Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
The Concept of Modern Corporation:
 business organization is a group of
individuals systematically united for the
accomplishment of a common purpose
or undertaking for profit in any of the
several ways allowed and regulated by
law.
 Securities and exchange commission
(SEC), exercise adequate supervision
over business organization activities and
operations. Their role is to develop and
foster good governance and enhance
investor protection.
 Under the Corporation Code of the
Philippines ( Batas Pambansa Bilang
anim na put’walo), corporations are
established, not only for private gains
but also as “ Effective partners of the
government in spreading the benefits of
capitalism for the social and economic
development of the nation.
Roles of Business Organization in
Society
 Main role: provide products and services
needed. They also provide employment.
The wages that employees receive are
used to purchase other goods and
services. Profits from the organization
are used to compensate stockholders.
 Percentage of the income is paid to the
government as taxes. The taxes are used
to provide infrastructure and pay for
services for the Filipinos.
 They serve as catalysts to generate more
income, as individuals require more
food, housing, equipment, and other
services.
Forms and Purpose of Business
Organization:
1. Sole Proprietorship – owned by a
single individual
 He is the owner; owns capital and
manages the business by himself.
Ability to enter contracts.
 Wholly responsible for the gains
and losses of the business /
complete power over business
decisions.
 Relies heavenly on the owner’s
skills set which could be limiting
at times
Characteristic of Sole Proprietorship
Single Ownership, No Sharing of Profit and
Loss, One man’s capital, Unlimited Liability,
Less Legal Formalities, One Man Control.
 Minimum legal requirements and
capital. Relatively easy and convenient
to form.
 Riskier to work with – larger businesses
 No protection from Creditors.
 Creditor; person, bank, or other
business that has lent money to another
party. Personal assets can be claimed to
pay the debts.
 The owner needs to account for income
and expenses. The business that makes a
profit increases the owner’s income by
the same amount and the owner is
responsible for any taxes due
 ideal for small enterprises that service
the surrounding neighborhood, such as
sari-sari stores, barbershops, and water
stations.
Partnerships - Two o or more individuals
come together, contribute resources to form a
business, and agree to divide the profit among
them.
Partners: Co-own the business, and share
responsibilities. Agreement on specific roles
and division of responsibilities, profits, and
losses.
 Agreement – details the rules and
procedures that guide the ownership
and operations.
 Less Taxation burden.
 Architectural Firm and Law Firm
Corporations: legal entities recognized as
separate and distinct from its owner.
 It can own, buy, and sell things. It can
enter into a contract, and sue other
persons or businesses and be sued by
them.
 Outlive its owners when the ownership
is transferred through a sale or gift of
shares.
Attributes of a Corporation
1. Artificial Being
2. Created by operation of Law
3. Enjoys the right of succession
4. Has the power, attributes, and
properties expressly authorized by law
or incident to its existence
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1. Artificial Personality
A corporation is a legal or juridical person with
a personality separate and apart from
individual stockholders or members and from
any other legal entity into which it may be
connected or related.
2. Corporation as a Creation of Law or
By Operation of Law
No corporation can exist without the consent or
grant of the sovereign, and that the power to
create corporations is one of the attributes of
sovereignty. Corporations cannot come into
existence by mere agreement of the parties (De
Leon, 2010).
The franchise includes any special privilege
or right affected with the public interest,
conferred by the State on corporations or
persons and which does not belong to the
citizens of the country, generally as a matter of
common right (De Leon, 2010, citing JRS
Business Corp. v. Imperial Insurance, Inc., G.R.
No. L-19891, July 31, 1964).
Different Types of Stakeholder Groups
Primary: a firm cannot exist without
continuing participation
Primary stakeholders: shareholders &
investors, employees, contractors, customers &
suppliers
Secondary: those who influence or affect or
are influenced/affected by, the corporation, but
they are not engaged in transactions with the
corporation or essential for its survival
Secondary stakeholders: media, action
groups, government agencies, trade unions,
regulatory authorities
Internal External
Owners Customers
Shareholders Suppliers
Managers Community
Staff or Employees Government
Internal Stakeholders: members of the
business organizations / External not part of
the firm.
1. Owners and Shareholders
2. Employees or Staff; carry out
activities, agree to work a certain
number of hours in return for a wage or
salary
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
·Pay levels vary with skills, qualifications, age,
location, types of work, industry and, other
factors
3. Customers: buy goods or services produced
by firms
4.Suppliers: Firms get the resources they
need to produce goods and services from
suppliers
5. Community:
6. Government:
· Economic policies affect firms’ costs
(through taxation and interest rates)
· Legislation regulates what businesses can
do in areas such as the environment and
occupational safety and health
· Successful firms are good for
governments as they create wealth and
employment.
Multinational corporation (MNC) or
transnational corporation (TNC), also called
multinational enterprise (MNE), is a
corporation or enterprise that manages
production or delivers services in more than
one country. It can also be referred as an
international corporation. ILO defined MNC as
a corporation which has his managerial head
quarters in one country known as the home
country and operates in several other countries
known as host countries.
Module 2
“Governance” and “Good Governance’
are increasingly used in development
literature
“Bad Governance” – the root of all evils
within our societies.
Governance; the process of decision-making
and the process by which decisions are
implemented; Corporate Governance,
International Governance, Local Governance.
Corporate Governance:
Covers a number of key areas. In order to
achieve good corporate governance a company
must have regard to the following:
2|Page

● It must act in the best interest of its owners
(shareholders).
● Consideration should be given to all
stakeholders.
● It must comply with relevant codes.
● Consideration should be given to the balance
of power within the board of directors.
● Fair remuneration should be exhibited.
● Risk must be monitored and managed.
● Good ethics must be observed and Corporate
Social Responsibility must be considered.
● It should employ independent auditors.
Therefore corporate governance is largely
concerned with what the board of a company
does and in particular how it sets the values of
the company. It is separate from the day-to-day
operational management of the company by
full-time executives.
Characteristics of Good Governance:
Participatory
Consensus Oriented
Accountable
Transparent
Responsive
Effective and efficient
Equitable and inclusive
Follows the rule of Law
It assures that corruption is minimized, the
views of minorities are taken into account and
that the voices of the most vulnerable in society
are heard in decision-making. It is also
responsive to the present and future needs of
society.
1. Participation
 could be either direct or through
legitimate intermediate institutions or
representatives
 Participation needs to be informed and
organized. This means freedom of
association and expression on the one
hand and an organized civil society on
the other hand.
2. Transparency
 decisions taken and their
enforcement are done in a
manner that follows rules and
regulations
 information is freely available
and directly accessible to those
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
who will be affected by such
decisions and their enforcement
 enough information is provided
and that it is provided in easily
understandable forms and media.
3. Rule of Law
 fair legal frameworks that are
enforced impartially
 full protection of human rights,
particularly those of minorities.
Impartial enforcement of laws,
judiciary and an impartial and
incorruptible police force.
4. Responsiveness
 institutions and processes try to
serve all stakeholders within a
reasonable timeframe.
5. Consensus Oriented
 requires mediation of the
different interests in society to
reach a broad consensus in
society on what is in the best
interest of the whole community
and how this can be achieved
 requires a broad and long-term
perspective on what is needed for
sustainable human development
and how to achieve the goals of
such development.
 This can only result from an
understanding of the historical,
cultural and social contexts of a
given society or community.
6. Equity and inclusiveness
 society’s well being depends on
ensuring that all its members feel
that they have a stake in it and do
not feel excluded from the
mainstream of society.
 requires all groups, but
particularly the most vulnerable,
have opportunities to improve or
maintain their well-being.
7. Effectiveness and Efficiency
 processes and institutions
produce results that meet the
needs of society while making the
best use of resources at their
disposal.
3|Page

 The concept of efficiency in the
context of good governance also
covers the sustainable use of
natural resources and the
protection of the environment.
8. Accountability
 Key requirement of good
governance.
 Not only governmental
institutions but also the private
sector and civil society
organizations must be
accountable to the public and to
their institutional stakeholders.
Role of Audit Function
 Achieved good corporate
governance.
 Combined goods provide a main
principle with provisions.
Audit Committee: should have written terms of
reference that set out its main role and
responsibilities, which should include the
following:
 integrity of the financial statements of
the company.
 Company’s internal controls and risk
management systems need to be
reviewed.
 effectiveness of the company’s internal
audit function needs to be reviewed and
monitored.
 Recommendations need to be made to
the board in relation to the
appointment, re-appointment and
removal of the external auditor and to
approve the remuneration and terms of
engagement of the external auditor.
 The external auditor’s independence and
objectivity needs to be reviewed and
monitored alongside the effectiveness of
the audit process
 Policy on the engagement of the external
auditor to supply non-audit services
needs to be developed and implemented.
Organizational Structures:
 A central framework of an organization,
into which departments and functions
are divided to perform the business
operation.
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
3 Types of Organizational Structure
Functional
 Most commonly used structure system
in organizations. It consists of units or
different departments of the
organization, such as operations,
finance, Human Resources, R&D,
engineering etc.
 This structure system is based on the
duties and responsibilities of the
employees.
Divisional
 The organization structure due to its
division such as its products, its area of
markets and/or customer is called
structure.
This structure type is further is divided into:
 Product Structure
 Market Structure
 Geographic Structure
Product Structure – division of organization
according to the product they prepare. All the
products are divided into separate structure
Geographic Structure: this structure system is
about the geographic location and usually
adopt by the large multinational organizations.
Matrix – Large and multinational companies
use matrix structure, it is complex
organizational structure constituting both
functional and divisional structures.
An organization has to make strategic and
operational decisions. Where and by whom
should these decisions be made? And: how
should the organization structure be adapted?
Centralization and Decentralization are
two opposite ways to transfer decision-making
power and to change the organizational
structure of organizations accordingly.
4|Page

Centralization:
 process of transferring and assigning
decision-making authority to higher
levels of an organizational hierarchy.
 the decision-making has been moved to
higher levels or tiers of the organization,
such as a head office, or a corporate
center.
 Knowledge, information, and ideas are
concentrated at the top, and decisions
are cascaded down the organization.
 The span of control of top managers is
relatively broad, and there are relatively
many tiers in the organization. Compare
Fayol.
Decentralization:
 process of transferring and assigning
decision-making authority to lower
levels of an organizational hierarchy.
 the decision-making has been moved to
lower levels or tiers of the organization,
such as divisions, branches,
departments or subsidiaries.
 Knowledge, information and ideas are
flowing from the bottom to the top of the
organization.
 The span of control of top managers is
relatively small, and there are relatively
few tiers in the organization, because
there is more autonomy in the lower
ranks.
Three (3) forms of Decentralization
1. Deconcentration. Weaker form of
decentralization. Decision making
authority is redistributed to lower or
regional levels of the same central
organization.
2. Delegation. A more extensive form of
decentralization. Through delegation the
responsibility for decision-making is
transferred to semi-autonomous
organizations not wholly controlled by
the central organization, but ultimately
accountable to it.
3. Devolution. A third type of
decentralization is devolution. The
authority for decision-making is
transferred completely to autonomous
organizational units.
Centralization:
 authority is concentrated at the top
management levels.
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
 the act or process of combining or
reducing several parts into a whole;
as, the centralization of power in the
general government; the
centralization of commerce in a city.
 Situation in which decision-making
power is at the top of an organization
and there is little delegation of
authority.
 Full centralization means minimum
autonomy and maximum restrictions
on the operations of subunits of the
organization.
 Centralization, is the process by
which the activities of an
organization, particularly those
regarding Planning decision-making,
become concentrated within a
particular location and/or group.
 In political science; the
concentration of a government's
power - both geographically and
politically, into a centralized
government.
 In neuroscience, centralization refers
to the evolutionary trend of the
nervous system being partitioned
into a central nervous system and
peripheral nervous system.
 In business studies centralisation
and decentralisation is about where
decisions are taken in the chain of
command.
Decentralization:
 extent to which authority is delegated to
lower management levels. Delegation of
decision-making to the subunits of an
organization.
 It is a matter of degree. The lower the
level where decisions are made, the
greater is the decentralization.
 most effective in organizations where
subunits are autonomous and costs and
profits can be independently measured.
1. decisions are made by those who have
the most knowledge about local
conditions;
2. greater managerial input in decision-
making has a desirable motivational
effect; and
3. managers have more control over
results. The costs of decentralization
include:
5|Page

3.1 managers have a tendency to look
at their division and lose sight of
overall company goals;
3.2 there can be costly duplication of
services; and
3.3 costs of obtaining sufficient
information increase.
Organizational Conflict
1. The clash that occurs when the goal-
directed behavior of one group blocks
the goals of another.
2. Stakeholders compete for the resources
that an organization produces.
3. Shareholders want dividends, and
employees want raises.
4. An organization must manage both
cooperation and competition among
stakeholders to grow and survive.
5. All stakeholders have a common goal of
organizational survival, but not all goals
are identical.
6. Organizational conflict occurs when a
stakeholder group pursues its interests
at the expense of other stakeholders.
7. Given the different goals of
stakeholders, organizational conflict is
inevitable.
8. Conflict is associated with negative
images, such as unions getting angry
and violent, but some conflict can
improve effectiveness.
9. When conflict passes a certain point, it
hurts an organization.
Government regulates the activities of
businesses in five core areas: advertising, labor,
environmental impact, privacy and health and
safety.
Consumer protection Via Advertising
Restrictions
Laws pertaining to marketing and
advertising set in motion by the Federal
Trade Commission exist to protect
consumers and keep companies honest
about their products. Every business in the
country is required to comply with the
truth-in-advertising laws and could face
lawsuits for violation.
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
Employment and Labor Protection
 these laws pertain to minimum wages,
benefits, safety and health compliance,
work for non-U.S. citizens, working
conditions, equal opportunity
employment, and privacy regulations –
and cover the largest area of subjects of
all the business regulations.
Environmental Impact of Business
 The carbon footprint and the effect of
businesses on the environment is
regulated by the Environmental
Protection Agency alongside state
agencies.
Data Security and Privacy Protection
 Sensitive information is usually
collected from employees and customers
during hiring and business transactions,
and privacy laws prevent businesses
from disclosing this information freely.
Information collected can include social
security number, address, name, health
conditions, credit card and bank
numbers and personal history
Regulators – Philippine setting
 public authority or government agency
responsible for exercising autonomous
authority over some area of human
activity in a regulatory or supervisory
capacity. They deal in the area of
administrative law—regulation or
rulemaking (codifying and enforcing
rules and regulations and imposing
supervision or oversight for the benefit
of the public at large).
Securities and Exchange Commission
(SEC) - the securities regulator.
 centralized institution generally administers
and supervises all corporate acts,
 In principle, the SEC has the authority
to enforce laws and regulations
 mainly empowered and regulated under the
SRC
6|Page

Philippine Depository Trust Corporation
(PDTC)
 provides registry, clearing and
settlement infrastructure services to
issuers of fixed-income securities such
as bonds, commercial paper, negotiable
certificates of deposits, and other
negotiable instruments.
Bangko Sentral ng Pilipinas (BSP)
 provides policy direction in the areas of
money, banking, and credit. Supervises
operations of banks and exercises
regulatory powers over non-bank
financial institutions with quasi-banking
functions.
Department of Trade and Industry (DTI)
 contribute to the country’s goal of
achieving economic growth toward
poverty reduction.
Courts
Courts of general jurisdiction or the designated
RTC have jurisdiction over all cases involving
corporate disputes. The Supreme Court has
designated certain RTCs in all judicial districts
to handle cases involving corporate disputes.
Business ethics – AKA Corporate ethics
 a form of applied ethics or professional
ethics that examines ethical principles
and moral or ethical problems that arise
in a business environment. It applies to
all aspects of business conduct and is
relevant to the conduct of individuals
and business organizations as a whole.
Applied ethics is a field of ethics that deals with
ethical questions in many fields such as
medical, technical, legal and business ethics.
Business ethics can be both a normative and
a descriptive discipline. As a corporate practice
and a career specialization, the field is
primarily normative. In academia descriptive
approaches are also taken. The range and
quantity of business ethical issues reflects the
degree to which business is perceived to be at
odds with non-economic social values.
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
Historically, interest in business ethics
accelerated dramatically during the 1980s and
1990s, both within major corporations and
within academia. For example, today most
major corporate websites lay emphasis on
commitment to promoting non-economic
social values under a variety of headings such
as ethics codes and social responsibility
charters. In some cases, corporations have
redefined their core values in the light of
business ethical considerations, for example,
BP's "beyond petroleum" environmental tilt.
Ethical theories
Three principal ethical theories:
Consequentialism: The end justifies the
means – so if the outcome of actions is moral
or ethical then the steps taken to achieve it are
moral or ethical, whatever they may be. This
derives some of its beginnings from
utilitarianism propounded by, among others,
John Stuart Mill (1806–1873), which held that
the moral worth of an action was derived from
the amount of good it did to society or for the
benefit of individuals – the greatest good of the
greatest number.
Deontology: This theory was largely based on
the writings of Immanuel Kant (1724–1804)
who held that there were moral absolutes and
that, for an outcome to be moral or ethical, all
the actions leading up to it must be moral or
ethical. We should behave in a moral or ethical
way based upon universal principles of
morality and ethics.
Contractualism: This theory is based on the
notion that individuals can agree on what is
moral and what is not in a form of social
contract; so an immoral act is one that is wrong
by any set of social principles that no one
would reasonably reject. In this case there are
no moral absolutes, but also the end does not
necessarily justify the means so, broadly, this
sits somewhere in the middle.
Corporate social responsibility or CSR:
an umbrella term under which the ethical
rights and duties existing between companies
and society is debated.
7|Page

Issues regarding the moral rights and duties
between a company and its shareholders:
fiduciary responsibility, stakeholder concept v.
shareholder concept. Ethical issues concerning
relations between different companies include
issues such as such as hostile take-overs and
industrial espionage; leadership issues such as
corporate governance; Corporate Social
Entrepreneurship; political contributions made
by corporations; law reform, such as the ethical
debate over introducing a crime of corporate
manslaughter; and the misuse of corporate
ethics policies as marketing instruments.
Ethics of finance
 technical issues such; optimal mix of
debt and equity financing, dividend
policy, and the evaluation of alternative
investment projects, and more recently
the valuation of options, futures, swaps,
and other derivative securities, portfolio
diversification, and so on. It is often
mistaken to be a discipline free from
ethical burdens. Finance ethics is
overlooked for another reason–issues in
finance are often addressed as matters
of law rather than ethics. Looking closer
into the literature concerning finance
ethics, one can be convinced that as is
the case with other operational areas of
business, the ethics in finance is being
called into question.
Operational areas of financial ethics
 Fairness in trading practices, trading
conditions, financial contracting, sales
practices, consultancy services, tax
payments, internal audits, and external
audits are discussed in them.
 Creative accounting, earnings
management, misleading financial
analysis, Insider trading, securities
fraud, bucket shops, forex scams:
concerns (criminal) manipulation of the
financial markets.
 Executive compensation: concerns
excessive payments made to corporate
CEO's and top management.
 Bribery, kickbacks, facilitation
payments: while these may be in the
(short-term) interests of the company
and its shareholders, these practices
Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
may be anti-competitive or offend
against the values of society.
Ethics of human resource management
 sphere of activity of recruitment
selection, orientation, performance
appraisal, training and development,
industrial relations, and health and
safety issues where ethics really matters.
 Discrimination issues on the bases of
age (ageism), gender, race, religion,
disabilities, weight, and attractiveness.
See also: affirmative action, and sexual
harassment.
 Issues from the traditional view of
relationships between employers and
employees, also known as At-will
employment.
 representation of employees and the
democratization of the workplace: union
busting, strike breaking.
 Issues affecting the privacy of the
employee: workplace surveillance, drug
testing. See also: privacy.
 Issues affecting the privacy of the
employer: whistle-blowing.
 Issues relating to the fairness of the
employment contract and the balance of
power between employer and employee:
slavery, indentured servitude, and
employment law
 Occupational safety and health.
All of the above are also related to the hiring
and firing of employees. In many developed
nations, an employee or future employee
usually cannot be hired or fired based on race,
age, gender, religion, or any other
discriminatory act.
Ethics of sales and marketing
Marketing ethics is not restricted to the field
of marketing alone, rather its influence spread
across all fields of life and most importantly
construction of 'socially salient identities for
people' and "affect some people's morally
significant perceptions of and interactions with
other people, and if they can contribute to
those perceptions or interactions going
seriously wrong, these activities have bearing
on fundamental ethical questions".
8|Page
 Aguilar, Dana Danielle Y
2FM-1 l GGSR l Notes
 Marketing, especially its visual
communication, it is observed, serve as
an instrument of epistemic closure
restricting worldviews within
stereotypes of gender, class and race
relationships.

 Pricing: price fixing, price

discrimination, price skimming.
 Anti-competitive practices: go beyond
pricing tactics to cover issues such as
manipulation of loyalty and supply
chains. See: anti-competitive practices,
antitrust law.
 Specific marketing strategies:
greenwash, bait and switch, shill, viral
marketing, spam (electronic), pyramid
scheme, planned obsolescence.
 Content of advertisements: attack ads,
subliminal messages, sex in advertising,
products regarded as immoral or
harmful
 Children and marketing: marketing in
schools.
 Black markets, grey markets

International Business Ethics

 The search for universal values as a basis
for international commercial behaviour.
 Comparison of business ethical
traditions in different countries. Also on
the basis of their respective GDP and
[Corruption rankings].
 Comparison of business ethical
traditions from various religious
perspectives.
 Ethical issues arising out of
international business transactions; e.g.,
bioprospecting and biopiracy in the
pharmaceutical industry; the fair trade
movement; transfer pricing.
 Issues such as globalization and cultural
imperialism; Varying global standards –
e.g., the use of child labor.

The way in which multinationals take

advantage of international differences, such as
outsourcing production (e.g. clothes) and
services (e.g. call centres) to low-wage
countries.

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