WHAT IS CORPORATION?

CREDITORS

“ A Corporation is an artificial being created by operation of This refers to the party who lend to corporation
law, having the right of succession and the power, attributes goods,services or money.
and properties expressly authorized by law or incident to its
SHAREHOLDERS
existence.”( The Corporation Code of the Philippines,SEC. 2)
This refers to the people who invest their capital in the
ARTIFICIAL BEING:
corporation.
Which means that, by fiction of law a corporation is a juridical
EMPLOYEES
person whose personality is separate and distinct from its
owners. This refers to people who contribute their skills,abilities and
ingenuity to the corporation.
CREATED BY OPERATION OF LAW :
GOVERNMENT
Which means it will come into existence through a character
or a grant from state. The government has several interest in private corporations
the most apparent of which are the taxes that the
RIGHT OF SUCCESSION:
corporation are paying.
A corporation can continue to exist even in death, incapacity
PUBLIC
or insolvency of any stockholder or members.
The public has as stake in corporations considering that the
POWERS, ATTRIBUTES, AND PROPERTIES:
latter provides the citizens with essentials such as goods,
Which mean it is authorized to do activities within the service, employment, and tax money for public programs.
purpose of the creation, it has its own traits, and it operates
PURPOSE OF A CORPORATION
based on what has been express provided ine the charter
includeig those that are considered incident to its existence  Early Stage Survival
as corporation.
 To Increase Profit
STAKEHOLDERS OF A CORPORATION
 To Offer Vital Servces to the General Public
 Management
 To Offer Goods and Services to the Mass Market
 Creditors
 Shareholders, Bondholders and Directors
 Shareholders
SHAREHOLDERS
 Employees
Shareholders or stockholders are artificial or natural
 Clients persons that are legally regarded as owners of the
corporation.
 Government
BONDHOLDERS
 Public
A bondholder is generally defined as a person or entity
MANAGEMENT
that is the holder of a currently outstanding bond.
-This refers to the party given the authority to
Board of Directors
implement the policies as determined by the Board
in directing the course/business of the corporation .
 BOD refers to the collegial body that exercises the
corporate powers of all corporations formed under the
Corporation Code. It conducts all business and controls
or holds all the assets of such corporations.
DUTIES OF THE BOARDS OF DIRECTORS
 Governing the organization by establishing broad
policies and objectives.
 Selecting, appointing, supporting and reviewing the
performance of the chief executive
 Ensuring the availability of adequate financial
resources.
 Approaving annual budgets.
 Accounting to the stakeholders the organization’s
performance.
MULTINATIONAL AND TRANSNATIONAL
CORPORATIONS
International corporations have several categories
depending on the business structure, investment and
product/service offerings. Multinational companies
(MNC) and transnationallcorporations (TNS) are two of
these categories. Both MNC and TNC are enterprises the
manage production or delivers services in more than one
country.
Multinational companies operate in more than one
country and have a centralized management system.
Transnational companies have many companies around
the world but do not have a centralized management
system
Company Overview: Walt Disney Company
• Media Network
• Parks and Resorts
• The Walt Disney Studios
• Disney Consumer Product
Definition
-Corporate governance is the process and structure used to
direct and manage the business and affairs of the company
towards enhancing business prosperity and corporate
accountability with the ultimate objective of realizing long-
term shareholder value, whilst taking account the interest of
other stakeholders.
-According to Sir Adrian Cadbury, corporate governance is
concerned with holding the balance between economic and
social goals an between individual and community goal.
-Defined as the structures and process by which companies
are directed and controlled.
FUNDAMENTAL OBJECTIVESOF CORPORATE GOVERNANCE
 Improvement of Shareholder Value
 Conscious Consideration of the Interests of Other
Stakeholders
WHAT GOOD GOVERNANCE PROMOTES?
Transparency – is vital with respect to corporate governance
due to critical nature of reporting financial and non-financial
information.
Accountability- is the recognition and assumption of
responsibility for the decisions, actions, policies,
administration, governance and implementation of programs
and plans of the corporation and people involved, including
the oblgation to report.
Prudence- is defines within the Code of Governance as
“care,caution and good judgement as well as wisdom in
looking ahead.”.
BENEFITS OF GOOD GOVERNANCE
It well-establish reality that investors would have differently
in settings in which good governance both in political and
corporate settings is not seriously stability.
 Reduce Vulnerability
This leads to greater accountability, protection of corporate
resources and eventually better profit margins.
 Marketability
This leads to easy access to cqpital in financial
markets which helps the company survive in an
even more competitive environment.
 Credibility
These are good number of benefits when an
entity embraces good corporate governance.
Valuation
It was found out that more than 84% of the glibal investors
are willing to pay a higher price or a premium for the shares
of a well-governed company over one considered poorly
governed given all financial figures comparably equal.
AGENCY PROBLEM IN CORPORATION

 Agency relationships and cost- the connection
between owners and managers is called an principal
agent problem and the conflict is called and agency
relationship.
 Goals of Financial Management
1. To survive.
2. To avoid financial distress and bankcruptcy.
3. To beat competition.
4. To maximize costs.
5. To maximize profits.
6. To maintain a steady earning growth
Do managers act in the stockholders interest?
Managers, shareholders and lenders may all have different
information about the value of real or financial asset and it
may be many years before all the information is revealed.
 Mangerial Compensation
First managerial compensation , particularly at the
tops, is usually tied to financial performance in general
and oftentimes tp share value in particular.
Second,incentive managers have relates to job prospect.
 Control of the firm
They elect the board of directors who in turn hire and
fire management.
 Stakeholders
Management and stockholders are not only parties with
an interest in the firm’s decision. Employes, customers,
suppliers, and even the government all have af financial
interest in the firm.
Agency Theory in Governance
Agency theory suggest that the firm van be
viewed as a loosely defined contract between
resources providesrs and the resource
controller.
Effects of Agency Governance
 Conflict of Interest Managerial Opportunism
 Inccurence of Agency Cost Shareholders
Activism
 Managerial Defensiveness
CONCEPT OF GOAL CONGRUENCE
Goal congruence is the harmony and alignment of goals of
both the principal and the agent which is consistent with the
overall objectives of the organization.
PERFORMACE INCENTIVES AND DISINCENTIVES
 Pay Dependent on Profit Level
 Share Incentives
 Shareholders Intervention
 Threat of Being Fired
 Takeover Threat
ROLES OF THE NON-EXECUTIVE DIRECTOR
A non-executive director is a member of the board directors
of a company who does not take part in the executive
function of the manangement team. This director is not an
employee of the company or connected with it in any other
way.
Strategy
As an outsider, the non-executive director may have an
Impartial, clearer, and wider view of external factors affecting
the company and it's business environment than the
executive directors..
Establing network
One of the important functions of the non-executive director
is to represent the company in some external corporate
undertaking. It is the job of the non-executive director (NxD)
to connect the company to the outside world.
Monitoring of Performance
Non-executive directors should take responsibility for
monitoring the performance of executive manager.
Audit
It is the duty of the whole board to ensure that the company
report properly to it's shareholders, this can be done by
presenting a true, fair and real reflection on how the
company was administered at any given time.
ROLES OF THE CHIEF FINANCIAL OFFICER (CFO)
The chief financial officer (CFO) is a corporate officer
principally accountable for managing the financial risks of the
corporation. This officer is also responsible for financial
planning and record-keeping, as well as financial reporting to
higher management.
Implements Internal Control
 A CFO will be the one responsible forconveying the
important financial control to a company. Supervises Major
Impact Projects
Outside of implenting and monitoring company controls
relating finance, an effective CFO also handles and supervises
those projects that require significant quantitative and
qualitative interpretations and analysis in order to reach an
understanding of the options that are available. Drives Major
Strategic Issues
A good CFO can also be expected to take part in important
role of getting involved on some major strategic issues that
will have an impact on the company's long-term future.
Risk Manager
The CFO is in the best position to foresee risks considering
that they have this rare perspective on how the company
operates. CFOs are close to the internal control system and
financial reports which pass through many operational areas.
Relationship Role
More often, the CFO is the nucleus in an organization with
many connections.
Objective Referee
CFO needs to demonstrate impartiality such as when
advising the CEO or the board of directors on accounting
matters.
Roles of Audit Committee
The Audit Committee is an essential component in the overall
corporate governance system.
Understanding the Audit Committee’s Responsibilities
Audit Committee should be engage mainly in an oversight
function and unltimately for the company’s financial
reporting processes and the quality of its financial reporting.
Examples of the Issues that the audit committees should
consider:
• Risk identification and Response
• Pressure to manage earnings
• Internal controls and company growth
Risk identification and Response
• External Risk (Independent)
• Rapid Technolgical changes
• Downturns in the Industry
• Unrealistic earnings expectationsby analysts
• Operating / Internal risk
• Information and Control Risk
Who is responsible for Financial Reporting?
The responsibility for financial Reporting is vested in 3
groups:
• The BOD- the company’s Board of Directors
including the audit committee
• Finance and Accounting- Financial management
including the internal auditors
• Auditor- the independent auditors
ROLES OF THE EXTERNAL AUDITOR
Auditing – is a systematic process bywhich a competent,
independent person objectively obtains and evaluates
evidence regarding assertions about economic actions and
events to ascertain the degree of correspondence between
those assertions and established criteria and communication
the results to interested users.(American Accounting
Association.)
 Need for the External Auditor
There is a need for independent auditor because
of the apparent separation of ownership and
management.
 Factors that Contribute to Information Risk
 Remoteness of information Providers to the
information users
 Bias of information Providers
 The volume of Data
 Complexities in Transactions
 AUDITORS DUTIES
In most countries, the Auditor has a legal duty
to make a report to the enterprise on the fact
and fairness of the entity’s annual account.
SUPPLEMENTAL READINGS
Corporte Governance Awards
Received by Premier Philippine Corporation
 Corporate Governance Asia Annual Recognition
Awards 2009
 Gold Award for ICD’s CorpGov Scorecard Project
 The Asset Magazine’s Annual Corporate Governance
Index 2008
  Corporate Governance Asia Annual Recognition
Awards 2008
 2007 Corporate Governance Scorecard Project
 Corporate Governance Asia Annual Recognition
Awards 2007
 2007 Asiamoney Award
 2006 Corporate Governance Scorecard Project
SM INVESTMENT
 Corporate Governance Asia Annual Recognition
In recognition of its continuing commitment to the
development of corporate governance in the region.
CHAPTER 2
UNDERSTANDING THE ORGANIZATIONAL ENVIRONMENT
Organizational structure, is the pattern of relationships
Organizations, are complex adaptive systems that use
among positions in the organizations and among members of
people, tasks and technologies to achieve specified goals and
the organizations.
objective.
• Structuring the organization represents the division
and distribution of work among members of the
organization.
Management, is about how the organizations manages the
structure, the resources and the activities within the
OBJECTIVE OF AN ORGANIZATIONAL STRUCTURE
organization.
Organizational theory, attempts to explain how organization
work by defining the common features the organizations
share, by collecting data and by analyzing them, assessing
“what works where- and why!”.
• Therefore, no one recipe that will work across all
organizations, the structure will reflect the DNA of
organizations whih translates to “the way we do
things around here” and other factors particular to
any one organization.
• Organizational theory Is especially useful for people
who manage organizations, or who aspire to do so in
6 DIMENSIONS OF ORGANIZATIONAL STRUCTURE (CHILD
the future.
1988)
Organizations, especially large organizations ‘complex’,
having many inter-related facets and areas that need to
coordinated, managed together to achieve efficiencies and
effectiveness in achieving stated goals and objectives.
• Also need to be ‘adaptive’.
THREE CRITERIA FRO EFFECTIVE ORGANIZATIONS
a. They must be organized for business performance.
b. Their structure should contain the least number of
management levels.
SMIC has been chosen as one of the reciepient of
the Vorporate Governance Asia Annual Recognition
Awards for two successive years,2007 and 2008.
 The Asset
SMIC has been cited as 2ND Best in Corporate
Governance in the Philippines in 2008 and 3rd Best in
2007 by The Asset.
 Finance Asia
SMIC was awarded 4th Most Committed to
Corporate Governance in the Philippines in 2007 and
8th in 2008.
c. Organizational structure should facilitate training
and testing of future organization leaders.
• Purpose the division of work among members so
that they can achieve the goals and objective.
• Structure defines tasks and responsibilities, work
roles and relationships and channels of
communication.
• Accountability for areas of work undertaken by
group and individual members of the organization.
• Coordination of different parts of the organization
and different areas of work.
• Effective and efficient organizational performance
including resource utilization.
• Monitoring the activities of the organization.
• Flexibility in order to respond to changing
environmental factors.
• The social satisfaction of members of the
organization.
• Allocation of individual tasks and responsibilities, job
specialization and definition.
• Formal reporting relationships, levels of authority
and spans of control.
• Grouping together of sections, department, divisions
and larger units.
• Systems for communication of information,
integration of effort and participation.
• Delegation of authority and procedures for
monitoring and evaluating the action.
• Motivation of employees through systems for
performance appraisal.
CONSEQUENCES OF STRUCTURAL DEFICIENCIES
• Low motivation and morale
• Late and inappropriate decisions
• Conflict and lack of coordination
• Poor response to new opportunities and external
change
• Rising costs- e.g. diseconomies of scale
PRINCIPLES OF ORGANIZATIONAL DESIGN AND DIAGNOSIS
Mintzberg 5 basics categories
• simple structure: little hierarchy or control exercised
by the chief executive.
• Machine bureaucracy: characterized by many layers
of management and formal procedures
• Professional bureaucracy: set by professional bodies;
more democratic and more highly motivated, with
its lines of authority less clearly set.
• Divisionalized from of bureaucracy: multinational or
industrial corporations where small central controls
key guidelines for a number of otherwise
autonomous units.
• Adhocracy: often found in new technology
industries, which need constantly to innovate and
respond to quickly changing markets.
TYPES OF ORGANIZATIONAL STRUCTURE
This is essentially the process by which the organizations
mission is divided into discrete roles and tasks of individual
within the organization.
Functional- groupings of major functions (contracting,
information, finance, personnel and public health
authorities.)
Advantage increase development and career opportunities
for people in departments.
Disadvantage encourage sectional interest and conflicts
Product/service- grouping by product/services. (in hospital;
orthopedic, surgical, psychiatric)
Advantage increase diversification
Disadvantage encourage service conflicts
Geographical- a nationalized service/ 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
Divisional- grouping of service and or geography and
functionality (with functions; finance, personnel, planning
retained at headquarters.)
Advantage corporate strategic control with products and
marketing independence at divisions.
Matrix- grouping of projects and functions
Advantage emphasizes that projects aims are all important
Disadvantage does not tolerate diversification well
CENTRALIZATION AND DECENTRALIZATION
- Should not be treated as absolutes, but rather a two
ends of a continuum.
Centralization, when all the power fro decision making rests
a single point in organization ultimately in the hands of one
person or group, the structure is centralized.
Decentralized or distributed, if the power is dispersed among
many people/groups
NOTE THAT SOME FUNCTIONS (RESEARCH, PLANNING,
FINANCE PERSONNEL) ARE LESS AMENABLE TO
DECENTRALIZATION THAN OTHERS LIKE (CONTRACTING,
CLIENT SERVICES).
LEVELS OF ORGANIZATION
Drucker, organizations in 3 main levels.
Technical level, specific operations and defined tasks, with
actual jobs to be done, and with performance of the technical
function.
Managerial level, coordination and integration of work, at
the technical level, sources allocation, administration and
control of the operations of the technical function.
Community level, broad objectives and the work of the
organization as a whole.
MINTZBERG NINE DESIGN PARAMETERS
- Assumes discretion, an ability to alter the system.
Design means “turning those knobs” that influence
the division of labor and he coordinating
mechanisms thereby affecting how the organization
functions.
ORGANIZATIONAL RELATIONSHIP
Work design, work can be combined in various forms.
• Decisions on the method of groupings will consider;
• The need fro coordination
 • The identification of clearly defined divisions of work
• Economy
• The process of managing activities
• Avoiding conflict and
• The design of work organization which takes account
of the nature of staff employed, their interests and
job satisfaction
Formal
• Line- vertical flow of authority
• Functional- between specialist in advisory positions
and line management teams
• Staff- personal assistants to senior members
Span of control- number of direct reports. Influencing
factors.
• Nature of organizations, complexity of wok, range of
responsibilities
• Ability and personal qualities capacity of managers
• Time available to spend with subordinates
• Ability and training of subordinates
• Effectiveness of coordination, communication,
control systems
• Physical location of subordinates
FACTORS AFFCETING ORGANIZATIONAL STUCTURE
SELECTION IN MULTINATIONAL CORPORATIONS
The structure in a multinational company defines the
architecture of the business competence, functional
relationship and management function.
Organizational environment, consist of all factors that
influences the organizational working thus can also influence
the organizational structure since in each country and
geographical areas the organizational environment would
change.
The external organizational environment that would
influence the organizational structure is the economic,
political and legal, socio-economic, technological and natural
factors.
The company should keep into consideration into culture,
values and beliefs of the society and accordingly plan for the
structure in order to meet out the objectives.
Regulation, is the administrative process of writing and
passing laws that, to a certain extent, restrain some
fundamental rights of business. It can be distinguished from
principal legislation by elected legislative body.
AREAS OF GOVERNMENT REGULATION OF BUSINESS
Planned economy, one where all major economic decisions
are under the control of the government.; typically associated
with socialist and communist ideals, and was first attempted
in the Soviet Union in the early 20th century.
The theory behind a centrally planned economy begins with
all idea that the market is not measure of what is best for the
country.
Advantage of planned economy
a. Driven for collective benefits.
b. Economies of scale
c. Inherently protected
d. Stability
Disadvantage of planned economy
a. Inefficient use of resources
b. Restraint of democracy in trade
Imposition of legal and administrative barriers
a. Disproportionate licensing and regulatory
requirements
b. Excessive, complex, and arbitrary taxation
c. Inadequate banking system and poor banking
practices
d. Lack of government’s commitment to reduce
administrative barriers
REGULATIONS RELEVANT TO THE CONDUCT OF BUSINESS
Some of these regulations stand out more significantly than
the others because f their relevance to every employee,
consumer and society in general.
Advertising, every business Is required to comply with the
advertising laws and could face lawsuits for violation,
advertising laws are made up of dozens of tidbits under three
main requirements: advertising must be truthful and non-
misleading; businesses need to be able to back up claims
made in advertisements at any time; and advertisements
must be fair to competitors and consumers.
Employment and labor, several employment regulations
stand out as the heavy hitters among the others. the
department of labor and employment (DOLE) through the
regional tripartite wages and productivity board (RTWPB) set
the minimum wage for workers.
Environmental, the carbon footprint f business on the
environment is regulated by the department of environment
and natural resources (DENR) enforces the laws passed by the
government done through frequent inspections and
environmental audit.
Privacy, sensitive information is usually collected from
employees and customers during hiring and business
transactions, and privacy laws prevent businesses from
disclosing this information freely.
Safety and health, laws ensure that employees provide safe
and sanitary work environment through frequent inspections
and a grading scale.
POLITICAL ENVIRONMENT OF BUSINESS
Political environment, in which the firm operates will have a
significant impact on a company’s international operating
activities.
CORPORATE SOCIAL REPONSIBLITY AND ORGANIZATIONS
CSR, can be defined as the “economic, legal, ethical, and
discretionary expectations that society has of organizations at
a given point in time”. Concept of CSR that organizations have
moral, ethical, and philanthropic responsibilities in addition
to their responsibilities to earn a fair return for investors.
CSR, is related to but not identical with business ethics.
CONTEMPORARY SOCIAL ISSUES
corporations deal with social issues and problems, both
directly related to their operation or not.
Environmental issues, corporations have been criticized and
even lambasted by some pressure groups for their negative
effect on the natural environment in terms of wasting natural
resources.
Global issues, the globalization of business appears to be an
irreversible trend, but there are many opponents to it.
Technological issues, another contemporary social issues
relates to technology and its effect on society.
ETHICAL BEHAVIOR IN THE ENTERPRISE
These are the six foundation of trust upon which ethical
business practice is built.
Character, drives what we do when no one is looking.
Ethics, refers to a set of rules that describes what is
acceptable conduct in society.
Integrity, is to be honest and sincere; adhering to a moral
code in daily decision making.
Laws, is a series of rules and regulations designed to express
the needs of the people.
Morals, set of rules r mode of conduct on which society is
based.
Values, are defined as the acts, customs and institutions that
a group of people regard in a favorable way.
In general, the proper role of corporate management in
promoting business ethics involves clarifying and enforcing
expectations, listening to and respecting diverse views on
various issues, acting consistently over time, and creating an
atmosphere free from harassment and inequality.
ROLES OF THE STATE AND ITS IMPACT ON BUSINESS
ORGANIZATIONS
The importance of private ownership is perfectly with what
people believed about personal freedom. People and the
business sector believed in limiting the government’s
authority over the economic pursuits of individuals including
its role in the overall kingdom of economics.
ROLE OF GOVERNMENT IN BUSINESS
The private sector is the chief economic force of every
country, but in needs government regulation.
Consumer protection, the government’s role in business
includes protecting the consumer or customer. When a
vendor fails to honor the guarantee, the purchaser has
recourse in the law.
Contract enforcement, business deal with other businesses.
These contracts may be complex, such as mergers, or they
may be as simple as a warranty on supplies purchased.
Employee protection, rights cover the regular employment,
probationary employment, minimum employable age,
prohibition against stipulation of marriage, anti-sexual
harassment law.
Environmental protection, when marketing transaction
impacts a third party besides the marketer and purchaser the
effect is called an “externally”.
Investors protection, government mandates that companies
make financial information public, thereby protecting the
rights of investors and facilitating further investment.
Following issues are the specifics a government needs to
address will if its country wants to be considered business as
well as investors friendly.
• Starting a business
• Licenses
• Employing workers
• Getting credit
• Protecting investors
• Paying taxes
• Export policy
Permission, most businesses need to register with a
government to operate.
Taxation, government at all levels tax businesses, and the
resulting revenue collected is an important part of
government budgets.
ROLE OF GOVERNMENT POLICY
Government provide certain service such as national defense,
administration of justice, education, environmental
protection, public works and highways.
PRESSURE GROUPS
Is an organized that seeks to influence not only government
policy but also private enterprises operating policy. Also
concerned in the protection and advancement a particular
cause of interest.
TYPES OF PRESSURE GROUPS
Economic pressure groups
• Giant private corporations (the giant connection)
these corporations need to ensure that their interest
are protected since large government contract are
often at stake.
Bring massive influence on the political and
economic decisions.
• Professional organization a powerful group bound
by the common interests of its members.
• Trade associations association of businesses with
common interest to protect to is the simplest
description of a trade association.
• Trade unions one of things that greatly influence the
corporate governance principles and government
policies in the Philippine setting is in the area of
labor and management.
Public pressure groups these are groups that represent a
cluster of the public on certain issues. Development in public
pressure groups can be partially explained by a change in
attitudes towards some of the government policies.
Sectoral pressure groups refer to groups which work to
protect and advance the interest of specific social groups in a
certain society.
Religious/attitude pressure groups considered as one of the
most powerful groups. They share universal beliefs and
objectives on one issues and they believe that their major
role.
Governmental units pressure groups the level of maturity of
the system of administration and the development
government agenda in the last two decades, and the
enormity of the sums of money involved.
INCOME AND WEALTH DISTRIBUTION
Income distribution, id defined in economics descriptively as
how a nation total economy is dispersed amongst its
population; has always been an essential concern of
economic theory and economic policy.
Distribution of wealth is a comparison of the various
members or groups in a society.
MAJOR CAUSES OF ECONOMIC INEQAULITY
From the basic to global perspective and from the micro and
macro standpoint.
Culture and religion, also catches some notion that this two
play a role in creating inequality by either or discouraging
wealth-acquiring behavior.
Development, according to simon Kuznets levels of
economic inequality are in large part the result of stages of
development.
Diversity of choices, within a society often contributes to
economic inequality.
Education, one of the most important factor contributing to
inequality is variation in individuals’ access to education.
Globalization, is a progression by which the words are unified
into a single society and function. It has been asserted that
globalization supports productivity, cultural mix and cash flow
into the developing countries.
Inflation, some economists have theorized that high inflation,
caused by a country’s monetary policy, can contribute to
economic inequality.
Labor market, one of the major causes of economic
inequality in modern market economies is determination of
wages by the market.
Wealth condensation, is a theoretical process by which,
under certain conditions, newly-created wealth concentrates
in the possession of already-wealthy individuals or entitles.