Corporate Governance
 

CORPORATE GOVERNANCE AND BUSINESS ETHICS

Virata School of Business, University of the Philippines, Diliman, Q.C.

      I.        Course Description:   Fundamental theories and practice of corporate governance. Issues and reforms in Philippine Corporate Governance. The ethics underlying and governing the structure and operation of the business corporation. Introduction to Inclusive Business and Philippine examples.

 

    II.        Course Objectives / Learning Outcomes:

 

At the end of the course, the student should be able to:

 

1.    Understand the importance of managerial accountability;

2.    Recognize and utilize the various instruments and factors that help align managerial incentives with those of the firm;

3.    Understand the effects of dynamic environmental forces on industries and organizations in order to identify the various stakeholders the firm must manage; and

4.    Recognize the emergence of socially responsible business models.

 

   III.  Rationale:

                This course will introduce the student to the principal-agent problem that is inherent in the modern corporation and to the various mechanisms and factors that help resolve such a problem. The course lays down the macro structure for corporate governance in the Philippines, and discusses the Philippines’ continued response after the global financial crises. It discusses the idea that recognizing and managing the firm’s “stakeholders” imposes a certain set of “social responsibilities” on the firm. It likewise introduces the student to ethical concepts and systems, and how different philosophical systems have influenced business thinking throughout the years. Cases and specific Philippine examples are introduced.      


IV.  TextbookMallin, Christine (2015). Corporate Governance. Oxford: Oxford University Press.


V.  Topics to be Covered:

 

1.    Agency Theory:

Segment Abstract: In 1932, Berle and Means wrote a pathbreaking book documenting the separation of ownership and control in the modern corporation. They showed that shareholder dispersion creates substantial managerial discretion, which can be abused. This was the starting point for the subsequent academic thinking on corporate governance. Subsequently, a number of corporate problems around the world have reinforced the perception that managers are unwatched. This introductory part of the course, thus, documents the divergence of interests through both managerial theorizing and empirical evidence.

a.    Separation of Ownership and Control

Ref.: Jensen, Michael, and William H. Meckling (1984). "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure." In The Modern Theory of Corporate Finance, edited by Michael C. Jensen and Clifford H. Smith Jr.. McGraw-Hill.

b.    Moral Hazard

c.    Managerial Incentives; Managerial Hegemony

d.    Various instruments to align managerial incentives with those of the firm

 

2.    Philippine Corporate Governance:

Segment Abstract: With the collapse of Enron in 2001, the Philippine regulators and business authorities to quickly respond through laws to minimize the adverse effects of the crisis on Philippine business; hence, the formulation of the Code of Corporate Governance. This part of the course lays down the macro structure for corporate governance in Philippine, and assesses the strengths and weaknesses of corporate governance reforms initiated by regulatory agencies in the Philippines. It likewise describes the Philippines’ continued response after the global financial crisis of 2008-09.

a.    Issues and Challenges

Ref.: Echanis, Erlinda S. (2007), “Philippine Corporate Governance: Issues and Reforms,” Philippine Management Review, Vol. 14.

b.    Philippine Regulatory Environment

Ref.: Frias, K.P. (2015), “Philippine Business and the Regulatory Environment,” Philippine Management Review, 22: 21-34..

c.    Code of Corporate Governance (http://www.sec.gov.ph/corporate-governance/revised-code-of-corporate-governance/)

 

d.    Updates and Developments

Ref.: Wong, Debbie C. (2009), “An Assessment of Corporate Governance Reforms in the Philippines: 2002-2009,” Philippine Management Review, Vol. 16.

 

3.    Stakeholder Theory:

Segment Abstract: Since the 1980s, R. Edward Freeman had introduced the notion of “stakeholder” as different from “stockholder” and the idea that recognizing and managing those “stakeholders” imposes a certain set of “social responsibilities” on the firm. Chester Barnard argued that the purpose of the corporation was to serve society, and that the function of the executive was to instill this sense of moral purpose in the corporation’s employees. This portion of the course discusses these notions in relation to the purpose of the firm and whether the modern corporation indeed has certain “social responsibilities”. It ends with the notion that the global financial crises may have been caused, in part, by the dysfunctional behaviour of corporate managers.

a.    The Corporation and External Stakeholders

Ref.: Freeman, R. Edward (1983). Stockholders and Stakeholders: A New Perspective on Corporate Governance. California Management Review, 25(03): 88.

Ref.: Freeman, R. Edward (2004). The Stakeholder Approach Revisited. Zeitschrift für Wirtschafts- und Unternehmensethik, 5(3): 228.

b.    Corporate Responsibilities and Ethics

Ref.: Weiss, J.W. (2014). Business Ethics: A Stakeholder and Issues Management Approach. San Francisco: Berrett-Koehler Publishers, Inc.

c.    Ethical Concepts and Principles in Business

Ref.: Velasquez, Manuel (2012). Business Ethics: Concepts and Cases. 7thEd. New York: Pearson. Chapter 1.

d.    Financial Crises and Virtue Ethics

Ref.: Racelis, A.D. (2014). Examining the Global Financial Crisis from a Virtue Theory Lens. Asia Pacific Social Science Review (a Scopus journal). 14(2), 23-38.

 

4.    Inclusive Business model and Social Responsibility:

Segment Abstract:  For all its promise, capitalism has had a turbulent history. Since its incipience, it has barely survived several major crises, among which were the Great Depression of 1929-39, the challenges posed by alternative political and economic systems (notably between the 1st and 2nd World Wars, and ending with the collapse of the Berlin Wall), and the Great Recession of the late 2000s. Capitalism today is suffering yet again from another major crisis: one serious flaw is its failure to distribute the benefits of economic prosperity equitably to all segments of society, and its inability to make economic opportunities equally accessible to everyone. This portion of the course introduces the student to the emerging model called “Inclusive Business” and exposes the potential and challenges of “social enterprises” in the Philippines.

a.    Unfettered Capitalism

Ref.: Hoseeini, H. (2010). Unfettered capitalism: why it is neither efficient nor just. Humanomics, 26(2): 99-111.

b.    The Emergence of Social Enterprise

Ref.: British Council (2015). A Review of Social Enterprise Activity in the Philippines: Challenges and Strategies. Manila: British Council Philippines.

Ref.: Habaradas, R. & Aure, P.A. (2016). Managing Social Enterprises in the Philippines: Challenges and Strategies. Journal of Legal, Ethical and Regulatory Issues, 19(2): 39-56.

c.    The “Inclusive Business” model

Ref.: Golja, T. & Pozega, S. (2012). Inclusive Business – What It Is All About? Managing Inclusive Companies. International Review of Management and Marketing, 2(1): 22-42.

Ref.: Heinrich-Fernandes, M. (2016). How to create an enabling environment for inclusive business? Learning from experience and debates in private sector development: http://www.enterprise-development.org/wp-content/uploads/DCED_Creating_An_Enabling_Environment_For_Inclusive_Business.pdf

d.    Preparation of Individual Social Projects (individual proposals)

 


   VI.        Timetable:

Session No.

Topic

 

1. Agency Theory

1-2

a.    Separation of Ownership and Control

3

b.    Moral Hazard

4-5

c.    Managerial Incentives; Managerial Hegemony

6-7

d.    Instruments of Corporate Governance

 

2. Philippine Corporate Governance

8-9

a.    Issues and Challenges

10-11

b.    Philippine Regulatory Environment

12-13

c.    Code of Corporate Governance

14

d.    Updates and Developments

 

3. Stakeholder Theory:

15-16

a.    The Corporation and External Stakeholders

17-18

b.    Corporate Responsibilities and Ethics

19-20

c.    Ethical Principles in Business

21-22

d.    Financial Crises and Virtue Ethics

23

EXAM

 

3. Inclusive Business model and Social Responsibility:

24

a.    Unfettered Capitalism

25

b.    The Emergence of Social Enterprise

26

c.    The “Inclusive Business” model

27-29

BREAK: Writing up of Individual Social Projects (individual proposals)

30

CASES 1 & 2

31

CASES 3 & 4

32

Submission of Individual Social Projects (individual proposals)

 

 

 

    VII.        Grade Composition

Mid-Term exam

30%

Quizzes, class participation, exercises

30%

Cases

20%

Social Project

  20%

 

 100%


    VIII.        Grading Scale

Percent

Grade

 

Percent

Grade

96-100

1.00

 

72-75

2.25

91-95

1.25

 

68-71

2.50

86-90

1.50

 

64-67

2.75

81-85

1.75

 

60-63

3.00

76-80

2.00

 

Below 60

5.00