AGENCY PROBLEMS IN CORPORATE

GOVERNANCE: Accountability of
Managers and Stockholders
I. DEFINING AND ENFORCING MANAGER’S DUTIES
DEFINING AND ENFORCING MANAGER’S DUTIES

Basic Functions of Managers

• Planning
• Organizing
• Staffing
• Leading
• Controlling
 DEFINING AND ENFORCING MANAGER’S DUTIES

Mintzberg's Set of Ten Roles

Category Role
Informational Monitor
Disseminator
Spokesperson
Interpersonal Figurehead
Leader
Liaison
Decisional Entrepeneur
Disturbance handler
Resource allocator
Negotiator
 II. MECHANISMS OF STOCKHOLDERS
ACCOUNTABILITY: VOTING AND PROXY CONTESTS,
DERIVATIVE AND CLASS ACTIONS, TAKEOVERS,
LENDER OFFERS AND MARKETS FOR CORPORATE
CONTROL
MECHANISMS OF STOCKHOLDERS ACCOUNTABILITY

Four Core Components of Accountability in

Global Governance

■ Transparency
■ Answerability or Justification
■ Compliance
■ Enforcement or Sanctions
MECHANISMS OF STOCKHOLDERS ACCOUNTABILITY

Vertical Accountability

It refers to mechanisms in which citizens and their associations

can directly hold the powerful to account, such as through
elections in which voters select representatives and also hold
incumbents to account

Horizontal Accountability

It refers to inter-institutional mechanisms or checks and

balances
 Proxy Contest

A strategy that involves using

shareholder's proxy votes to replace
the existing members of a
company's board of directors. By re
moving existing board members, the
person or company launching the
proxy contest can establish a new
board of directors that is better
aligned with their objectives.
 Derivative Suit

A lawsuit filed by a shareholder on

behalf of the corporation against a
third party
 Tender offer

The acquirer company makes a

public offer the price of which is
way higher than the current market
price making it hard of the existing
shareholders to resist.
 Takeover

Refers to transfer of a control of a

firm from one group of
shareholders to another group of
shareholders.
The Market for Corporate Control

Defined as equity transactions that

are large enough to change the
control of the company..
 III. OUTSIDE FORCES: REGULATORS,
GOVERNMENT ENFORCEMENT (CIVIL AND
CRIMINAL)
 Regulators
Public authority or government agency responsible for
exercising autonomous authority over some area of
human activity in a regulatory or supervisory capacity.
They deal in the area of administrative law-regulation or
rulemaking(codifying and enforcing rules and
regulations and imposing supervision or oversight for
the benefit of the public at large
Regulators in Corporations
Securities and Exchange Commission
Philippine Stock exchange
Philippine Depository Trust Corporation
Bangko Sentral ng Pilipinas
Department of Trade and Industry
Courts
Government Enforcement (Civil and Criminal)

Criminal Law
■Represents formal public disapproval and condemnation because
of the failure to abide by the generally accepted social norms,
codified into the criminal law.
■Justifies more severe penalties because it is necessary to
overcome the higher burden of proof to establish criminal liability.
■The theoretical value of punishment is that the offender feels
shame, guilt or remorse, emotional responses to a conviction that a
fictitious person cannot feel.
■If a state turns too often to the criminal law, it discourages self-
regulation and may cause friction between any regulatory agencies
and businesses that they are to regulate.
Government Enforcement (Civil and Criminal)

Civil Law

■ With the lower burden of proof and better case

management tools.

■But there is little moral condemnation and no real deterrent

effect.
Government Enforcement (Civil and Criminal)

Civil Liability
The Supreme Court held in this case that a corporation
is civilly liable in the same manner as natural persons
for torts.
Government Enforcement (Civil and Criminal)

Criminal Liability
The Corporation Code of the Philippines specifically
states in Section144 the criminal penalties for violations
of “any”of the provisions of the Corporation Code and
the penalties include;
 fine of not less than PHP1,000 but not more than
PHP10,000
 Or imprisonment for not less than 30 days but not
more than five years.
 Or both, at the discretion of the court
Government Enforcement (Civil and Criminal)

CORPORATE CRIME SITUATION IN THE

PHILIPPINEs

A. Tax Evasion
B. Fraud/Swindling
C. Foreign Bribery (Internet and Various Media Reports)
D. Large Scale Pilferage
V. Legislative (Intro. to Sarbanes-Oxley, foreign
initiatives)
V. Legislative (Intro. to Sarbanes-Oxley, foreign initiatives)

What is the Sarbanes Oxley Act?

The Supreme Court held in this case that a corporation is civilly
liable in the same manner as natural persons for torts. The
Sarbanes-Oxley Act of 2002 also known as the Public Company
Accounting Reform and Investor Protection Act of 2002 and
commonly called
Sarbanes-Oxley ,Sarbox or SOX,is a United States federal law
enacted on July 30, 2002 and introduced major changes to the
regulation of financial practice and corporate governance. The
legislation set new or enhanced standards for all U.S. public
company boards, management and public accounting firms. The
act contains 11 titles, or sections, ranging from additional
corporate board responsibilities to criminal penalties
V. Legislative (Intro. to Sarbanes-Oxley, foreign initiatives)

What does Sarbanes Oxley Address?

Sarbanes Oxley Act Establishes new standards for Corporate Boards and
Audit Committees
Sarbanes Oxley Act Establishes new accountability standards and
criminal penalties for Corporate Management
Sarbanes Oxley Act Establishes new independence standards for
External Auditors
Sarbanes Oxley Act Establishes a Public Company Accounting Oversight
Board (PCAOB) under the Security and Exchange Commission (SEC) to
oversee public accounting firms and issue accounting standards.
Restore public confidence in the nations capital markets
by strengthening corporate accounting controls.
The act also covers issues such as auditor independence, corporate
governance, internal control assessment, and enhanced financial
disclosure.
V. Legislative (Intro. to Sarbanes-Oxley, foreign initiatives)

Reasons Why SOX Arise

Auditor conflicts of interest
Boardroom failures
Securities analysts' conflicts of interest
Inadequate funding of the SEC
Banking practices
Internet bubble
Executive compensation
 VI. Gatekeeper and access to
capital: Auditors; Investment Banker;
Rating Agencies; Exchange, TheFinancial Press
 Gatekeepers
A gatekeeper is defined as someone who controls access to
something. It also refers to individuals who decide whether a
given message will be distributed by a mass medium
 Investment Banker
Investment Banker is financial institutions and individuals
who assist companies in raising capital, often through a
private placement or public offering of company stock.
Sometimes investment bankers are referred to as brokers or
deal makers
 Rating Agencies
Rating Agencies is a company that investigates the credit
worthiness of companies and governments and assigns
ratings to their securities, especially
their bonds. Rating agencies perform this service in
exchange for a fee
The End