering the corrupt money
the poor is a must in decision making at
and draining resources from third world
every level local, regional or national.
Blacklisting Companies (NOTE: SA CHAPTER 7 MORE ON
- In 1998, World bank set up Sanctions
Committee investigate cases of
corruption by companies.
- It publish comprehensive list of debarred
firms The World Bank Listing of Ineligible
- Concerted international action on IDEA)
corruption creates an International
database of blacklisted companies which
governments around the world could use
when deciding whom to award contract. Corporate Governance
Government Action is a process that aims to allocate
- Successful anti-corruption programme
corporate resources in a manner that
has to be built up to a national level, be
appropriate to local and national context maximizes value for all stakeholders-
and have full support from govt. shareholders, investors, employees,
employees at all levels. customers, suppliers, environments
- One of the most successful grassroots and the environment and the
anti-corruption is the Indian Mazdoor community at large and holds those at
Kisan Shakti Sangathan (MKSS) or the helms to account by evaluating
Workers and Farmers Org. in Rajasthan. their decisions on transparency,
inclusivity, equity and responsibility.
- Economic punishments are some of the
Is the set of processes, customs,
most effective deterrents to corruption
- Ex. In Singapore, middleman convicted of policies, laws and institutions affecting
paying bribes. The govt. not only banned the way corp. is directed,
the 5 company for any govt. contracts for administered or controlled.
World bank define governance as the Available only to sophisticated or
exercise of political authority and the wealthy investors who meet certain
use of institutional resources to criteria. Selective membership
manage society problem and affairs. attributes gives investor incentives
from many regulations.
Institutional Investors Lighter guidelines and existence of
Described as organizations that buy performance fee are distinguishing
and sell securities in large volume of characteristic
2. Investment Banking
share quantities or amounts that
Financial institution that helps out
made them qualify sometimes for
corporations and government in
preferential treatment and lower
raising capital by underwriting and
commission cuts.
It includes operation corp. which acting as the agent in the issuance
decides to invest excess funds or of both equity and debt securities.
It assist companies involves in
those funds above their liquidity
business combination like mergers,
Institutional investors managed acquisitions and other
aggregated sums of money and have diversification.
It provides auxiliary services such as
these funds invested in different
investment prospects. market making and trading
These investors entitled to vote on derivatives.
their shareholdings and can play It does not accept deposit unlike in
active role in corporate governance. commercial and retail banks.
Power of institutional investor to make 3. Investment Trust
It refers to Investors money being
a to buy or to sell order of the
pooled together from the sale of
shares in the investee corporation will
fixed number of share a trust issues
certainly exert influence on way the
in its first offering. Board will hand
investee treats institutional investors.
over responsibility to a professional
fund manager to invest money in
stocks and shares of wide range of
Types of Institutional Investors This strategy normally used to
increase sources of funds and
1. Hedge Fund consequently enlarge the pipeline of
is an investment account open to a money for wider investment
narrow range investors that take coverage.
over on wider range of investment
and trading activities in addition to 4. Mutual Fund
traditional long-term investment Institutional investor that is a
funds. professionally managed type of
Invest in wide range of investment collective investment scheme that
including equity and debt securities pools money from many investors
and commodities. and invests in investment securities
w/c includes stocks, bonds, short By cross listing and selling its shares on
term money market instruments. foreign stock exchange, a firm typically
Fund is managed by fund manager tries to accomplish:
that buy and sells instruments and
commodities from the fund Improve Liquidity
investment in accordance with the
-by cross listing can improve the
fund investment objective.
liquidity of its existing share at the same
This fund will be over seen by a
time, find and support a liquid
board of director or trustee- body
secondary market for new equity issues
taking charge ensuring fund is
in foreign markets.
managed properly.
5. Pension Fund
Increase Its Share Price
Collection of asset forming a separate - Cross listing is trying to increase the
legal entity that came into being from companys share price by defeating
the contributions to a pension plan for mispricing in a segmented and illiquid
the exclusive purpose of financing home capital markets.
pension plan benefit. - Liquid market where share are cross
It is considered one of the biggest listed, they not only had fresh source
investors in the stock market. fund
Increase Firm Visibility and
- It increases visibility acceptance to its
Listing of equity shares of a company
customer, supplier, creditors and govt.
in more than one stock exchange in
- It gives the company chance to
different countries.
enhance corporate image, to expose
It may also use to refer to the listing
and advertise trademarks and
of a company on more than one stock
products and to become more familiar
exchange in the same country. Ex in
in financial community.
US is NASDAQ & New York Stock
Support Takeover Bids
Exchange. - Cross listing can be view as one of
In Phil. We only have one (fused from initial step in establishing secondary
the original Manila Stock Exchange market for shares to be used to
and Makati Stock Exchange) which is acquire other firms.
the Philippine Stock Exchange Inc. - In takeover or business acquisition,
companies offer their shares as partial
payment and it is more attractive if
shares have liquid secondary market
Support Share and Options Plan
- Create a secondary market for share
that can be used to compensate local
management and employees in
foreign subsidiaries.
Motives of Cross-Listing
MONITORING - Level of audibility of investor directly
- Close monitoring is expected represent level of investment he
considering that investment from represent
these type of investors usually involve - Institutional investor representative to
large money. board serve as a watchdog to
- Another reason for close monitoring is opportunistic attitude of other BOD.
that profiles and expectations of
investors are different from ordinary
- When investment of institutional International Chamber of
investor is so huge that balance sheet Commerce (ICC)
will significantly suffer without it, - Org. focusing on promoting growth
agents in corporation will at all times and prosperity, spreading business
be in pursuit of pleasing its principal expertise and advocate for
terms of performance. international business.
- The corporation will aim to become - Considered as voice of world business
more valued investor most of the time championing global economy as a
and command better performance. force for economic growth, job
GOOD ACTIVIST creation and prosperity.
- Investment significantly enough to - World only truly global business org.
earn a board seat can be fearless responds by being more assertive in
fiscalizer on corporate policy. expressing business views.
- They are representative who can voice International Corporate
of investing institutions in board. Governance Network (ICGN)
- They can easily ask question on - Investor-led org. of governance
matters affecting corp. and access professionals.
records as stockholders. - Its mission is to inspire and promote
PRINCIPAL-AGENT ROLE effective standards of corporate
(DUALITY) governance to advance efficient
- Investor who has huge influence in market and economies world wide.
corp. can have power to elect officer - Its member are largely institutional
for the investee cop. investors.
- Ex. Institutional investor is in process Asian Development Bank (ADB)
performing dual roles-role of principal - Finance institution whose mission is to
(shareholder) and agent at same time help its developing member countries
(CEO/BOD) reduce poverty and improve the
- Unique capability of institutional quality of life of their people.
investor adds security and protection - Owned and financed by 67 member.
for their investments. Has headquarter in Manila established
- Self- interested behavior of the - Its main partner are govt, private
agents. sector, NGO, devp. Agencies and
- Best antidote to opportunism is to community based org.
have voice in board.
International Federation of answers to common problems, identify
Accountants good practices and coordinate
- Global organization for accountancy domestic and international policies.
- It works with its 159 members and INVESTMENT PROMOTION AND
associates in 124 countries to protect FACILITATION
the public interest by encouraging
high quality practice by worlds
United Nations Conference on Metric-based corporate governance
Trade & Development
- Established in 1964 SOA seeks to lay the ground for
- Promotes friendly integration of culture of proactive management of
developing countries into world risks going beyond the reactive
economy. approach that has been common so
- It progressively evolved into an far.
authoritative knowledge based SOA ensures that the senior
institution whose work aims to help executive have greater responsibility
current policy debates and thiking as well as the means to meet them.
development. SOA provides checks and balances
that were not available in the past.
3 key functions:
SOA seeks to make companies to be
1. Functions as a forum for inter- more transparent and vigilant by
governmental deliberations, requiring the reporting of all their
supported by discussions with operational risks as well as the
experts internal control put in place to
2. It undertakes research policy analysis monitor them.
and data collection for debates of Overall SOA, seeks to focus the
govt. rep and experts attention of companies on fortifying
3. It provides technical assistance their companies by anticipating risk,
tailored to the specific req. of all across enterprise and to take
developing counties preemptive action to guard against
Organizations for Economic Co- the damage that they could wreak.
operation and Development
(OECD) Board of Directors
- Brings together the govt. of countries - Directors on boards of companies are
committed to democracy and market expected to play much more active
economy from around the world to: roles in the interest of shareholders.
o Support sustainable economic growth - New York Stock Exchange consistent
o Boost employment with provisions of the SOA.
o Raise living standard -
o Maintain financial stability
o Assist other countries economic devp. Disclosures
o Contribute to growth in world trade.
- Org. provides setting where govt. - It would not be possible for pro-forma
compare policy experiences, seek statements to omit any material fact
which misinterprets the fair and true - SOA requires a company which
position of the company. In addition restates its fs due to material
companies are now required to noncompliance, misconduct, or with
provide quantitative measures to financial reporting requirement.
reconcile the pro-forma statements
Protection of Whistleblower
with the GAAP consistent fs.
- SEC moving towards real time - SOA provided added protection to
disclosure so each investor has whistleblower who can establish prima
access. Filing of deadlines for facie case of retaliation when they
quarterly and annual reports have report malfeasance in company.
been accelerated by third.
- SEC also identified items need to be Compensation Committees
disclosed in real time.
- SOA does not explicitly spell out rules
Fraud governing compensation in order not
to restrict the freedom of companies
- Premise of fraud control is that
to make decision.
management frequently exploits
weakness in internal control for their Audit Committees
dubious purposes. Internal control
should be able to prevent, deter and - SOA has sought to govern auditors at
detect fraud. the board level in order to avoid
conflicts that can happen in
Governance Policies companies.

- SOA seeks to encourage explicit Departures from the Past

discussion of corporate governance
policies that will set direction for - SOA recognizes that the mode of
board and management. compensation an increasing share of
- Ex. New York Exchange has operative equity and equity options in the
rules which require boards companies package that are executive receive
to set up governance committee. was responsible for frauds that were
Executive Compensation

- Check fraud from earnings

management by senior executive.