ISU MODULE TEMPLATE

Subject: FM BACC 3 – Good Governance & Social Responsibility

1. Title of the Module

Chapter 4: Corporate Structure

2. Introduction
This chapter elaborates the things in the corporate world which is not commonly
known by ordinary people. It explains various titles or positions such as Chief Executive
Officer (CEO), Chairman of the Board (COB), etc. with their respective functions. This
chapter also explains confusing situations. For instance, the COB is also the CEO.

3. Learning Outcome
At the end of the chapter, the students should be able to:

 Discuss the function of the Board of Directors

 Differentiate an Inside from an Outside director
 Discuss the function of the Chairman of the Board
 Explain the functions of CEO, COO, and CFO and differentiate them from each other as
well as from BOD and COB

4. Learning Content

The Basics of Corporate Structure

CEOs, CFOs, presidents and vice presidents – what’s the difference? With the changing
corporate horizon, it has become increasingly difficult to keep track of what people do and where
they stand on the corporate ladder.

Corporate Governance is one of the main reasons that these terms exist. The evolution of
public ownership has created a separation between ownership and management. Before the 20 th
century, many companies were small, family-owned and family-run. Today, many are large
international companies that trade publicly on one or many global exchanges.

To create a corporation in which stockholders’ interests are looked after, many firms have
implemented a two-tier corporate hierarchy. On the first tier is the board of governors or directors:
these individuals are elected by the shareholders of the corporation. On the second tier is the
upper management: these individuals are hired by the board of directors.

The Board of Directors

They are elected by the shareholders and they are made up of two types of
representatives. The first type involves inside directors chosen from within the company. This can
be CEO, CFO, manager or any other person who works for the company daily. The other type of
representative encompasses outside directors, which are chosen externally and are independent
of the company. The role of the board is to monitor a corporation’s management team, acting as
an advocate for stockholders. Board members can be divided into three categories: the chairman,
inside directors and outside directors.

Understanding a Board of Directors

In general, the board makes decisions as a fiduciary on behalf of shareholders. Issues that
fall under a board's purview include the hiring and firing of senior executives, dividend policies,
options policies, and executive compensation. In addition to those duties, a board of directors is
responsible for helping a corporation set broad goals, supporting executive duties, and ensuring
the company has adequate, well-managed resources at its disposal.

The structure and powers of a board are determined by an organization’s bylaws. Bylaws

can set the number of board members, the way the board is elected (e.g., by a shareholder vote
at an annual meeting), and how often the board meets. While there is no set number of removal
for a board, most range from 3 to 31 members. Some analysts believe the ideal size is seven.

Board structure can differ slightly in international settings. In some countries in Europe and
Asia, corporate governance is split into two tiers: an executive board and a supervisory board.
The executive board is composed of insiders elected by employees and shareholders and is
headed by the CEO or managing officer. The executive board oversees daily business
operations. The supervisory board is chaired by someone other than the presiding executive
officer and addresses similar concerns as a board of directors in the United States.

Removal of Board Members

A board member is likely to be removed if they break foundational rules; for example,
engaging in a transaction that is a conflict of interest, or striking a deal with a third party to
influence a board vote.

Breaking foundational rules can lead to the expulsion of a director. These infractions include
but are not limited to the following:

 Using directorial powers for something other than the financial benefit of the corporation.
 Using proprietary information for personal profit,
 Making deals with third parties to sway a vote at a board meeting.
 Engaging in transactions with the corporation that result in a conflict of interest.
 In addition, some corporate boards have fitness-to-serve protocols.

Corporate Governance and the Board of Directors

The board of directors is the primary direct stakeholder influencing corporate governance.
Directors are elected by shareholders or appointed by other board members, and they represent
shareholders of the company. The board is tasked with making important decisions, such as
corporate officer appointments, executive compensation, and dividend policy. In some instances,
board obligations stretch beyond financial optimization, as when shareholder resolutions call for
certain social or environmental concerns to be prioritized.

Inside Directors

These directors are responsible for approving high level budgets prepared by upper
management, implementing and monitoring business strategy, and approving core corporate
initiatives and projects. Inside directors are either shareholders or high-level managers from within
the company. More specifically, they typically include a company's top executives, such as the
chief executive officer (CEO), the chief financial officer (CFO), and the chief operating officer
(COO), and representatives of major shareholders and lenders, such as institutional investors with
sizable investments in the company. Inside directors helps provide internal perspectives for the
other board members. These individuals are also referred to as executive directors if they are part
of the company’s management team.

Independent Outside Director

An independent outside director is a member of a company's board of directors that the

company brought in from outside (as opposed to an inside director chosen from within the
organization).

Because independent outside directors haven't worked with the company for a period
(typically for at least the previous year), they aren't existing managers and do not have ties to the
company's current way of doing business. Independent outside directors can bring new insights
and balance to a team; however, some downsides also exist.

Understanding Independent Outside Directors

The consensus among stockholders is that independent directors improve the performance

of a company through their objective view of the company's health and operations. At times
independent outside directors can also bring specific expertise from their sector and/or personal
experience. For example, a company specializing in health technologies might bring in an outside
director with a prestigious medical background and degree to provide additional insight into the
science behind their products.

An additional advantage of an independent outside director is that they do not have to worry
about retaining their job within the company and can make their voices heard in a more objective
manner (according to some). Stockholders and politicians pushed for more independent outside
directors for large corporations.

Chairman of the Board

A chairman is an executive elected by a company's board of directors who is responsible for

presiding overboard or committee meetings. A chairman often sets the agenda and has significant
sway as to how the board votes. The chairman ensures that meetings run smoothly and remain
orderly and works at achieving a consensus in board decisions.

Understanding Chair of the Board (COB)

The chair of the board is voted into his or her position by a majority vote within the  board of
directors. Because the position has substantial interaction and influence with both the board and
management, the chair is arguably the most powerful position in the company.

Frequently, but not always, the chair is the member of the board with the greatest stake in
the organization, holds a controlling interest in the organization, and holds the most voting power
of any individual. Long-term decisions, such as whether to pursue a merger or sale of the
organization, may be determined by the board under the chair's leadership.

The chair of the board is also known as the chairman, chairwoman or chairperson,
depending on the preference of the company and the individual.

How the Chair May Also Serve as Chief Executive

The chair may or may not be involved in the daily operation of the company, sometimes
serving in a more remote advisory role but providing ultimate oversight of the actions taken by the
executives. Whereas a president or chief executive officer (CEO) is directly involved in planning
and putting a company's strategies into action, the chair may set goals and objectives, with the
input of the rest of the board, that the executives are expected to achieve.

Such goals may include reaching profitability targets, expansion of market share, growth of
the client base, and presenting a favorable image for the company in the public eye.

It is not unheard of for the chair to simultaneously hold the CEO position within an
organization. This may occur if the board wishes to elevate the CEO to chair as a sign of
confidence in their leadership, granting them direct executive authority as well as serving as the
architect for the broader strategies the company will pursue.

CEOs who become chair may eventually seek to separate themselves from their executive
duties and maintain a leadership position strictly with the board. A chair might also step into the
CEO role if there is a sudden shakeup in leadership that removes the current chief executive . In
such instances, the chair might hold the CEO position on an interim basis until a permanent
replacement is hired. The dual position could be made permanent if no suitable executive can be
found.

Chairman Versus CEO

The chairman is a different position than that of the chief executive officer (CEO) and can
be either a non-executive or executive position. In some companies, the roles of CEO and
chairman are combined, which can reduce transparency and accountability due to fewer checks
and balances created by having two separate positions with separate job functions.

While the chairman of the board has several supervisory abilities, the CEO’s primary
responsibilities include all major corporate decisions, ranging from day-to-day operations to
managing company resources, serving as the main point of communication between the board of
directors and other executives. Also, a CEO often has a position on the board.

The CEO's role depends on the size, culture, and industry of the company. For example, in
small companies, the CEO will often take on a more hands-on role, making a range of lower-level
choices, such as interviewing and hiring of staff.

In larger companies, the CEO typically deals with macro-level strategy and direction of
growth. Other tasks are delegated to division executives. CEOs set the tone and the vision for their
organization and are responsible for executing the strategy to achieve that vision. Typically, CEOs
of major corporations are well known to investors, shareholders, and analysts, while chairmen or
chairpersons usually remain out of the spotlight.

Although the CEO runs the company, the chairman is considered a peer with the other
board members, and it's possible to overrule a CEO's decisions if the board votes together.

In some cases, the CEO and the chairman of the board can be the same person, but many
companies split these roles between two people.
 
The chairman can have significant power and clout when it comes to influencing decisions
made by the board including choosing the CEO.

Chief Executive Officer (CEO)

A chief executive officer (CEO) is the highest-ranking executive in a company, whose

primary responsibilities include making major corporate decisions, managing the overall operations
and resources of a company, acting as the main point of communication between the board of
directors (the board) and corporate operations and being the public face of the company. A CEO is
elected by the board and its shareholders.

Understanding Chief Executive Officers

A CEO's role varies from one company to another depending on the company's size,
culture, and corporate structure. In large corporations, CEOs typically deal only with very high-level
strategic decisions and those that direct the company's overall growth. In smaller companies,
CEOs often are more hands-on and involved with day-to-day functions. CEOs can set the tone,
vision, and sometimes the culture of their organizations.

Because of their frequent dealings with the public, sometimes the chief executive officers of
large corporations become famous. Mark Zuckerberg, the CEO of Facebook, for example, is a
household name today. Similarly, Steve Jobs, founder and CEO of Apple, became such a global
icon that following his death in 2011, an explosion of documentary films about him emerged.

Related Chief Positions

Corporate America houses numerous titles of senior executives that begin with the letter C,
for "chief." This group of top senior staffers has come to be called C-suite, or C-level, in the
vernacular.

C-Level Confusion

When it comes to executive-level positions within an organization, assigned titles and the
functions associated with each can become muddled quickly. For small organizations or those that
are still in the startup or growth phases, for example, the CEO may also be serving as the CFO
and the chief operating officer (COO), and so on. This can lead to a lack of clarity, not to mention
an overworked executive. Assigning multiple titles to a single executive-level individual can wreak
havoc on a business's continuity and ultimately may affect its long-term profitability negatively.

What Is a Chief Operating Officer?

The chief operating officer (COO) is a senior executive tasked with overseeing the day-to-
day administrative and operational functions of a business. The COO typically reports directly to
the chief executive officer (CEO) and is considered to be second in the chain of command. In
some corporations, the COO is known by other terms, such as "executive vice president of
operations," "chief operations officer," or "operations director."

Understanding the Chief Operating Officer (COO)

The COO mainly focuses on executing the company’s business plans, according to the

established business model, while the CEO is more concerned with member and the broader
company outlook. In other words, the CEO devises plans, while the COO implements them.

For instance, when a company experiences a drop-in market share, the CEO might call for
increased quality control, in order to fortify its reputation among customers. In this case, the COO
might carry out the CEO's mandate by instructing the human resources department to hire more
quality control personnel. The COO may also initiate the rollout of new product lines, and may
likewise be responsible for production, research and development, and marketing.

The Role of the COO

 Depending on the CEO's preference, the COO often handles a company's internal affairs,
while the CEO functions as the public face of the company, and thereby handles all outward-facing
communication.

In many cases, a COO is specifically chosen to complement the skill sets of the sitting CEO.
In an entrepreneurial situation, the COO often has more practical experience than the founding
CEO, who may have come up with an excellent concept, but lacks the start-up know-how to launch
a company and manage its early stages of development. Consequently, COOs often architect
operations strategies, communicate policies to employees, and help human resources build-out
core teams.

There are generally seven types of COOs:

 The executor, who oversees the implementation of company strategies

 The change agent, who spearheads new initiatives
 The mentor, who is hired to counsel younger or newer company team members
 An "MVP" COO, who is promoted internally to ensure that he doesn't defect to a rival
company
 The COO who is brought in to complement the CEO
 The partner COO, who is brought as the CEO's right-hand person
 The heir apparent who becomes the COO to learn from the CEO, in order to ultimately
assume the CEO position

Chief Financial Officer (CFO)

A chief financial officer (CFO) is the senior executive responsible for managing the financial
actions of a company. The CFO's duties include tracking cash flow and financial planning as well
as analyzing the company's financial strengths and weaknesses and proposing corrective actions.

The CFO is similar to a treasurer or controller because they are responsible for managing
the finance and accounting divisions and for ensuring that the company’s financial reports are
accurate and completed in a timely manner. Many have a CMA designation.

How Chief Financial Officers Work

The CFO reports to the chief executive officer (CEO) but has significant input in the
company's investments, capital structure and how the company manages its income and
expenses. The CFO works with other senior managers and plays a key role in a company's overall
success, especially in the long run.

For example, when the marketing department wants to launch a new campaign, the CFO
may help to ensure the campaign is feasible or give input on the funds available for the campaign.

The CFO may assist the CEO with forecasting, cost-benefit analysis and obtaining funding
for various initiatives. In the financial industry, a CFO is the highest-ranking position, and in other
industries, it is usually the third-highest position in a company. A CFO can become a CEO, chief
operating officer or president of a company.

The CFO must report accurate information because many decisions are based on the data
they provide. The CFO is responsible for managing the financial activities of a company and
adhering to generally accepted accounting principles (GAAP) established by the Securities and
Exchange Commission (SEC) and other regulatory entities.

5. Teaching and Learning Activities

  Discussion using video presentation and soft copy module (Distributed ONLINE via E-mail
or Messenger) and/or using hard copy module (Distributed OFFLINE via drop-off areas)
 Individual Activity. Distributed ONLINE via E-mail or Messenger and/or OFFLINE via
drop-off areas
 Film Viewing. Watch a Full Movie/Movie Clip/a Full Episode of a TV Series/Episode Clips
which is related to Corporate Structure. Watch Online (via YouTube or other online
streaming apps or sites) / Offline via downloaded or copied movies / TV series.

6. Recommended learning materials and resources for supplementary reading.

https://corporatefinanceinstitute.com/resources/knowledge/finance/corporate-structure/
#:~:text=Corporate%20structure%20refers%20to%20the,can%20differ%20significantly
%20between%20companies.
https://www.investopedia.com/articles/basics/03/022803.asp

7. Flexible Teaching Learning Modality (FTLM) adopted

Remote (asynchronous)
//module, exercises, video presentation

8. Assessment Task

Activity
1. Explain the corporate structure of Mark Zuckerberg’s Facebook.

Film Viewing
1. Make a reaction paper based from the Full Movie/Movie Clip/a Full Episode of a TV
Series/Episode Clips that you watched

9. References (at least 3 references preferably copyrighted within the last 5 years,
alphabetically arranged)
C., Ferrell, O. (January 2016). Business ethics: ethical decision making and cases,
(Eleventh ed.). Boston, MA.
Kiyoteru Tsutsui, Alwyn Lim, Corporate Social Responsibility in a Globalizing World,
2015
Richard Rose; Caryn Peiffer., Bad Governance and Corruption, July 5, 2018
Skripak Stephen J., Fundamentals of Business: Ethics and Social Responsibility,
Pamplin College of Business and Virginia Tech Libraries July 2016
https://corporatefinanceinstitute.com/resources/knowledge/finance/corporate-structure/
#:~:text=Corporate%20structure%20refers%20to%20the,can%20differ%20significantly
%20between%20companies.
https://www.investopedia.com/articles/basics/03/022803.asp