Good Governance

Chapter 1

Corporation

a legal entity created by an individual or group of shareholders who have ownership of the corporation (through shares of stocks issued by the corporation) to engage in business activities.

Corporation (Monks and Minow 2011)

a structure established by law to allow different parties to contribute to capital, expertise, and labor or the maximum benefit of all of them.

4 Appealing Attributes of a Corporation

• limited liability

• transferability of ownership

• legal personality

• centralized management

Limited liability

in cases of bankruptcy, owners of corporations may protect their assets from being foreclosed or confiscated, and creditors can only recover debts incurred by the company through the liquidation of remaining assets owned by the company.

Transferability

allows a shareholder to sell his shares of stocks in the stock market freely should he/she decide to let go a part or all of his shares unless explicitly stated in the corporate bylaws.

Legal Personality

are sometimes defined as legal persons

are allowed to perform functions that humans make, such as buying and selling properties, owning copyrights, patents, trademarks, and engaging in any other business activities. Corporations have an indefinite life span that can survive from generation to generation.

Centralized Management

The company’s daily management and governance are under the jurisdiction of executive managers and the board of directors

Allows a company to operate efficiently without having individual shareholders meddling with corporate affairs. Shareholders would normally look at the stock price as a performance metric.

RCC (Revised Corporate Code) 4 Areas of Reform

• Enhancement of ease of doing business in the Philippines

• Fortified stockholder protection and institutionalized corporate governance provisions

• Emphasis on corporate social responsibility

• Improved policies and regulatory corporate framework

Corporate Social Responsibility

The responsibility of companies to act and behave ethically to satisfy various stakeholders’ needs.

A manifestation of good corporate governance.

Archie Carroll 4 different perspectives

1. Philanthropic (above and beyond compliance)

2. Ethical (do what is right)

3. Legal (follow rules)

4. Economic (Make a profit)

Economic Dimension

The lowest layer of the pyramid suggests that companies must first be profitable after they have paid their obligations to employees and suppliers, and conform to consumers’ needs and demands.

Legal

a corporation is created through law and, as such, must abide by the rules and regulations imposed for fairness and justice

Ethical

Society expects companies to take on this responsibility beyond what is required of them legally

Philanthropic

companies need to truly embrace issues that pertain to the improvement of human lives must be addressed without compromise.

not required, but desired

Who Introduced CSR

Howard Bowen in 1953

Drivers of CSR

RMSCS

• Regulation

• Market Behavior

• Social Activism

• Culture

• Strategy

Regulation

provide a framework that companies must comply with.

Market Behavior

benchmarks have been established because of companies’ best practices that use CSR, a a builder of reputation

Market behaves and influences

Course of competitive advantage

Social Activism

stakeholders react and voice out their concerns to corporations publicly through various means have impacted how organizations behave.

Internally and externally driven

Culture

a mixture of beliefs, norms, symbols, and the heritage that a particular country or geographic area shares and practices.

Benevolance and philanthropy must be ingrained in an organization

Strategy (most signification driver)

integrating CSR in its planning from the different functional areas of a company fortifies the relationship and becomes a creator of value that benefits the corporation in the long term.

Barriers of CSR

• Limited Financial Resources

• Profit Maximization

• Availability of human resources

Limited Financial Resources

a company needs to be profitable and take care of its own needs before it has the ability and resources to engage effectively in social responsibility.

Profit Maximization

a company that single-mindedly focuses on operational efficiency is usually driven by

Availability of Human Resources

CSR will need efficient mobilization through employee involvement and engagement in its programs.

CSR concepts that cannot be accurately measured

• Market Share

• Customer Satisfaction

• Attrition rate

• Turnaround time

• Financial Ratios

• Goodwill

• Loyalty

• Social/Environmental Impact

Benefits of Measuring CSR

• Helping organizations make better decisions on allocating resources with the greatest impact

• Improving processes that will make CSR initiatives more efficient

• Providing more support for the business case

Kaplan and Norton’'s Balanced Scorecard

an integrated strategic measurement system

4 Dimensions of the Balanced Scorecard

• financial

• customer

• processes

• learning and growth

Triple Bottom Line

Three P’s: People, Planet, and Profit

Triple Bottom Line

an accounting framework that describes three evaluation perspectives that contribute to creating greater value for the organization.

People and Profit

viable

People and Planet

bearable

Planet and Profit

equitable

Profit, People, Planet

sustainable

Leadership

Key role in influencing CSR