REVIEWER IN GOOD GOVERNANCE -the purpose of the firm is to maximize its long-

LESSON 1: CORPORATION AND term market value, that is, to make the most money
CORPORATE GOVERNANCE it can for shareholders.

CORPORATION “STAKEHOLDER THEORY OF THE FIRM”

-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.
ATTRIBUTES OF CORPORATION
ARTIFICIAL BEING
-fiction of law, juridical person whose personality is
separate and distinct form its owners
CREATED BY OPERATION OF LAW
-came into existence through a charter or grant form
this state
RIGHT OF SUCCESSION
-it can continue to exist even in death, incapacity or
insolvency of any stockholder or member
POWERS, ATTRIBUTES, AND PROPERTIES
-it is authorized to do activities within the purpose/s
of its creation.
PURPOSE OF A CORPORATION
 Early-Stage Survival
 To Increase Profit
 To offer vital services to the general public
 To offer goods and services to the mass
market
-argues the corporation serves a broader purpose, to
create value for society
-must make profit for owners to survive, however,
creates other kinds of value to
-corporations have multiple obligations, all
“stakeholder” groups must be taken into account
-manager is effective if he know how to maximize
the profit
-MODERN THEORY – (wealth maximization) –
maximize the wealth of shareholders
CORE ARGUMENTS FOR STAKEHOLDER
THEORY OF THE FIRM
DESCRIPTIVE
-more realistic description of how companies really
work
-describing how company works
INSTRUMENTAL
-more effective corporate strategy
-instrument use on how you sell product also called
corporate strategy
NORMATIVE
-stakeholder management is the right thing to do
-doing right things that are effective and efficient

PARTIES WITH CLAIMS OVER THE

CORPORATION STAKEHOLDER
Parties – structure of organization -refers to persons or groups that affect or are
 Shareholders – owners/stockholders/one affected by, an organization’s decisions, policies,
who appoints the CEO. and operations
 Bondholders
STAKE
 Board of Directors
-an interest in or claim on a business enterprise
RANK AND FILE EMPLOYEES – employees
BUSINESSES
that doesn’t have a position in the company.
-are embedded in networks that involve many
groups with such a stake
TWO CONTRASTING VIEWS
“SHAREHOLDER THEORY OF THE FIRM”
-the firm is seen as the property of its owner
(shareholders)
-Argues the owners’ interests are paramount and
take precedence over the interests of others
DIFFERENT KINDS OF STAKEHOLDERS
MARKET STAKEHOLDERS
-are those that engage in economic transactions with
the company as it carries out its primary purpose of
providing society with goods and services
-economic growth (more production of goods or
delivery of services)
NONMARKET STAKEHOLDERS
-are people or groups who – although they do not
engage in direct economic exchange with the firm –
are affected by or can affect its actions
FURTHER DISTINCTION
INTERNAL STAKEHOLDERS
-are those, such employees and managers, who are
employed by the firm.
-they are inside the firm
-EXAMPLE: Management and Employees
EXTERNAL STAKEHOLDERS
-are those who -although they may have important
transactions with the firm – are not directly
employed by it
-EXAMPLE: Creditors, Shareholders, Clients,
Government, and Public
6 DYNAMIC FORCES THAT SHAPES
BUSINESS AND SOCIETY RELATIONSHIP
-the external environment of business is dynamic
and ever changing
-the purpose of the firm is not to simply make a
profit, but to create value for all its stakeholder – a
successful business must meet both its economic
and social objectives
 Changing societal expectations
 Growing emphasis on ethical reasoning and
actions (knowing what’s right from wrong)
 Globalization (tend to merge with other
business)
 Evolving government regulations and
business response (lowering tariff)
 Dynamic natural environment
 Explosion of new technology and innovation
CORPORATE GOVERNANCE
-is the framework of rules, systems, and processes
in the corporation that governs the performance of
the board of directors and management of their
respective duties and responsibilities to
stockholders and other stakeholders which include
among others, customers, employees, suppliers,
financier, government and community in which
operates.
-model that corporation adapt
FUNDAMENTAL OBJECTIVES OF
CORPORATE GOVERNNANCE
 Generate long term economic value for its
shareholder;
 Respect the interest of stakeholders and
society as a whole
PILLARS OF CORPORATE GOVERNANCE
ACCOUNTABILITY
-management is accountable to the board
-board is accountable to the shareholders
FAIRNESS
-protect stakeholders’ right
-treat all stakeholders including minorities,
equitably
-provide effective redress for violations
TRANSPARENCY
-“nothing to hide”, anything can be checked at any
given time by an outside observer
-timely, accurate disclosure on all material matters,
including the financial situation, performance,
ownership and corporate governance
INDEPENDENCE
-procedures and structures are in place so a to
minimize, or avoid completely conflicts of interest
-independent directors and advisers, i.e. free from
the influence of others
RESPONSIBILITY
-responsibility goes hand in with accountability CONCLUSION
-accountability is the vested authority to act in  Directors, in their waking hours, must be
behalf of the company; responsibility us being fully continually VIGILANT if they do not wish
aware of the consequences of exercising those to experience the most horrible nightmares
powers possible.
 Good governance in corporations /
BENEFITS OF GOOD GOVERNANCE organizations PREVENTS and EXPOSES
 Enhance investor confidence fraud and corruption.
 Increased performance
 Enhanced performance (Increased
operational efficiency and assured ling term
productivity and growth) LESSON 2: MODELS OF CORPORATE
GOVERNANCE
ISSUES IN CORPORATE GOVERNANCE
SYSTEM NEED FOR A MODEL
BOARD OF DIRECTORS -adoption of successful models
 Independence -point of comparison for what makes a particular
 Quality model successful (and why the existing model is a
 Performance failure)
-a successful model for one country may not
SHAREHOLDERS AND INVESTORS necessarily be successful to another
 Shareholder Activism
 Social Investing FACTOR AFFECTING CORPORATE
GOVERNANCE
 Investor Confidence
-legal and regulatory framework outlining the rights
and responsibilities of all parties
INTERNAL CONTROL AND RISK
-public acceptance of realities of the corporate
MANAGEMENT
environment in the country
 Internal and external audits
-each corporations articles of incorporation
 Control Systems
 Risk Management CONSTITUENT ELEMENTS
 Financial Compensation  Key players in the corporate environment
 Share ownership patter in the given country
EXECUTIVE COMPENSATION
 Composition of board of directors
 Regulatory framework
FUTURE OF CORPORATE GOVERNANCE  Disclosure requirements for publicly listed
stock corporations
 Business leaders and managers will need to
embrace governance as an essential part of  Corporate actions requiring shareholder
effective performance. approval
 Governments will have a role to play in  Interaction among key players
corporate governance. National
competitiveness depends on the strength of
various institutions, primarily on the THREE MODELS OF GOVERNANCE
effective performance of business and ANGLO-US MODEL
capital markets. -developed within the context of the free market
economy
 Other stakeholders may become more
-assumes the separation of ownership and control in
willing to use government mechanisms to
most publicly held corporations
affect corporate strategy or decision making
-Investors contribute capital and maintain
ownership in the enterprise, while generally
avoiding legal liability – management of the
corporation
KEY PLAYERS OF ANGLO-US
FRAMEWORK
 Management
 Shareholders
 Board of Directors

-is a person which has no direct relationship with

INSIDER
corporation or management
-is a person who is either employed by the
corporation can be an executive, manager,
employee or somebody who has significant personal
relationship with the corporate management

JAPANESE MODEL
-characterized by a high-level of stock ownership
by affiliated banks and companies
-strong long-term links between bank and
corporation

KEIRETSU
-industrial groups linked by trading relationships as
well as cross-shareholdings of debt and equity

KEY PLAYERS OF JAPANESE MODEL

FRAMEWORK
 Outside Shareholders
 Independent Directors

 Bank

OUTSIDER
 -voting rights restrictions are legal; these limits a
shareholder to voting a certain percentage of the
corporation’s total share capital, regardless of share
ownership position.

BOARD COMPOSITION (TWO-TIERED

BOARD)
MANAGEMENT BOARD (VORSTAND)
-responsible for daily management of the company

SUPERVISORY BOARD (AUFSICHTSRAT)

-responsible for appointing the management board

EMPLOYEES/LABOUR UNION AND

SHAREHOLDERS
-responsible for appointing members to the
supervisory board

KEY PLAYERS
 Banks
 Corporate Shareholders
Banks usually play a multi-role as shareholder,
lender, issuer of both equity and debt, depository,

GERMAN MODEL
-similar with the Japanese Model, banks play a
multi-faceted role as shareholder, lender, issuer of
both equity and debt;
-banks hold long term stake in German Corporation
-Unlike Japan, representation is constant; while
Japan is only in times of financial distress

UNIQUE ELEMENTS OF THE GERMAN

MODEL
TWO-TIERED BOARD STRUCTURE
-which means it consist of a management board and German and Australian corporations us
supervisory board. The 2 boards are completely abbreviations AG following their names.
distinct; no one may serve simultaneously on a
corporation’s management board.

SIZE OF SUPERVISORY BOARD

-it is set by law cannot be change by shareholders

VOTING RIGHTS RESTRICTIONS

 -Ethics is from the Greek character “ethos” which
means habit, custom or character

CHARACTER
-is from the Greek word “kharassein” which means
to engrave, inscribe

LESSON 3: BUILDING AN ARISTOTLE

ORGANIZATIONAL ETHICS CULTURE
HOW DO WE CHANGE A CULTURE
 Structural/Administrative Changes
 Transforming Individuals
-We are what we repeatedly do. Excellence, then, is
not an act, but a habit.
ETHICS
-knowing what is right from wrong

NORMATIVE ETHICS
-studies standards on what makes actions right or
wrong

VIRTUE ETHICS
-studies on developing good habits of character
-explains differently why an action is right or wrong
-we do it because it is right not because it is only
right
-the focus of virtue ethics is what sort of people we
should strive to be, not so much individual things
we should do for each occasion

VIRTUE ETHICISTS
-attest that if we focus on character building, a
-without doubt, an ethical individual is partly
person will be honest consistently
formed by an ethical culture
-they don’t ignore actions but regard them as
outgrowths of a person’s character. The notion of
DELIBERATELY
character is the more morally important concept.
-an ethical disposition is developed over time
-be a good people, consider people actions and
feelings
-action should be acceptable to God and society
-done always in moderation

CULTURE
-Colere: to cultivate
-shared aspirations, world view, attitudes, values,
usually manifested and cultivated through practices
and activities in the business world
-distinct way by which a community lives
-cultivated over time by people
-man is important for organization success
-how do we accordingly

ETHICAL CHARACTER
 LEADERSHIP AND CULTURE BUILDING
1. Leaders should not be merely influenced and
shaped by this culture.
2. Its cultivation is their responsibility.
-create a culture according to an
organizations vision of what it wants to be
3. Making available “actualizing forces’

HOW LEADER BUILD A CULTURE

1. Leaders set the tone.
-they make certain kinds of decisions for the
organizations
COMPLIANCE - BASED CULTURES -courageous leaders
-emphasizes obedience to the rules as the primary 2. By putting structures in place that will create
responsibility of ethics a way of doing things
-empower legal and audits offices to mandate and
monitor compliance with the law and with internal
codes
-you comply/you have to obedience

VALUES-BASED CULTURES
-one that reinforces a particular set of values rather
than a particular set of rules.
-these forms may have codes of conduct; but those
codes are predicted on a statement of values and it
is presumed that the codes includes mere examples
of the values application
-more flexible/should consider integrity

THE PROCESS OF CULTURAL

CONDITIONING
BEHAVIOURAL CONDITIONING
-is learning and internalizing the value and beliefs
behind these behaviours
-in childhood conditioning, infants learn basic
activities of life. Children learn pattern of thinking,
feeling, and acting.
-in adult conditioning, people learn new ways to
perform overriding already conditioned behaviour.

UNLEARNING
-is more difficult than learning for the first time

ADULT CONDITIONING
-adaptive, selective, a product of reflection
 LESSON 5: ETHICAL ISSUES AND
PROBLEMS IN BUSINESS AND THE
CORPORATE WORLD

SEXUAL HARASSMENT
-unwelcome sexual advances requests for sexual
favors, and other verbal or physical conduct of a
sexual nature constitute sexual harassment when
submission to or rejection of this conduct explicitly
or implicitly affects an individual’s employment,
unreasonably interferes with an individual’s work
performance or creates an intimidating, hostile or
offensive work environment

-power struggle between men and women – flexing

power over a subordinate
-the victims and the organization in which they
belong allow it to happen

TWO TYPES OF SEXUAL HARASSMENT

 QUID PRO QUO
-this for that or something for something
 One that creates a hostile environment
-Unwanted touching, patting, pinching or
brushing up against the person
-comments about your body, leering, wolf-
BENEFITS OF HAVING ORGANIZATIONAL whistling, insults of a sexual nature,
ETHICS CULTURE persistently pestering for a date
-displaying or circulation of pornographic
pictures with the intention of harassing
someone/posting of explicitly sexual
materials
-workplace blackmails
-Obscene letters
-Sexual Propositions
Suggestive looks

HOW TO PREVENT SEXUAL HARASSMENT

IN THE WORKPLACE
-creation of a safe, secure, and positive work
environment by putting into practice a strong sexual
harassment policy
 Employee Commitment
 Investor Loyalty
 Customer Satisfaction
 Profits
 -defined as the relationship between two people
who are employed by the same organization
-it is characterized by mutual attraction between the
parties and a desire for a personal, romantic
relationship
-workplace romance is very likely to happen as long
as men and women work together.

GIFT GIVING AND BRIBERY

-gift-giving is merely an act of extending goodwill
to an individual in an effort to share something with
them

Business usually engage in gift-giving for the

following reasons:
 To show appreciation for a favor received
 To effectively establish goodwill with
business partners
 To advertise
 To compete effectively against competitors

The following are the common forms of gift-

giving:
 Samples
 Raffles coupons/certificates
 Rebates/Cash Refunds
 Prizes
 Allowance
 Free goods
 Tips

Is gift-giving ethical or unethical?

-Business gifts of clients and business associates
can raise conflict of interest problems, and knowing
where to draw the line is not always easy
WORKPLACE ROMANCE

CONFLICT OF INTEREST
-occurs when a person acts in a way that is to his or
her advantage at the expense of the employing
organization
-means something more than individual bias.
-applies only to current interest. It does not apply to
past interests that have expired nor can it be applied
to future interest.
TYPES OF CONFLICT OF INTEREST
 Self dealing
 Accepting Benefits
 Using your employers property for private
advantage
 Outside employment or moonlighting
 True cost of product is concealed
 Suggested retail price
 Use of electronic scanners
 Promotional Pricing
 Follow the leader pricing
 Price Gouging
TRADE SECRETS
-the legal term for confidential business
information. That piece of information allows the
company to compete effectively

DECEPTIVE ADVERTISING
-those which either make a false statement and
therefore, lie, to present a product

DECEPTIONS
-may occur not only through sentences or
propositions but also through pictures.

EXAMPLES
 Misleading Illustrations
 Exaggeration
 Ads directed at children
 Use of weasel words

PRODUCT MISREPRESENTATION
-it is observed when there is a transformation of
information to misinformation

THE PROBLEM OF FAIR PRICING TYPES:

PRICE FAIR INTENTIONAL
-it has to be acceptable and just -a person is fully aware or deliberately
misrepresents things (Lying)
TWO THEORIES
 Cost Theory of Prices
 Market Theory of Prices
ETHICAL ISSUES IN FAIR PRICING UNINTENTIONAL
-a person is not aware and does not deliberately
misrepresents things (White Lies)
-COMPETITION is relatively healthy and can be
a motivation for firms to produce better products or
offer better services
-competition becomes bad only when it eliminates a
competitor
-some practices include under cost selling or selling
their products below cost just to get rid of their
competitors

MULTILEVEL MARKETING
-it is a system of selling in which one signs up other
people to assist him, and they in turn, recruit others
to help them.
-it is a selling through many levels of distributors,
thus the word multilevel marketing
DIRECT MISINTERPRETATION -direct selling
-actively misrepresenting something about the
product or service
-it gives the business a bad name because deception
ang lying are used in the process of selling the
product or service to the customers.

INDIRECT MISREPRESENTATION
-omitting adverse information about the product or
service
-caveat emptor, deliberately withholding
information, business ignorance

TAX EVASION
-ideally, corporation should pay the exact amount of
tax to the government as part of their obligation to
the society in general
-some companies intentionally evade the payment
of taxes to the government
- an intentional negligence of the obligation to pay
correct taxes to the government

ELEMENTS OF TAX EVASION

 The intention to cheat
 Knowledge that tax evasion is wrong
 By fraudulent means

TAX AVOIDANCE
-when tax payers exploit legally permissible
alternative methods of assessing taxable property or
income in order to avoid or reduce tax liability

UNFAIR COMPETITION
MONEY LAUNDERING
-defined as the process of disguising illegally
obtained money so that the funds appear to come
from legitimate sources or activities

CONFUCIUS
-life is really simple, but we insist on making it
difficult