CHAPTER 4: LEGAL, REGULATORY AND

POLITICAL ISSUES
 LESSON OBJECTIVES

1. Understand the rationale for government regulation

2. Examine the key legislation that structures the legal
environment for business
3. Compare the cost and benefits of regulation
4. Study how business participates in and influences public
policy
5. Describe the government’s
 What is government regulation?

1. A legal system that regulates the activities in businesses of a

certain community, country or the universe at large
2. It has legal identity and provisions from the court system to
settle disputes and punish criminals both organizational and
individuals
3. Laws that protect managers and stockholders from being
personally liable for a company’s debts but also individuals
who are responsible in their own moral conduct
The Rationale for Regulation
1. Capitalistic Theory of Adam Smith observed the supply
and demand, contractual efficiency, and division of labor
of various companies- Modern Economics
2. The Laissez Faire is critical to Capitalism to assume
market thru its own inherent mechanisms to keep
commerce in equilibrium
3. Control of interest rates, taxation and public projects-
John Maynard Keynes in 1930s; increase aggregate
demand , increase economic activity, reducing
unemployment, and deflation
The Rationale for Regulation

4. Milton Friedman- deregulation from government because

the system could reach equilibrium even without
government intervention starting from the 2nd half of the
20th century during the presidencies of Ronald Reagan, G.H.
W. Bush and G.W. Bush.
 Key Legislation that structures legal environment for
business
• Sherman Antitrust Act-1890-- prevent businesses from
restraining trade and monopolizing markets;
• trust or conspiracy in restraint of trade makes a violation
of the law a felony crime punishable by fine up to $10M for
corporate violators and $350,000 and or 3 years in prison by
the individual offenders.
• Clayton Act-1914 -- prohibits specific practices like price
discrimination, exclusive dealer arrangement, and stock
acquisitions that lessens competition and tend to create
monopoly.
 Key Legislation that structures legal environment for
business
• Federal Trade Commission Act—1914—gives the FTC
investigatory powers to be used in preventing unfair
methods of competition
• Robinson-PatmanAct-1936– prohibits price discrimination,
exclusive dealer arrangement, and stock acquisitions that
lessens competition among wholesaler or retailer; prohibits
producers for giving disproportionate services of facilities
to large buyers.
 Key Legislation that structures legal environment for
business
• Wheeler-Lee Act-1938– prohibits unfair and deceptive acts
and practices regardless of whether competition is injured;
places advertising of foods and drugs under the jurisdiction of
Federal Trade Commission
• Lanham Act-1945---provides protections and regulations of
brand names, brand marks, trade names and trade marks
• Celler-Kefauver Act—1950—prohiibits any corporation
engaged in commerce from acquiring the whole or any part of
the stock or other share of the capital assets of another
corporation that tends to create monopoly.
Key Legislation that structures legal environment for
business
• Fair Packaging and Labeling Act- 1966---makes illegal the
unfair of deceptive packaging or labeling of consumer
products.
• Consumer Goods Act—1975—prohiibits the use of price
maintenance agreement among manufacturers and
resellers in interstate commerce.
Cost and Benefits of Regulation
• Cost on Administrative and Enforcements- Government
expenditures that are considered overhead expenses
• Compliance Cost- Expenditures by organizations (both public
and private) to meet regulatory requirements such as hiring
of personnel, training employees, and monitoring compliance.
• Benefits of Regulation -Greater equality in the workplace,
safer workplace, resources for disadvantaged members of
society, safer products, more information and greater choices
among products, cleaner air and water, preservation of
wildlife habitats to ensure beauty and diversity in the future,
more innovative products are developed and produced
 Laws, Codes, and Regulations
 Sarbanes and Oxley Act (SOX)-  is a federal act passed in 2002
with bipartisan congressional support to improve auditing and
public disclosure in response to several accounting scandals
in the early-2000s.
This is important because it provides greater oversight for
corporations to deter them from committing similar crimes.
 Dodd- Frank Wall Street Reform and Consumer Protection Act
(SOX)- targeted the sectors of the financial system that were
believed to have caused the 2007–2008 financial crisis,
including banks, mortgage lenders, and credit rating agencies.
Philippine Corporation Code (2019)
1. REMOVAL OF THE MINIMUM NUMBER OF
INCORPORATORS
2. REQUIRED MINIMUM 1,000,000.00 PESOS CAPITAL
STOCK ON STOCK CORPORATIONS
3. REMOVALOF THE 50-YEAR CORPORATE TERM. THIS
MEANS A CORPORATION CAN EXIST INDEFINITELY.
4. CREATION OF A ONE-PERSON CORPORATION (OPC)
Philippine Corporation Code (2019)
5. USE OF THE INTERNET TO ATTEND A MEETING AND
FILING OF REPORTS WHICH WERE NOT ALLOWED IN
THE OLD CODE
6. Power of the Securities and Exchange Commision (SEC)
to remove disqualified directors or trustees
PHILIPPINE CODE OF CORPORATE GOVERNANCE
• This intended to raise the corporate governance
standards of Philippine corporations to a level at par with
its regional and global counterparts.
• Using best practices as its foundation, the Corporate
Governance Code outlines the standards for the
expectations for corporate boards in protecting
shareholder investments. The code refers to standards
for good practices relating to: Board composition. Board
development. Remuneration
 Corporate Governance in the Philippines
1. Most publicly listed companies are not widely held by public
investors.
2. Large shareholders that dominate ownership of companies pursue a
financing policy characterized as trading-on-equity, resulting in
further dominance by these companies in their industries.
3. Corporate groups with affiliate banks enjoy advantages in terms of
access to financing and economies of investments and operation in
related industries.
4. The regulatory framework for corporate governance is inadequate in
the context of Philippine conditions like large share holder
dominated companies, corporate groups and ownership of banks by
groups of companies
 OECD PRINCIPLES OF 2015
1. Ensuring the basis for an effective corporate governance
framework.
2. The rights and equitable treatment of share holders and
key ownership functions.
3. Institutional investors, stocks markets, and other
intermediaries.
4. The role of stakeholders in corporate governance.
5. Disclosure and transparency,.
6. The responsibilities of the board.
PREPARED BY:
ANGELA O. PALENZUELA
GLENN JOHN CAMBA
LENDY JOY BALBALOSA