Chapter 1 Introduction Background of the Study Corporations today are important actors responsible in generating economic activity in the

world. They are prominent players in all types of markets which are from goods to services to capital and human resources. The ability of these corporations to attract investments, generate profit and create employment has a significant bearing on the economic prosperity of the countries which they are placed in. At the height of the Asian Financial Crisis in 1998, there emerged the collapsed of regional capital markets and the focus was centered on the weak regulatory mechanisms present in Asias financial and corporate sectors (de Ocampo, 2000). Concerns varying from unsound investment practices, poor standards of disclosure and accountability of large corporations contributed to the destabilization of the Asia Pacific region. Therefore, there was a call to government officials and businessmen to regain back the confidence and of investors and revive economic stability by establishing reforms in corporate governance structures. According to Estanislao, (1999) for market competition to work, freedom and openness should not be limited to the larger framework of stabilizing macroeconomy and finances. The idea of corporate governance should extend to industries and enterprises as well alike corporations and other types of business organizations in general. There should be enough space for transparency and accountability especially if one considers the idea of globalization that is a shift to free and open economies,

therefore democratizing corporate governance posited a challenge to the Asia Pacific region since then. Looking into the case of the Philippines, according to Estanislao, (1999) the Philippines has several shortcomings in corporate governance which is the reason for hampered investment and limited economic and political development. A key reform in corporate governance should be a shift from a tightly controlled board of directors to a more open, participatory board of directors. Best practices in corporate governance call for the majority of the directors to be independent, that is, they come from outside the corporation and generally do not have significant business or other related interest with the corporation. Under such an arrangement, it would be difficult for one person to call the shots. It will need a consultative process, to adopt policies and discuss contracts. However in the case of the Philippines, it is the other way around. The majority shareholders are often related by blood and other forms of kinship or close business alliances, thus they are able to control many corporate boards. Equity shareholding in the country as Echanis, (2006) discussed is concentrated, therefore control and decision making is concentrated as well. Estanislao, (1999) also pointed out that the very nature of the corporations especially modern corporations, are invested with public interest given that they are incorporated in a public sphere subject to different stakeholders. Laws and public regulations confer upon them both rights and duties. Their liabilities are subject to clear limits and so is their use of assets. There exist a duty to be good corporate citizens for they enjoy clearly defined rights protected by public law. However corporations and the

board of directors must take their public responsibilities and their duties as well to take serious steps towards corporate governance. In line with that, therefore it is inevitable that the discussion of corporate governance be left alone to the jurisdiction of corporations and governments. After the Asian Financial Crisis, several international organizations such as the Center for International Private Enterprise (CIPE), and U.S. Agency for International Development (USAID) partnered and collaborated with government agencies and non governmental organizations in countries to promote corporate governance and ensure that there are improvements in private corporations transparency and accountability thus encouraging legislative reforms ensuring the promotion of democracy as well (The World Bank, 2009). The researcher therefore aims to build on the studies on collaborative efforts by NGO and government agencies to promote corporate governance and foster development which has been the shift after the Asian Financial crisis. Therefore, it will also look into the gradual institutional change that took place through these collaborations as well as the mechanisms or strategies employed by the agents which foster change so as to better understand if there is indeed development to begin with. The researcher will use key informant interview and document analysis as methods to gather all the relevant data throughout the study as well as to provide a clearer understanding of the workings of corporate governance that evolved in the country.

Research Question This study will answer the following question: How does Non Governmental Organization and Government Agency

collaboration improve corporate governance practices? Definition of Terms (Operational needed)

Conceptual Non Governmental Organization

Definition Intermediary organizations between the people and the state which are private, non profit, voluntary and formally

organized which seeks to promote the general welfare of the nation or society at Government Agency large (Cario, 2002) Agencies created and funded by

government which are required to perform specific mandate in line with governmental collaboration duties (Carino, 2002) is a change in the area of managing affairs may it be private or public by involving a multitude of actors or stakeholders to foster corporate governance improvement, encourage and

facilitate performance (Agranoff, 2005) refers to both the structure and process by which the public corporations control

development

agency problems (Echanis, 2006) process of growth towards self reliance

and contentment (Estanislao, 1999) Research Objectives (FIX this) This study aims to: Provide a clearer understanding on corporate governance practices in the country Examine how the dynamics of Non Governmental Organization and Government Agency collaboration in improving corporate governance practices takes place Clarify the importance and the association of corporate governance in development Significance of the Research This research will be able to contribute to the literature on collaboration as networks especially because the researcher is looking into two different organizations which make up society that is government and NGO. In theory its contribution is that it would add to the collaboration as networks theory specifically highlighting that the very nature of collaboration comes from various sectors in society and that by examining such one can understand the dynamics between these actors and explain how they are able to bring about positive change and through their promotion of corporate governance resulting to development in the long run as well. At the empirical level, this study will be able to explain the dynamics of the multitude of actors involve in the promotion of corporate governance and how it may affect development of the country in general. By looking into NGO and government agency collaboration, the researcher will be able to shed light if there is indeed a

significant relationship between such collaboration and the promotion of corporate governance in our country. Scope and Limitations It is important to note that in writing this project the researcher focuses the collaboration between the NGO and Government agency which helped improve corporate governance practices in the country. The study also highlights the role of collaboration as a form of strategy employed by different groups to bring about institutional change. This then could shed light on the dynamics exhibited in joining collaborations for enhancing or improving of the different sectors of society through recognition among key actors that without each others help, reforms would be futile. On the other hand, the limitation of the study is that it will only focus on two government agencies which are the Securities and Exchange Commission and The Philippine Stock Exchange and does not touch on the banks or the financial sector which the Institute of Corporate Directors (provide background on ICD) has also collaborated with in their goal to improve corporate governance instead, the study will examine the improvements in corporate governance practices in state owned enterprises.

Chapter 2 Review of Related Literature Introduction

In order to understand how collaborations influence and promote corporate governance and development the first part of this chapter will look into research on various types of collaboration efforts before focusing on in NGOs given that they are among the actors that the researcher is currently studying. There will be cases which also involve the workings of corporations and government agencies towards developmental efforts and in managing corporations effectively. The second part will look into the different theories employed by different authors in understanding the relationship between NGO and government agency collaboration and also the concept of corporate governance. In understanding the mechanisms of collaboration between an NGO and a government agency, one can see that while there are strong empirical cases, there is not much of theory to examining a relationship or the link between the concepts. However it is also important to note that through borrowing from other theories in collaboration, there is a possibility for one to better understand how corporate governance transpires especially in developing countries. As some authors posited the notion of corporate governance does not look into a one size fits all policy, it is modified and changed depending on the culture and the problems specifically faced by corporations in given countries.

Corporate Governance and its link to Development Corporate Governance has long been ignored as a developmental policy needed in a countrys national economy. Only after the Asian financial crisis had struck down

economies was there a need to revisit such policy. Especially for developing, transition and emerging-markets, corporate governance was highly needed given that in the process of transformation which they were undergoing (Oman, Fries & Buiter, 2003). This transformation amongst developing countries involves the economic and political spheres of national governance. The shift or transformation is geared towards an economy which is more open and market friendly, while on the political side, it is more democratic where the concept of transparency and accountability is very much employed, thus moving away from a relationship-based approach to a rules-based system of governance (Edwards and Clough, 2005). According to Baltazar, (2002) corporate governance comprises the private and public institutions, both formal and informal, ones which all together govern the relationship between people who manage corporations and all those stakeholders who invest resources in corporations in the country. The institutions according to Roe, (2003) include the countrys corporate laws, securities laws, accounting rules as well as generally accepted business practices and ethics. Therefore it is important to note that the idea of corporate governance and their institutions both determine what society considers to be acceptable in corporate behavior and to ensure that these corporations comply with these given standards. Throughout the discussion of the literature, corporate governance was often believed to affect only companies with publicly traded shares which seek to raise capital outside equity investors. However, according to Echanis, (2006) in the case of developing countries the preponderance of smaller firms without listed shares, and of large family-owned, state owned or foreign owned companies whose shares are not

locally traded, this caused the issue of corporate governance to be ignored for quite a long time. In line with this, it is then important to look into the point stressed by Oman, Fries and Buiter, (2003) which stressed the importance of corporate governance to development. The perception that corporate governance is of little importance to countries which not have widely traded shares is a mistake. It should be noted that such perceptions are wrong given that the institutions of corporate governance lies in the center of which developing, transition and emerging market economies face, that is to move successfully from an institution of economic and political governance that tend to be heavily relationship based to institutions which are now more on rules or rulesbased. The reason for such move to be difficult can be seen in two points, according to Oman, Fries and Buiter, (2003) these are first the ability of the corporate insider to exploit other investors and generate corporate rents in developing, emerging and transition countries. Second is the ability of the powerful groups to lobby their interests given that they have a strong political and economic power because of the connections and also the kinship ties they have with those in the private corporations or large state owned corporations. Thus the combined effects of expropriation problems and the vested interest groups behavior seriously hinders or hampers the long-term productivity growth and restrain long term development in these countries. According to Edwards and Clough (2005), the importance of corporate governance therefore extends well beyond the corporate sector. It does not matter just because the corporate sector of a country is in

serious threat, but it also matters to the quality of the countrys institutions on governance which matters greatly to national development. According to Sicat, (2009) in the case of developing countries the speed and sequence of transformation varies due to the difference in the systems of the economy and the political sphere. However, what is important to note that after the Asian Financial crisis, more developing countries are now engaged in promoting corporate governance given that they have seen the effects of having weak regulation and institutional enforcements which in the long run posts a great threat for any country. According to Oman, Fries and Buiter, (2003) the common problems are expropriation and vested interests. The authors further elaborated such concepts, the so called principal-agent problem which plagues the relationship among the shareholders (principals) and the managers (agents). Such is seen in the case of US and UK for much of the 20th century where there was a prevalent discussion as to what is really the purpose of corporate governance. According to the body of literature established, it is to protect the shareholders because the interests of other investors can be protected through contractual relations within the company, leaving the shareholders as residual claimants whose interests can be protected through the institutions of corporate governance. However, in developing countries as Ngo, (2010) explained, pervasive clientelism, weak judicial systems and poorly defined property rights tend to greatly weaken contract enforcement. Poor contract enforcement is detrimental not only to the corporations but also to the development of these countries in general.

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In connection with this, Ngo, (2010) also posited that in many developing countries or emerging economies the effects of the expropriation problem is furthermore exacerbated due to the fact that there is the presence of interest groups which are entrenched in highly concentrated oligopolistic structures of local political as well as economic power. Particularly damaging are the ties which these groups have to foreign investors in other countries which undermine healthy competition and weaken the proper functioning of markets. This also undermines the development and consolidation of democratic political institutions. Though there are efforts of developing countries to privatize state owned enterprises to reducing anti competitive market regulations, liberalize trade and investment and to attract foreign investors more, these does not translate to a positive impact if institutions which seek to regulate and reinforce competitive market mechanism and democratic political institutions are considerably weak or unstable. While there is a potential contribution of improved corporate governance to development, it is also important to highlight that this is not due to the fact that it increases the flow and lowers the cost of domestic and foreign financial resources to corporations, but it is equally important given that reduces the considerable wastage and misallocation of real investment resourceshuman and physical (Mulili and Wong, 2011).

Case studies on Corporate Governance

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We now move into looking at some of the cases in corporate governance in different countries such as Kenya and the Philippines. The article on Corporate Governance Practices in Developing Countries presented by Mulili and Wong (2011) highlighted a framework which examines the concept of corporate governance in a historical perspective. According to Mulili and Wong, (2011) the concept of corporate governance was already present in the 1980s because this period marked the era of stock market crashes and failure of some corporations around the world to sustain given that they have poor corporate governance practices. Yaziji and Doh, (2009) further elaborated that the corporate collapse became the driver for the change to corporate governance codes. There was a change of attitude in which much pressure is attributed to the management boards of the firms. There was also a growing realization of the difference amongst directors and managers. Managers are to run firms while on the other hand; directors should ensure that firms are run effectively and in the right direction. For example, countries that follow civil law such as France, Germany, Italy and Netherlands create a framework for corporate governance which is focused on stakeholders. In those countries, the role of corporate governance was to balance the roles of the creditors, suppliers, customers and the wider community in general. On the other hand according to Mukute and Marange, (2006) countries which have the tradition of common law such as Australia, United Kingdom, Canada and US developed corporate governance which focused on the shareholders returns or interests. In their cases, corporate governance was to ensure that corporations

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achieved the goals set by their owners. Moreover the shareholders could hold a firms management responsible for attaining the firms goals which include profits. The article of Mulili and Wong (2003) also discussed the theoretical frameworks for corporate governance such as the agency and stewardship theories. For the agency theory, the idea is that people are self-interested rather than altruistic; they cannot be trusted to act in the best interests of others. The agency theory then seeks to explain the relationship between directors and shareholders as a contract. This implies that the actions of the directors acting as agents of shareholders must be checked and re examined to ensure that they are in the best interests of the shareholders. The stewardship theory on the other hand adopts a different approach and begins with the assumption that organizations serve a broader social purpose than just maximizing the wealth of the shareholders. It takes off from the point that corporations are social entities that affect the welfare of many shareholders and these shareholders interact with firms and that affects or is affected by the achievement of the firms objectives. To sum up, the stewardship theory sees the firms board of directors as acting stewards and are more motivated to act in the interests of the firm rather than their own personal interests. In the case of Kenya, Mulili and Wong, (2011) stressed on the importance of corporate reforms especially in their case study which focused on the private and public universities, given that the funding to sustain these institutions comes from the government and corporations in Kenya as well as the administrative duties, there is a need to re-examine the goals pushed forth by the corporations and the government as well. There exist a variety of problems faced such as the misallocation of funds in these

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universities. A lack of access to resources by students, ineffective teaching and threats coming from lecturers themselves. On the other hand, according to Echanis, (2006) in the case of the Philippines the need for corporate governance reforms stems from the weak government regulatory structures as well as the weak corporate governance mechanisms in financial institutions. These weaknesses allowed the expropriation of the small investors by a few stockholders and management. The following are the classification of these weaknesses 1.) Decision processes, 2.) Violation of regulations, 3.) Weaknesses of regulatory agencies and 4.) Financial reporting standards. In terms of the decision process, if there are only a significant few who are in charge of the decision making in a corporation then this compromises the growth and development of this structure because it undermines the very nature and capability of the agency to enact change (Chaghadari, 2011). Also if there is the presence of weak regulatory agencies, then there is a tendency to point fingers on who manages and regulates who, which actually causes confusion among these institutions and makes it easier for them to work they way around the interpretation of laws and rules.

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External Influences on Philippine Corporate Governance (Where are the NGOs?change diagram)

NGOs and their role in development (NGOs and their role in corporate governance) According to Ezeoha, (n.d.) Non governmental organizations by their structures and missions play an important role as key agents of development. They are able to complement the jurisdictional roles of governments and collective efforts of individuals towards human development, corporate governance and environmental sustainability.

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In all countries which they operate in NGOs most often than not assume different forms and operate almost in parallelism with government agencies and departments and they are commonly referred as not for profit organizations so as to highlight the very nature of their independence from government and their philanthropic motive as well. Lewis and Kanji, (2009) cited the World Bank and defines NGOs as private organizations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide social services, undertake community development or push forth reforms in governance. The relevance of such institutions according to Lewis and Kanji,(2009) cannot be undermined for their key functions have been in the contribution of valuable information and ideas, advocating effectively for positive change, providing essential operational capacity in emergencies and developmental efforts and generally helping to increase transparency, accountability and legitimacy of the global governance process. Institute of Corporate Directors, OECD and international organizations for corporate governance Collaboration between NGOs and Government agencies in corporate governance Scorecard system

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Chapter 3 Framework Theoretical Framework To explain how the coalitions through the form of rural committees influence the distribution of pork barrel funds this study will use the positive choice theory on legislative coalitions by Shepsle & Weingast, (1994). According to the authors, the theory highlights the strategies employed by coalitions to advance their interests in order to acquire their goals. The theory targets the coalitions formed in the legislative arena. Shepsle & Weingast, (1994) mentioned three strategies done by coalitions to influence decision making or policy outcomes. These strategies are done in a collective manner and are labeled as collective strategies. These three strategies are agenda setting, bargaining and the size of the coalitions (p. 157). The agenda setting strategy is measured in different degrees and levels. Depending on the type of coalitions, this can be seen in how coalitions propose certain policies and proposals in favor of a bigger payoff or return for them. By aligning their proposals to a specific project or target these coalitions are able to influence the passage of their proposals easily and are able to get a greater distribution of incentives may it be in the form of financial assistance or other means (pp. 158-159). In analyzing the bargaining strategy, this can be further studied by looking into the negotiations done especially during committee meeting reports and documents which pertains to how these coalitions will be able to come up with more support. Basically this can be seen in campaigns, advocacies and the outside source in which

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these coalitions engaged with so as to further advance their influence especially during the open interrogation of their proposed bills and policies wherein technical experts, civil society groups will be invited to engaged in. Lastly the size of coalitions can be seen as a strategy to gain greater influence especially if through time these coalitions had been growing or have been increasing. Thesis The ability of coalitions to influence decisions or control policy outcomes depends on the strategies it uses during the policy making process i.e. if these coalitions are able to exercise control through bargaining, agenda setting and committee size. Definition of Terms Terms Coalitions Influence Pork Barrel Conceptual Definition An alliance of groups or a set of individuals with the same goal or objective and holds on a common pool of resources in order to gain leverage to pursue these goals (Shepsle & Weingast, 1994) The ability to alter decisions or control outcomes (Shepsle & Weingast, 1994 p. 156) Considered as a distributive policy which is targeted to a specific district or constituencies of legislators and is essential to create projects which may help in the pursuit of reelection (Shepsle & Weingast, 1994)

Diagram Economies of scale Coalitions Collective Strategies Electoral Objectives Reduce uncertainty outcomes

Distributive Policies 18

Operational Framework In this study the coalitions is indicated by the rural committees in Congress and by using the different indicators of the collective strategies, the researcher will be able to examine if indeed these coalitions have a greater influence in how pork barrel is distributed to them. By examining the documents regarding the proposed projects and implemented programs or projects by these rural committees one can see how they are able to set the agenda and by looking into the reports the researcher will be able to find out the bargaining strategies adopted by these committees. Lastly the increase in the size of committees and the number of committees in Congress will also further give us a better understanding if there is indeed a significant relationship between the rural committees and how pork barrel funds are distributed given that they use this strategies. Also it should be clear that the researcher only focuses on the distributive policies in the theory given that it is the one that can easily be measured through the use of pork barrel fund distribution and spending. Also it is more applicable in the Philippines given those coalitions formed in the country are for temporary purposes or is for the advancement of certain interests and also a leverage to acquire pork barrel funds based from several studies done regarding the pork barrel politics in the country. Thesis Rural Committees in Congress employ certain collective strategies such as agenda setting which can be seen in the policies they propose, bargaining that is their mobilization on how they are able to push forth their interest and the size of committee

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which can influence the votes on how policies such as pork barrel funds should be distributed to them. Definition of Terms Terms Coalitions Influence Pork Barrel Operational Definition In this study the coalitions would be the rural committees in Congress such as the Committees on Agriculture and Food, Fisheries, Public Works and Highways, Technical and Higher Education and Rural Development. In this study influence refers to the ability to control or distribute electoral objectives such that of the distribution of pork barrel funds. In this study pork barrel is the funds used for country development and is measured through the Philippine Development Assistance Fund (PDAF).

Diagram Rural Committees Policy proposals, mobilizing resources, size of the committee Electoral objective

Acquiring a greater Distribution of pork barrel funds

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http://www.oecd.org/corporate/corporateaffairs/corporategovernanceprinciples/3364776 .pdf Roe, M. J. (2003). Political Determinants of Corporate Governance: Political Context, Corporate Impact. Oxford University Press Inc. New York, USA. Sicat, H. (2009). Corporate Governance in the Philippines. Retrieved from http://www.rvrcvstarr.aim.edu/Library%20CV%20Starr/PSE %20Chair_Sicat_AIM_Pre entation%28073009%29.pdf The World Bank. (2009). Corporate Governance: The Foundation for Corporate Citizenship andSustainable Businesses. Retrieved fro

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