GBRI

Corporate Good Governance

Corporation – It 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. Corporation
Code of the Philippines.

Attributes:

1. Artificial Being
2. Created by operation of law
3. Right of Succession
4. Powers, Attributes, and Properties

Stakeholders

1. Management
2. Creditors
3. Shareholders
4. Employees
5. Clients
6. Government
7. Public

Key Players – Complete the cast of the corporation

1. Shareholders – owner of a class of shareholdings (Stock)

- Claim on dividends (with special privileges)
- Artificial or Natural Persons (owners of corporation)

Rights

- Right to Vote
- Right to Propose shareholder resolution
- Right to receive dividends
- Pre-emptive Right – purchase new shares (right to first refusal)
- Right to Liquidating Dividends
2. Bondholders – holder of outstanding bond
- Considered as an investment
- Claims interest earner on long term agreement
- Complete authority to manage
3. Board of Directors
- Governing body of the corporation
- Conduct all business and controls or holds all the assets
- Claims : Salaries, bonuses, stock options or any other ways of priveleges
Duties of BOD:

1. Govern the organization by establishing broad policies and objectives

2. Select, appoint, support and review the performance of CEO
3. Ensure the availability of adequate financial resources
4. Approve annual budgets
5. Account to the stakeholders or shareholders the organization’s performance

Corporate Governance

- Process and structure used to direct and manage business

- Achieve ultimate objective of realizing long term shareholder value
- Taking into account the interest of stakeholders
- Responsibility of BOD and management to protect shareholder rights and enhance
shareholder value
- System and sub system ensure that management enhances the value of the corporation.

Good Governance

- Holding the balance between economic and social goals

- Not only for the goals of the management but also to other stakeholders
- Encourage the efficient use of resources
- Same goal of the business and the public

Fundamental Objectives

1. Improvement of shareholder Value

- Build better relations with primary stakeholders
- Helps the firm expands and develop intangibles (competitive advantage)
2. Conscious consideration of the interest of other stakeholders
- Increase the value of the corporation and the value of the owners
 Human Resource/Capital – one of the best asset of a company

What Good Governance Promote

1. Transparency
- Vital to corporate governance
- Reporting financial or non financial information lessen nepotism, corruption, etc…
 Aim: maintaining investors, consumer, and other stakeholder confidence
 Non-transparency will lead to scaring off investors, being singled out by authority and
uncomfortable scenarios.
2. Accountability
- Recognition and assumption of responsibility
- Obligation to report, explain, and be answerable for its resulting consequences
- Acknowledging and taking charge for and being transparent about the impact of the
company’s policies, decisions, actions, products and its associated performance.
 3. Prudence
- Care, caution, and good judgement as well as wisdom in taking ahead

Management Committee

BOD : body responsible in safeguarding the interest of the organization (good planning and
management of finances and other resources)

Benefits of Good Governance

1. Reduced Vulnerability – leads to an important system of internal control

- Greater accountability, protection of resources and better profit margin
- Future development, diversification and capability to attract investors
2. Marketability – enhances corporate value of companies
- Easy access to capital in financial markets
- Makes company more attractive in the open market
3. Credibility – when a company is credible, investors trust comes next, when investors trust is in,
money flows, when there is money, there is flexibility
4. Valuation – affects corporate financial and non-financial value of the enterprise

Agency Problem in Corporation

 Separation of shareholders and management

- Allows share ownership to change without interfering to operations
- Allow company to hire professional managers

Objective of the owners and managers are not the same.

Goal: Maximizing the value of the stock

 Shareholders are entitled to what is left after employees, suppliers and creditors are paid their
due.

How to attain the goal? – Learn to identify investments and financing arrangements that favorably
impact the value of stock.

Agency Relationship and Costs

Principal-Agent Relationship – connection between owners and managers

- Principal. The person the agent represents or individual who actually performs something
 Giving the agent to represent him or her (Agency Contract)
- Agent. Person who represents the principal and other person
- Third Party
 Contract of Agency – agreement between a principal and agent
 Someone hires another to represent his interests

Agency Relationship – conflict that exist between principal and agent

Agency Cost – the cost incurred in the conflict of interest between shareholders and management to
prevent agency problem to maximize the wealth of corporation

Shareholders wants the management to increase the value of the firm

There will be no agency cost of the share the managers of the corporation

Agency Cost are incurred when:

1. Managers don’t attempt to maximize firm value

2. Shareholders incur costs to monitor the managers and influence their actions

Types of Agency Cost

1. Indirect Agency Cost – lost opportunity

2. Direct Agency Cost – cost directly incurred to maximize the value of the:
a. Corporate expenditures that will benefit the management but cost the stakeholders
b. Expenses that arise the need to monitor management actions

Goals of Financial Management – to make money or add value to the owners.

1. To survive
2. To avoid financial distress and bankcruptcy
3. To beat the competition
4. To maximize sales or market share
5. To minimize costs
6. To maximize profits
7. To maintain a steady earnings growth

What would be the management goal if they do not have control at all?

- Managers prefer the company to be bigger than profitable

- Managers would tend to maximize the amount of resources over their control
 Independence and corporate self sufficiency may be an important goal for managers.

Do managers Act in the stockholders Interest?

Two Factors

1. How closely are management goals aligned with the stockholder goals?
2. Can management be replaced if they do no pursue stockholder goal?

1. Managerial Compensation - management have a significant economic incentive to increase

share value
- Providing monetary value to an employee for the work they do

a. Managerial Compensation – tied to financial performance and share value

b. Relates to Job Prospects – better performs will tend to get promoted

 - Managers who are successful in pursuing shareholder goals will be a greater demand in the
market command higher salaries.

2. Control of the firm

Shareholders: Elect the BOD

BOD: Hire and Fire management

Ways management can be changed

a. Proxy Fight: proxy is the authority to vote someone else’s stock

b. Take over: by another firm – firms that are poorly managed are more attractive as
acquisitions because greater profits potential exists

Agency Theory in Governance

- Contract between resource providers and resource controllers (Principal and Agents)
Conflict – Agency Problem Cause – Agency Cause

Agency loss – benefits that should have occurred to the owners been the ones who exercised direct
control to the corporation

 Can be reduced by installation of some mechanisms:

a. Providing financial incentives to executives and managers (effort)
b. The executive compensation and levels of benefits to the shareholder returns and have part
of executive compensation deferred to the future – reward for long run maximization of the
corporation.

Opportunistic Behavior – policy skirting and indulging to excessive privileges at the exposure of
shareholders interests

- Also called managerial opportunism

- Can be eliminated through class structural mechanism on BOD

BOD

- key structural mechanism to restrain managerial opportunism

- Should provide a monitoring of managerial actions on behalf of shareholders.

Chairman – independent of executive management

Effect of Agency in Governance (Agency Theory – Unique Relationship ; Unique Relationship – Unique
Effect)

1. Conflict of Interest – between, principal and agents (diverse interest)

- Shareholder – ownership (no direct control of the corporation)
- BOD/Manager – control of the firm
2. Managerial Opportunism – agent takes advantage on things that are within his control
- Agents – given right by shareholder to act on behalf of them
 3. Incurrence of Agency Cost – principal needs to sacrifice resources for him to closely monitor and
control the agent’s behavior
4. Shareholder Activism – shareholder can call together to discuss
- Can vote as a group to elect their candidates to the BOD
5. Managerial Defensiveness – employing tactics to discourage takeovers and buy outs
- (Assets Restructuring, Dismissal)

Concept of Goal Congruence – harmony and alignment of goods with the over all objectives

- Premise: Agency Relations … presence of self-interested behaviors.

Managers can be encouraged to act in the best interest of shareholders by giving:

a. Incentive – good performance

b. Disincentives – bad performance

Performance Incentives and Disincentives

1. Pay dependent on profit level – if profit is high, you’ll be given reward

- Encourages creating creative accounting
2. Shares incentives – company is publicly listed and managers are given a chance to subscribe
shares of a discounted price
- Not advantageous even if you are both shareholder and manager
3. Shareholder’s intervention – exercising in a more direct influence over the enterprise
- Shareholder – legally regarded as owners of corporation
4. Threat of being fired – managers, BOD, executives will be threatened by shareholders which has
ultimate control over the corporation
5. Ta over Threat – pushing of the goal congruence
- Enhancement of the value of the firm or threat to accept the takeover proposal

Roles of Non-executive

Non-Executive Director (NxD) – member of BOD who does not take part in the executive function of the
management team.

- Not an employee, not connected

- Separate from inside directors
- Should bring independent judgement to bear issues on strategy, performance and resources

Areas of Responsibility

1. Strategy – offer creative contribution and to act as a constructive reviewer in looking at goals
and plans
2. Establishing Networks – represent the company in some external corporate undertakings
- Job of NxD, connect the company to the outside world
3. Monitoring of performance – on matters relating to the progress made towards realizing the
established strategies
- Monitor and examine the performance of management in meeting agreed goals and
objectives
 4. Audit – NxD properly report to the shareholders
- Company report the shareholder by presenting fair and real reflection on how company was
administered (financial performance, highlights of the corporation which is necessary)

Roles of Chief Financial Officer

CFO

- Corporate Officer
- Principally accountable for managing financial risk
- Responsible for financial planning, recording, keeping and financial reporting
- Direct finances
- Needed to handle cash flow
- Create reports about spending
- Keep track on working capital requirement (to meet short term and daily requirement)
- Supervises and manages on large accounting department and come up with ways to
maximize profits

Roles:

1. Implement Internal Controls – conveying important financial controls

- Effective administration of cash flow overhead expenses
- Establishing credit policies
- Implementing measures for accessing and evaluation of optimal inventory levels
- To develop effective control
2. Supervises Major Impact Projects – handles and supervises projects that require significant
quantitative and interpretations and analysis
- Develop annual budget
- Work with business owners and division or development managers
- To ensure the final financial product accurately project
- Analyze meticulously future capital investment requirements: pre requisites in securing
additional financing
3. Develop Relations with financing sources – good working relationships with bank and other
financial institutions that may impact on the company’s ability to finance its operations
: regular meetings with officers of the company’s banks
: discussing possible future loan transactions
: negotiating more favorable terms for bank lines of credit
: discussions with private investors
4. Advisor to management – facilitates and helps business owners, executives and other top
managers make statistical connection between operations and financial performance
5. Drives Major Strategic Issues – will help impact long term goals
- Diversification of particular product lines and business activities
- Seek investment from the public or financial markets
6. Risk Manager (rear perspective) – best position to foresee risk
- Close to internal control system and financial reports
- Doing real and actual things
- Views are real and they are proximity of hard figures that back their decisions
 7. Relationship Role – nucleus in organization with many connection
- Work with CEO, BOD, Audit Committee, Internal or External auditor
 Strong written and communication skills are indispensable – bridge within organization
8. Objective Referee – demonstrate impartiality in advising
- Trusted adviser in matters of financial reporting

Roles of the Audit Committee – essential component in the over all corporate governance system

Obj: geared toward carrying out practical, progressive changes in the function and expectations placed
on BOD.

- Should be engaged mainly in an oversight function

- Ultimately responsible for company’s financial reporting processes and quality of financial
reporting

Must have a working knowledge on goals and long term plans and visions including issues the
company is facing

- Risk Identification and Response

- Pressure to manage earnings
- Internal controls company growth

1. Risk Identification ad Response

Effective: understanding of the risks and the company’s ICS for identifying and mitigating risks

1) External Risk
a. Rapid Technological Changes – not to be left out
b. Downturns in the industry – products sold
c. Unrealistic earnings expectations by analysts – less aggressive when it comes to
expectations of business outcomes
. associated with conservative and realistic information
2) Operating or Internal Risk
a. Recurring of organizational changes
b. Turnover of key personnel
c. Complexities of transactions
d. Complex organizational structure
e. Performance based compensation that are exclusively inappropriate
f. Exposure to currency differences on foreign currency denominated loans
g. Financial results
3) Information and Control Risk
a. Unsuitable control environment
b. Lack of sincere management supervision and inappropriate management override of
existing control
c. Late communication of reports
Responsible for Financial Reporting

1. BOD
2. Finance and accounting
3. Auditor

Roles of the external auditor

Auditor – there is a need for independent auditor because of the apparent separation of ownership and
management

- Audit services – use extensively by business org. to cast out doubt on the information given
by management which are also generated under its direct control given by independent
- Auditing – assuring the readers of FS with confidence in the FS
Opinion: will lend and add some credibility to the FS (external auditor)
: review or examines the FS exhaustively (back up his opinion: auditor)

Duties of external auditor

1. Make report with opinion whether the report complies with relevant standards and present a
true and fair view of profit or loss
- Report: Management
- Opinion: Auditor

Considerations:

1. Proper accounting records kept

2. Financial statement agree with record business establishment (to present good standing of the
business organization)
3. Adequacy of notes to FS and other disclosure
4. Compliance with relevant laws and standards of Financial accounting and reporting – the report
should be in accordance of set frameworks

Auditor

- Impliedly given the right to access any information or material

- Right to access any data

Note: the auditor has the duty to review

- The review that the auditor will conduct on FS will not guarantee that the FS is free from
errors.
 Auditor’s opinion to discharge his duties
External Auditing

- Designed to form opinion not a conclusion

- Not designed to discover errors, fraud, and irregularities
- Give reasonable and not absolute assurance to establish the truthfulness and fairness of the
FS

External Auditor

- Attest to the data and information prepared by management

- Express an opinion on the FS
- Lends credibility to FS

Organizational Structure (Good Governance)

Understanding the organizational structure

Organizations – complex adaptive systems

- Use people, tasks, and technologies

- Reason: to achieve goals and objectives

Structuring the organization – division and distribution of work, coordination of activities that are
directed in achieving goals and objectives of the organization.

Management – how org. manages structure, resources, activities and how it measures and monitors
resulting performance towards declaring the goals of the corporation

Structure and management (differ depending on)

1. Sector of operation – depends on the concerns of the business org.

2. Stakeholder Configuration – depends on how many owners
3. Particular strategic goals and objectives – these goals and objectives are the basis on how we
handle the organization

Organizational Theory – explain how org. work

- Important to understand the structure and management of the org. by:

1. Defining the common features of org. shares
2. Collecting and analyzing data
3. Assessing “what works and why”
- Useful for people who manage org. or who aspire to do in the future
- Enable managers to see his org. and its problem are rarely wholly unique
- Helps explain what is happening in an organization and to identify possible solutions to its
challenges, issues, and problems and provided solutions (cultural aspects, what is to be
done, large organization are generally complex)
Effective Criteria for Effective Organizations (Drucker)

1. Must be organized for business performance – goals and obj. congruent to the very reason why
business organization is being put up, for the purpose of earning profit.
2. Structure should contain the least number of management levels – simple and has a clear line of
communication between and among the different management levels
3. Organization structure should facilitate training and testing of future organization leaders –
experience trainings (rotation)

Organizational Structure

- Formalized patterns of interactions that link a firm’s task, technologies, and people
- Pattern of relationship among positions in the org. and among member of the org.
- Defines tasks and responsibilities, work roles and relationships and channels of
communication
- Purpose: division of work and coordination of activities directed towards achieving goals and
objectives.

Objectives:

1. Accountability for areas of work undertaken by groups and individual members of the org.
2. Coordination of diff. parts of the org. and diff. areas of work – interrelated
3. Effective and efficient organizational performance including resource utilization – important to
have division of task
4. Monitoring the activities of the organization
5. Flexibility in order to respond to changing environmental factors
6. Social satisfaction of members of the org.

Dimensions of organizational structure (Child, 1998)

1. Allocation of individual task and responsibilities, job specialization and definition – allocate the
work of personnel clearly
2. Formal reporting relationships, levels of authority, and spans of control – related to
accountability
3. Grouping together of sections, departments, divisions and large units – formal pattern of
relationship that can actually define if the employee will stay
4. Systems for communication of information, integration of effort and participation – presence of
system to facilitate the communication interrelated
- See the totality of the activities of a corporation
5. Delegation of authority and procedures for monitoring and evaluating the action – who will be
responsible to take charge of the unit/department
- There must be rubrics and guideline to monitor and evaluate activities
6. Motivation of employee through systems for performance appraisal – giving of awards

Types of Organization Structure

1. Functional
 - An organizational form in which the major functions of the firm, such as production,
marketing, R & D, and accounting, are grouped internally

Advantages:

- Enhance coordination and control

- Centralize decision making
- Enhanced organizational – level perspective
- More efficient use of managerial and technical talent
- Facilitated career paths and developments in specialized areas
- Increased utilization and coordination of groups of people with tech/specialized expertise
- Increased development and career opportunities people in departments

Disadvantages:

- Impended communication and coordination due to differences in values and orientation

- May lead to short-term thinking (functions vs. organization as a whole) (may concern would
be my own department)
- Difficult to establish uniform performance standards (different concerns)
- Encourage sectional interests and conflict (unhealthy competition)
- Difficult for the organization to adapt to product/service diversification

2. Product/ service team design structure

- a structure where in the members are permanently assigned to the team and empowered to
bring a product to market
- avoids problems of two-way communication and conflicting demands of functional and
product team bosses.
- they will be group in teams
- cross-functional team- is composed of a group of managers from different departments to
perform organizational tasks
- grouped by service/product
Advantages

- increase diversification
- adaptability increased if service/product requires technical knowledge or large equipment.
Disadvantage

- encourages service conflicts- there is a possibility of unhealthy competition

3. Geographical Structure- a nationalized service develops regions, areas or district authorities

Advantage:

- more responsive to local/regional issues and different cultures, national/ local laws.

Disadvantage:

- can lead to localities/regions conflicting with each other

 4. Divisional Structures
- an organizational structure composed of separate business units within which re the
functions that work together to produce a specific product for a specific customer
- an organizational form in which products, projects, or product markets are grouped
internally
- also called multidivisional structure or M-Form
- Divisions create smaller, manageable parts of a firm
- Divisions develop a business-level strategy to compete
- Divisions have marketing, finance, and other functions

Note: Functional managers’ report to divisional managers who then report to coporate upper
management.

Advantages:

- separation of strategic and operating control

- quick response to important changes in external environment
- Minimal problems of sharing resources across functional departments
- Development of general management talent is enhanced
- Suitable for international companies who are highly diversified, working in more than one
country. e.g. a pharmaceutical company with divisions in each country producing and marketing
products developed by parent company.

Disadvantages:

- can be very expensive

- can be dysfunctional competition among divisions
- differences in image and quality may occur across divisions
- can focus on short-term performance

TYPES OF DIVISIONAL STRUCTURES

1. Product Structure

- Customers are served by self-contained divisions taht handle a specific type of product/service
- Allows functional managers to specialize in one product area
- division managers become experts in their area
- removes need for direct supervision of division by corporate managers
- divisional management improves the use of resources

2. Geographic Structure

- Each region or country or area with customers with customers with differing needs is served by
local self-contained division producing products that best meet those needs.
- Global geographic structure
 different divisions serve each world region when managers find different problems or
demands across the globe
 generally, this structure is adopted when managers are pursuing a multi-domestic strategy
3. Market (Customer) Structure

- each kind of customer is served by a self-contained division

- Global Market (customer) structure
 Customers in diff. regions buy similar products so firms can locate manufacturing facilities
and product distribution networks where they decide is best
 Firms pursuing a global strategy will used this type of structure

5. Matrix Design Structure

- An organizational structure that stimultaneously groups people and resources by function and
product.
 results in a complex network of superior-subordinate reporting relationships
 the structure is very flexible and can respond rapidly to the need for change
 each employee has two bosses (functional manager and product manager) and possibly
cannot satisfy both

Matrix Organizational Structure

- An organizational form in which there are multiple lines of authority and some individuals report
to two managers
- grouping of products and function

Advantages:

- combines vertical and lateral lines of communication and authority

- stability and efficiency (of mechanic structure) with flexibility and informality (inorganic
structure)
- emphasizes that project aims are all important
- facilitates the use of specialized personnel, equipment and facilities
- Provides professionals with a broader range of responsibility and experience

Disadvantages:

- Potential conflict between project leaders and functional leaders regarding resources
- Project may be jeopardized if project members as well as leaders enter the conflict on opposite
sides
- Does not tolerate diversification well
- Can cause uncertainty and lead to intense power struggles
- Working relationships become more complicated
- Decisions may take longer

POLITICAL ENVIRONMENT OF BUSINESS

- An anticipated event in the political arena will lead to the loss of revenue assets resulting from
policy change
- Political environment has a significant impact on a company's international operating activities
 - The greater level of involvement in a foreign markets, the greater the need to monitor the
political climate
 Political climate will affect among others the marketability of product, inflow of investments
and valuation of share price.

Stability of government policies

- Major concern of foreign businesses

- A change in the government, does not always mean a change in the political risk
- Radical changes in policies toward foreign business can occur in the most stable governments as
well
- The ideal political climate for a multinational firm to conduct business is a stable and friendly
government
- Be knowledgeable about the philosophies of all major political parties and their attitudes
towards trade

Changes in government more often result in changes in policy and attitudes towards foreign business

 Foreign country operates in a country at the discretion of the government concerned

Government

- Encourage foreign activities

- Offering attractive opportunities and incentives for investment and trade
- Discourage its activities by imposing disincentives and restrictions (strict regulations and import
quotas)
 Primary Concern of investor – stability of the target country’s political environment

Loss of confidence – leads to reduction of operation or withdrawal

Frequent change in regime – surest indicator of political instability

Ideas about how to promote national interest in the light of the economic and political resources and
objectives

1. Reflected in the attitudes and policies of the government towards foreign business
2. Foreign products and investment that are vital to the growth and development receive
favorable treatment (reduced tax, exemptions from quotas and other incentives)
3. Products classified to be luxury, non-essential, undesirable, or threat to local industry are
frequently subjected to a variety of import restrictions (tariffs and quotas)

ETHICAL BEHAVIOR IN THE ENTERPRISE

Premise: paying attention to ethics makes good business.

- Create goodwill enhances the chances of success

 Meeting its obligations and treating customers, suppliers, employees, and other
stakeholders fairly is a sure shot investment of a brighter future the company in a long run.
 If business org is going to the proper track, there will be good outcome
SIX FOUNDATION OF TRUST UPON WHICH ETHICAL BUSINESS PRACTICE IS BUILT

1. Character
- Drives what we do when no one is looking
- Build though the way we live by thinking good thoughts and performing good acts
- character makes a man
- part and parcel of human person, innate
- by nature, man is good
- choice and decision of human person if he is going to change/destroy his character engraved in
his heart (H A P P Y T H OU G H T S will help us develop our character)
2. Ethics
- Set of rules that describes what is acceptable conduct in the society
- standards that we could use if our actions are moral, judge our conduct
 MORALITY - degree of accountability of a human person in relation to his conduct/behavior
or thoughts
- One foundation of trust
- Guide to moral daily living
- Helps corp. judge whether such behavior can be justified.
3. Integrity
- To be honest and sincere
- Adhering to a moral code in daily decision making
- Being trusted
4. Laws

- promulgated to express the need of the people (provide sense of right and wrong and guide
behavior)

- not all laws are based on ethical especially on its legality NOT ALL LEGAL ARE ETHICAL

EX. DEATH PENALTY

- following the law does mean you are ethical

- series of rules and regulations designed to express the needs of the people
5. Morals
- Standard in living our life
- Set of rules or mode of conduct on which society is based
- Certain normal norms are universal
- Similar to ethics
6. Values
- Acts, customs, and institutions that a group of people regard in a favorable way
 CODE of ETHICS- convey intended conduct
ROLE OF THE STATE AND ITS IMPACT ON BUSINESS ORGANIZATION

Private Sector- chief economic force of every country (needs govt regulation)

- private ownership is very important in the economy

- govt role is as old as the country itself
- constitution gives the govt the power to regulate
- govt will exercise its authority, considerable freedom of the business org.
1. Consumer Protection
- When a vendor fails to honor the guarantee, purchaser has a recourse in the law
- Product causes harm – manufacturer is responsible
 product label like nutritional contents and expiration dates
 Govt has been making advances in consumer rights

Manifestations

- Businesses need the court system for protecting property rights, enforcing contracts, and
resolving commercial disputes
- Govt. protect consumers from businesses
- Govt. hears and correct consumers complaints about business frauds and put into effect recalls
of sub standards and dangerous products
- Govt. controls private companies’ actions to protect public health and safety (ex. FDA)
2. Contract Enforcement
- If one fails or refuses to meet its obligation under a contract, a company will turn to the govt.
legal system for enforcement
- Govt. will intervene
3. Employee Protection
- Rights: regular employment, probationary employment, minimum employable age, prohibition
against stipulation of marriage, anti-sexual harassment law and human rights (Stop ENDO –
contractual)
- Minimum wage law: beneficial to both management and labor
 Set a minimum benchmark of compensation across all industries
4. Environmental Protection
- Regulate industry and thereby protecting the public form environmental externalities
 Externality – marketing transactions impact a third party besides the marketer and
purchaser
- Example: Clean Air Act – epicenter of troubles for businesses engaged in selling motorcycles
with 2-stroke engine in mid 2000s.
5. Investor Protection
- Companies make financial information public, thereby protecting the right of investors and
facilitating further investment (Ex. SEC)
6. Permission
- Businesses need permission from governments to operate and corporations need a charter from
government.
- License and permits and different agencies and bureaus.
7. Taxation – government tax businesses
PRESSURE GROUPS

- Organized group that seeks to influence not only govt. policy but also private enterprises’
operating policy
- Concerned in the protection and advancement of a particular cause or interest
- Promote a specific issue and raise it up as commercial or political agenda
- May have higher general ideological objectives in mind when they do some campaign for their
cause

Type of Pressure Groups

1. Economic (ex. Professional Org., Trade Associations, Trade Unions, Giant Private Corporations)
2. Public
- Cluster of publics on certain issues
- Visibly vocal on issues (environment, consumer protection)
- (ex. Haribon foundation, Greenpeace Consumer and Oil Price Watch)
3. Sectoral
- groups work to protect and advance the interest of specific social groups
- crossbreed of political groups
- (ex. Gabriela)
4. Religious/Attitude
- Fast growing groups in the Phil.
- One of the most powerful groups
- Share universal beliefs and objectives on one issue and they believe that their major role is to
mobilize support in the country for what they believe in.