CHAPTER 1.

judgment as well as wisdom in looking

ahead." it is the management committee
CORPORATE GOVERNANCE - "Corporate which is in corporate setting, the board
governance is the process and structure used to of director, who will be the body
direct and manage the business and affairs of the responsible in safeguarding the interests
company towards enhancing business prosperity of the organization through good
and corporate accountability with the ultimate planning and management of finances
objective of realizing long-term shareholder and other resources of the organization.
value, whilst taking into account the interests of
other stakeholders."
FUNDAMENTAL OBJECTIVES OF BENEFITS OF GOOD GOVERNANCE
CORPORATE GOVERNANCE
 Reduced Vulnerability - Adopting
 Improvement of Shareholder Value - good corporate governance practices
Shareholders' value can be improved by leads to an improved system of internal
making a pre-commitment to build control. This leads to greater
better relations with primary accountability, protection of corporate
stakeholders like employees, customers, resources and eventually, better profit
suppliers and communities. margins
 Conscious Consideration of the  Marketability - Embracing principles
Interests of Other Stakeholders - of good corporate governance can also
When a company meets the objective of play a role in enhancing the corporate
increasing the shareholder value, it will value of companies. This leads to easy
have greater internally generated access to capital in financial markets
resources in improving its commitment which helps the company survive in an
in meeting its environmental, even more competitive environment.
community and social obligations.  Credibility - There are a good number
of benefits when an entity embraces
WHAT GOOD GOVERNANCE
good corporate governance, one of
PROMOTES
which is the company need not spend
 Transparency is vital with respect to more resources in compliance with the
corporate governance due to the critical regulatory and other financial
nature of reporting financial and non- institutions' requirements necessary
financial information. The aim includes since all these things are already
maintaining investor, consumer and integrated in company's operating
other stakeholders' confidence. approach.
 Accountability is the recognition and  Valuation - Observed evidence and
assumption of responsibility for the studies conducted in recent years back
decisions, actions, policies, the idea that it pays to have good
administration, governance and corporate governance.
implementation of programs and plans
of the corporation and people involved,
including the obligation to report, AGENCY RELATIONSHIP COST - The
explain and be answerable for its connection between owners and managers is
resulting consequences. called a principal-agent problem and the
 Prudence is defined within the Code of conflict is called an agency relationship.
Governance as "care, caution and good Such a relationship exists whenever
 someone (the principal) hires another (the or creditor who potentially has a claim on the
agent) to represent his interests. cash flows of the firm.
Agency costs are incurred when (1) managers do
not attempt to maximize firm value and (2)
EFFECTS OF AGENCY GOVERNANCE
shareholders incur costs to monitor the managers
and influence their actions.  CONFLICT OF INTEREST -
Principal and agent have diverse
interests, and the separation of
GOALS OF FINANCIAL MANAGEMENT ownership and control provides
potential for different interests to
If we were to consider possible financial goals,
surface. Shareholders lack direct control
we might come up with some ideas like the
of corporations, especially those which
following:
are publicly-traded corporations. Board
1. To survive. of directors, on the other hand, has the
2. To avoid financial distress and direct control on the activities of these
bankruptcy. enterprises being the ones entrusted by
3. To beat the competition. the shareholders to decide on corporate
4. To maximize sales or market share, affairs.
5. To minimize costs.  MANAGERIAL OPPORTUNISM -
6. To maximize profits. refers to the act by the agent of taking
7. To maintain a steady earnings growth. advantage on things that are within his
control by virtue of the rights given to
him by the principal.
MANAGERIAL COMPENSATION -  INCURRENCE AND AGENCY
Management will frequently have a significant COST - agency presents conflicts of
economic incentive to increase share value for interest because agents might do things
two reasons. First, managerial compensation, which are detrimental to the
particularly at the top, is usually tied to financial maximization of shareholders' wealth.
performance in general and oftentimes to share  SHARE HOLDERS ACTIVISM -
value in particular. Shareholders can call together to discuss
the corporation's direction. They can
CONTROL OF THE FIRM - Control of the vote as a block to elect their candidates
firm ultimately rests with stockholders. They to the board.
elect the board of directors who in turn, hire and  MANAGERIAL DEFENSIVENESS -
fire management. An important mechanism by This is in relation to issues of takeovers
which unhappy stockholders an at someone else whereby management will employ some
management is called a proxy fight. tactics to discourage takeovers and
STAKEHOLDERS - Management and buyouts.
stockholders are not the only parties with an ROLES OF NON-EXECUTIVE
interest in the firm's decisions. Employees, DIRECTORS –
customers, suppliers and even the government
all have a financial interest in the firm. Taken  STRATEGY - the non-executive
together, these various groups are called director may have an impartial, clearer,
stakeholders in the firm. In general, a and wider view of external factors
stakeholder is someone other than a stockholder affecting the company and its business
 environment than the executive policies for customers and working with
directors. major vendors to attain more favorable
 ESTABLISHING NETWORK - One payment terms, and implementing
of the important functions of the non- measures for assessing and evaluating
executive director is to represent the optimal inventory levels.
company in some external corporate  Supervises Major Impact Projects -
undertakings. It is the job of the non- Outside of implementing and
executive director (ND) to connect the monitoring company controls relating
company to the outside world and in the finance, an effective CFO also handles
process, gain benefit from networks of and supervises those projects that
businesses. require significant quantitative and
 MONITORING OF qualitative interpretations and analysis
PERFORMANCE - Non-executive in order to reach an understanding of the
directors should take responsibility for options that are available.
monitoring the performance of  Develops Relations with Financing
executive management, more Sources - One of the most important
particularly on matters relating to the responsibilities of an effective CFO is to
progress made towards realizing the institute good working relationships
established company strategies. Non- with banks and other financial
executive directors should not be institutions that may impact on the
concern only on strategy alone. company's ability to finance its
 AUDIT - It is the duty of the whole operations.
board to ensure that the company report  Advisor to Management – An effective
properly to its shareholders, this can be CFO Is also an important member of the
done by presenting a true, fair and real management team o/ some emerging
reflection on how the company was companies, Because of his financial
administered at any given time. sharpness and general busines
knowledge, a good CFO can facilitate
and help the business owners,
ROLES OF THE CHIEF FINANCIAL executives and other top managers make
OFFICER (CFO) the substantial connection between a
company's operations and its financial
The chief financial officer (CFO) is a corporate performance that are reflected in the
officer principally accountable for managing the actual figures and also with that of
financial risks of the corporation. This officer is projections.
also responsible for financial planning and  Drives Major Strategic Issues - A
record-keeping, as well as financial reporting to good CFO can also be expected to take
higher management. He will be the one who will part in important role of getting
direct the corporation's finances. involved on some major strategic issues
 Implements Internal Controls - A that will have an impact on the
CFO will be the one responsible for company's long-term future. These
conveying the important financial Issues Include the hatching of the
controls to a company. These controls company acquisition strategy which in
features should include the effective the end would help fuel and boost the
administration of cash flow and company's additional growth.
overhead expenses, establishing credit  Risk Manager - The CFO Is in the best
position to foresee risks considering that
 they have this rare perspective on how Recurring organizational changes, turnover of
the company operates. CFOs are close to key personnel are some of the danger signs that
the internal control system and financial the audit committee cannot afford to neglect.
reports which pass through many Things like this hamper the operational
operational areas. CFOs are high momentum of the company rendering it slow in
ranking officers doing real and actual its progress in achieving its vision.
things in the infantry. Their views are
not just "tree top", their views are real  Information and Control Risk
and they are in proximity of hard figures The audit committee, in carrying out its
that could back their decision. responsibility has to address the following
 Relationship Role - The CFO will work concerns which are considered as perennial in
together with the CEO, the board of most organizations: unsuitable control
directors, the audit committee, the environment that are sometimes "toned at the
internal auditor and the external auditor. top." Another is the lack of sincere management
Strong verbal and written supervision and inappropriate management
communication skills are Indispensable override of existing controls which is by
if the nucleus is to support the information needs to be communicated early.
connections effectively.

RESPONSIBLE FOR FINANCIAL

RISK IDENTIFICATION AND RISK REPORTING
 External Risk (independent) 1. BOD – company’s board of directors
including the audit committee
Rapid technological changes
2. FINANCE AND ACCOUNTING –
Audit committee should always be on the financial management including the
lookout for the company not to be left behind internal auditors
due to advancement of technology. 3. AUDITORS – the independent auditor

Downturns in the industry

The product that the company is selling may CHAPTER 2.
have passed already its maturity stage and it is
already its way down. The audit committee ORGANIZATION – are complex adaptive
should have a clear picture of the "what if system that use people, tasks, and technologies
scenario" of the entity to achieve specified goals and objectives.

Unrealistic earnings expectations by analysis MANAGEMENT – is about how the

organization manages structure, the resources
An audit committee is expected to be not just and the activities within the organization.
composed and collected but also less aggressive
when it comes to expectations of business ORGANIZATIONAL THEORY - is
outcomes. Audit committees should be especially useful for people who manage
associated with conservative and realistic organizations, or who aspire to do so in the
information, and thus they should deal figures future. But whether or not you are a manager. It
from the realist point of view. enables the manager to see that his or her
organizations and its problem rarely wholly
 Operating/Internal Risk unique.
ORGANIZATIONAL STRUCTURE – the PRODUCT/SERVICE - grouping by
pattern of relationships among positions in the service/product. For example, in a hospital, into
organization and among member of the orthopedic, surgical, psychiatric rather than
organization. The purpose of structure is the medical, nursing, paramedic, hotel services
division of work among members of the (functional)
organization, and the coordination of their
ADVANTAGES:
activities so that they are directed towards
achieving the same goals and objectives of the  increase diversification
organization. Structure defines tasks and  adaptability increase if service/product
responsibilities, work roles and relationship and requires technical knowledge or large
channels of communication. equipment

OBJECTIVES OF ORGANIZATIONAL DISADVANTAGES:

STRUCTURE  encourages service conflict
 Accountability for areas of work undertaken GEOGRAPHICAL – a nationalized service
by groups and individual members of the
develops region, areas, or district authorities.
organization
 Coordination of diff parts of the org and ADVANTAGE:
different areas at work
 Effective and efficient organization  more responsive to local/regional issues
performance including resource utilization and different cultures, national/local laws.
 Monitoring activities of the org DISADVANTAGE:
 Flexibility in order to respond to
changing environmental factors  can lead to localities/region conflicting with
each other
 The social satisfaction of members of
the org DIVISIONAL – groups of services or/and
geographically and functionally (but with
functions such as finance, personnel, planning
TYPES OF ORGANIZATIONAL retained at headquarters)
STRUCTURE
ADVANTAGES:
FUNCTIONAL – grouping of major function
 suitable for international companies who
e.g. contracting, information, finance, personnel are highly diversified, working in more than
and public health in health authorities. one country
ADVANTAGES:  corporate strategic control with production
and marketing products developed by the
 increase utilization and coordination of parent company.
groups of people with technical/specialized
expertise MATRIX – grouping of projects and functions
 increases development and career ADVANTAGES:
opportunities for people in departments
 combines vertical and lateral lines of
DISADVANTAGES:
communication and authority
 encourages sectional interests and conflict  stability and efficiency (of mechanistic
 difficult for organization to adopt structure) with flexibility and informality (of
product/service diversification inorganic structure)
 emphasizes the project aims are all-
important
DISADVANTAGES: WORK DESIGN – work can be combined in
various form. Decision on the methods of
 potential conflict between your project
leader and functional leader regarding
groupings will consider:
resources  the needs for coordination
 projects may be jeopardized if project
 the identification of clearly defined
members as well as leaders enter the
conflict on opposite sides
divisions of work
 does not tolerate diversifications well  economy
 the process of managing activities
 avoiding contacts, and
CENTRALIZATION when all the power for  the design of work organization which
decision making rests at single point in the takes account of the nature of staff
organization ultimately in the hands of one employed, their interest and job
person or group, the structure is centralized. If satisfaction
the power is dispersed among many FORMAL
peoples/groups, it is known as
DECENTRALIZATION or distributed.  LINE- vertical flow of authority
 FUNCTIONAL- between specialists in
advisory position and line management
LEVELS OF THE ORGANIZATION teams
(ACCORDING TO DRUCKER,  STAFF- personal assistants to senior
ORGANIZATIONS ARE LAYERED INTO members
3 MAIN LEVELS)
SPAN OF CONTROL – number of direct
 TECHNICAL LEVEL – concerned reports, influencing factors:
with specific operations and defined
 Number of organization, complexity of
tasks, with actual job to be done and
work, range of responsibilities
with the performance of the technical
 Ability and personal qualities e.g.
function.
capacity of manager
 MANAGERIAL LEVEL – concerned
 Time available to spend with
with the coordination and integration of
work, at the technical level, e.g. subordinates
resource allocation, administration and  Ability and training of subordinates
control of the operations of the technical  Effectiveness of coordination,
functions communication, control systems
 COMMUNITY LEVEL – concerned  Physical locations of subordinates
with the broad objectives and the work
of the organization as a whole. Decision
made at this level will include the FACTORS AFFECTING
selection of operations, development of ORGANIZATIONAL STRUCTURE
organization to external agencies and the SELECTION IN MULTINATIONAL
wider social environment. CORPORATIONS
STRUCTURE IN MULTINATIONAL
COMPANY - defines the architecture of the
ORGANIZATIONAL business competence, functional relationship
RELATIONSHIPS and management function.
TECHNOLOGY - has quickened the  SAFETY AND HEALTH - this law
communication flow from one level of ensures that employers provide safe and
organizational structure to another. (Jeannet and sanity work environment through
Hennessey, 2005) frequent inspection and a grading scale.
FACTORS THAT INFLUENCE THE POLITICAL ENVIRONMENT OF
SELECTION OF ORGANIZATIONAL BUSINESS
STRUCTURE BY MULTINATIONAL
COMPANIES ARE THEIR STRATEGY  THE POLITICAL ENVIRONMENT
(Baumeller, 2007) - in which the firm operate will have a
significant impact on a company's
 Differentiation Strategy international operating activities.
 Cost Leadership Strategy  FOREIGN PRODUCTS AND
 Focus Strategy INVESTMENT - is vital to the growth
and development of the economy often
receive favorable treatment from the
REGULATION - administrative process of government in the form of reduced tax
writing and passing laws, to a certain extent, and other incentives.
restraint some fundamental rights of business.

 ADVERTISING - laws pertaining to CORPORATE SOCIAL RESPONSIBILITY

marketing and advertising set in motion
by the regulatory authority exist to  CORPORATE SOCIAL
protect consumers and keep companies RESPONSIBILITY - define as the
honest about their product. "economic, legal, ethical, and
 EMPLOYMENT AND LABOR discretionary expectation that society
ENVIRONMENTAL - these laws has of organization at a given point in
pertain to minimum wage, benefits, time".
safety and health compliance, working,  CAROLL AND BUCHHOLTZ'S
condition, and privacy regulations stand definition of CSR makes explicit the
out as the heavy hitters among the multifaceted nature of social
others. responsibility
 ENVIRONMENTAL - the carbon  STAKEHOLDERS - groups affected
footprint of business on the environment by the actions of an organization.
is regulated by the Department of
Environment and Natural Resources
(DENR). THREE CONTEMPORARY SOCIAL
 DENR - enforces environmental laws ISSUES
passed by the government.
 Environmental Management Bureau  ENVIRONMENTAL ISSUES
(EMB) - helps business small and large  GLOBAL ISSUES
alike achieve environmental  TECHNOLOGICAL ISSUES
compliance, and should serve as a
resource more than an enforces.
 PRIVACY - privacy laws prevent ETHICAL BEHAVIOR IN THE
businesses from disclosing the ENTERPRISE
information freely.
  CHARACTER - drives what we do thereby protecting the rights of investors
when no one is looking. and facilitating further investment.
 ETHICS - refers to a set of rules that  PERMISSION - legitimate business
describes what is acceptable conduct in need permission from government to
the society. operate and corporations need a charter
 INTEGRITY - defined as adhering to a from government.
moral code in daily decision making.  TAXATION - Government at all levels
 LAWS - it is a series of rules and tax businesses, and the resulting revenue
regulations designed to express the collected is an important part of
needs of the people. government's budget.
 MORAL - are a set of rules and mode
of conduct on which society is based.
 VALUES - defined as the acts, customs,
and institutions that a group of people
ROLE OF GOVERNMENT POLICIES
regard in a favorable way.
Government policies also promote
ROLE OF GOVERNMENT IN BUSINESS
businesses. Government provides certain
The private sector is the chief economic force of services such as national defense, administration
every country, but it needs government of justice, education, environmental protection,
regulation. The Government's role in business is public works and highways.
as old as the country itself, the Constitution
PRESSURE GROUPS
gives the government the power to regulate
some commerce. Is an organized group that seeks to
influence not only government policy but also
 CONSUMER PROTECTION - The
private enterprises operating policy. These
Government's role in business is
groups are also concerned in protection and
protecting the consumer or customer.
advancement a particular cause and interest.
 CONTRACT ENFORCEMENT -
Business deal with other business. These
contract maybe complex, such as
ECONOMIC PRESSURE GROUPS
mergers, or they may be simple as
warranty on supplies purchased.  GIANT PRIVATE CORPORATION
 EMPLOYEE PROTECTION - Many (THE GIANT CONNECTION) - these
agencies work to protect the rights of corporation need to ensure that their
employees. This right covers the interest are protected since large
following: regular employment, government are often at stake.
probationary employment, minimum  PROFESSIONAL
employable age, prohibition, against ORGANIZATIONS - this is the
stipulation of marriage, anti-sexual powerful group bound by the common
harassment law and many others. interests of its members.
 ENVIRONMENTAL PROTECTION  TRADE ASSOCIATION - association
- it is the government's role to regulate of business with common interests to
industry and thereby protect the public protect to is the simplest description of
from environmental externalities. trade association.
 INVESTOR PROTECTION -  TRADE UNION - one of the things that
Government mandates that companies greatly influence the corporate
make financial information public,
 governance principle and government  Globalization - is a progression by
policies in Philippines setting is in the which the worlds are unified into a
area of labor and management. single society and function. It has been
 PUBLIC PRESSURE GROUPS - asserted that globalization support
these are groups that represent a cluster productivity, cultural mix, and cash flow
of the public on certain issues. into the developing countries.
 SECTORAL PRESSURE GROUPS -  Inflation - some economists have
refers to group which work to protect theorized that high inflation, caused by a
and advance the interest of specific country's monetary policy can contribute
social groups in a certain society. to economic inequality.
 RELIGIOUS/ ATTITUDE  Labor and Market - one of the major
PRESSURE GROUPS - one of the causes of economic inequality in
most powerful groups. They share modern market economies is the
universal beliefs, and objective on one determination of wages by the market. It
issue. is rooted from the differences in the
 GOVERNMENTAL UNIT supply and demand for different types of
PRESSURE GROUPS - the level of work.
maturity of the system of administration  Wealth Condensation - Wealth
and the development government condensation is theoretical process, by
agenda, has led to an expanded role which under certain condition newly
being played by the local government as created wealth concentrates in the
administrative arms of the national possession of already wealthy entities.
government. Wealth Condensation can significally
contribute inequality within the society.

MAJOR CAUSE OF INEQUALITY

 Culture and Region - catches some

notion that this two play a role in
creating inequality by either
encouraging or discouraging wealth -
acquiring behavior.
 Development - according to Simon
Kuznets, level of economic inequality
are in large part the result of stages of
development, that countries with low
levels of development have equal
distribution of wealth.
 Diversity and Choices - diversity of
choices within the society often
contributes to economic inequality.
 Education - one of the most important
factors contributing to inequality is
education especially in an area where
there is a high demand for workers,
creates high wages for those with
education.