Salford & Co.

CORPORATE
GOVERNANCE
Corporate governance is the system of rules,
practices, and processes that guide how a
company is directed and controlled.

www.reallygreatsite.com
CORPORATE PRINCIPLES OF
GOOD CORPORATE GOVERNANCE
Accountability Transparency
The board and management are The company's operations,
accountable to the shareholders performance, and decision-making
and other stakeholders. processes are clear and accessible.

Fairness Independence
All shareholders and stakeholders The board functions independently
are treated equitably and with from management and exercises
respect. objective judgment.
RISK MANAGEMENT
AND INTERNAL CONTROLS
Risk Identification
Proactively identify and assess potential
risks to the organization.

Risk Mitigation
Implement controls and strategies to mitigate
identified risks.

Monitoring and Review

Continuously monitor risks and review the
effectiveness of controls.
 BALL GAME!!!
Companies should provide
accurate and timely financial
information to shareholders
Companies should disclose
material risks and how they
are managing them.
Companies should provide
accurate and timely financial
information to shareholders
Companies should provide
accurate and timely financial
information to shareholders
and the public. and the public. and the public.
FOREIGN
INVESTMENT
When a company or individual from one
country invests in assets or ownership stakes
of a company based in another country.
Economic Theory
FDIs can generate positive spillovers to domestic firms in the host
country.

Horizontal Spillover - the effect of MNCs on domestic firms in

the same sector.
Vertical Spillover - interaction between domestic and foreign
firms that are not in the same industry (backward/forward
linkages).
Economic Theory
Multinational corporations can facilitate the transfer of technical and
business know how resulting in productivity gains and
competitiveness among local firms.

Recognizing that Foreign Investment can contribute to economic

development, all governments want to attract it.
FOREIGN INVESTMENTS IN
DEVELOPING COUNTRIES

Increasing foreign investment can be one of the

indicators that the host country’s economy is growing and
opening its windows on globalization.
BENEFITS OF (FI) FOR THE HOST
COUNTRY

INCREASED REDUCED IMPROVED

JOB CREATION COMPETITION PRODUCTION TECHNOLOGY &
COSTS &
W/N DOMESTIC EXPORTATION
MANAGEMENT
FIRMS DISADVATAGES TECHNIQUES
BENEFITS OF THE INVESTING
PARTY
DIVERSED
MARKET PRODUCT
GLOBALIZATION
LOCATION
 TYPES OF
FOREIGN INVESTORS
RESOURCE SEEKING EXPORT FLATFORM
Motivated by access to local, A basis for exporting to the
natural, and human resources. regional market.

IMPORT SUBSTITUTING RATIONALIZED/VERTICALLY

DISINTEGRATED
Substituting for exports to the
local market. Locating each stage of production
to loacl costs.
MAJOR FACTORS
ATTRACTING
FOREIGN INVESTMENTS
Size and Growth of the Host Country

Price Factors of Labor, Raw Materials, etc.

Economic Policies

Profitability & Protection Afforded to Investing

Firms by Tarrifs & Other Measures
F O R E I G N
INVESTMENT
POLICY SHIFT
• Recent amendments to the Foreign
Investments Act (RA 7024)
• Tax Incentives administered by PEZA and
BOI
Amendments on Foreign Investment Act (RA 7024)

Foreign Investments Act Amendments (2022): The government

amended the act to allow foreign investors to fully own small and
medium-sized enterprises (SMEs) and hold 100% equity in sectors
where they were previously restricted.

Reduced Capital Requirements: The minimum capital required

for foreign investors to set up a business has been halved to
$100,000, provided they hire at least 15 local workers and
introduce advanced technology.
Tax Incentives (administered by PEZA and BOI)

Income Tax Holiday (ITH)

Duration: 4 to 7 years, depending on the location and industry.

Additional ITH: Extra 3 years for relocating from the National

Capital Region (NCR) and 2 years for areas recovering from
disaster or conflict.
 FOREIGN DIRECT
INVESTMENT PERFORMANCE
1980 1991-1994 2001-2003 2004-2007

Fluctuation of Foreign Direct Steady increase of Foreign Direct Substantial declines in Foreign Recovery in Foreign Direct
Investment inflows. Investment inflows. Direct Investment inflows. Investment inflows.
FOREIGN DIRECT INVESTMENT
SOURCES
UNITED STATES JAPAN PHILIPPINES

Country’s largest source of FDI share increased from Received the lowest level of
FDI inflows up to the 1980s. 13% in the 1980s to 24% in FDI inflows, particularly
However, its share dropped the 1990s, yet fell to 18% in during the 1990s and 2000s.
from 56% to 13% in the the 2000s.
1990s to 2000s.
KEY FEATURES OF
INVESTMENT CLIMATE
ACCESS TO FINANCE AND INTERNATIONAL INTEGRATION

Access to finance influences a firm’s tendency to

invest.

GOVERNANCE
It establishes the framework through which
companies operate, influencing investor confidence
and overall economic stability.

INFRASTRUCTURE
The better the infrastructure of the host country, the
more attractive it is to foreign investors.
SKILLED LABOR FORCE
One of the essential requirements for economic
growth of a country is its knowledge infrastructure
and the level of human development.

MACROECONOMIC FACTORS
Investment is motivated by profit, and foreign
investors will always choose a country with an
optimistic business sector.

TECHNOLOGY FACTOR
Technological progress plays an important role in
economic growth, which encourages innovation and
attracts FDI.

POLITICAL STABILITY
Political certainty is a very important determinant for
developing countries to attract FDI.
 BALL GAME!!!
Companies should provide
accurate and timely financial
information to shareholders
Companies should disclose
material risks and how they
are managing them.
Companies should provide
accurate and timely financial
information to shareholders
Companies should provide
accurate and timely financial
information to shareholders
and the public. and the public. and the public.
 BALL GAME!!!
Companies should provide
accurate and timely financial
information to shareholders
Companies should disclose
material risks and how they
are managing them.
Companies should provide
accurate and timely financial
information to shareholders
Companies should provide
accurate and timely financial
information to shareholders
and the public. and the public. and the public.
PRIVATIZATION
It is a stage or course of action of
transferring in whole or in part the
ownership of a business enterprise,
agency or public service from the public
sector to the private sector.
PRO-PRIVATIZATION
Proponents of privatization believed that the
entities can more efficiently deliver goods
and/or service than government due to free
market rivalry.

ACCOUNTABILITY
Decision makers and managers of publicly
owned companies are required to be more
accountable to the broader community and
more will be to the political stakeholders.
FUNDS
Private companies have easy access of
investment capital in the financial markets
(liquid markets). This fluidity characteristic will
make private company capable of maneuvering
swiftly to respond to the market and to over all
business environment.

DISPERSION OF
RESOURCES
Resources, profits and incentives are dispersed
and diversified in a highly privatized
environment, this would give more
opportunities to more entities.
CORRUPTION
Government monopoly is prone to corruption
considering that some decisions are made
primarily on the basis of decision-makers
personal gain.

TAINTED PURPOSE
A company or an industry may be run or used
by the government mainly as vehicles in
satisfying political goals.
NO MORE SUBSIDIES
Efficiency can bring in profits. With profits,
noneor minimized subsidies will be needed so
tax payers’ money will be saved.

NATURAL MONOPOLICES
The existence of natural monopolies does not
mean that these sectors must be stae-owned.
POLITICAL INFLUENCE
Nationalized industries are prone to
interference from politicians for political or
populist reasons.

PROFITS
Private companies are poised to earn profits by
being inthe best position to serve the needs of
their targeted consumers.
SECURITY
Governments have the tendency to “ bailout”
poorly run businesses, often due to the
sensitivity of job losses, when economically , it
may be better to let the business fold.
 Ingoude Company

ANTI-PRIVATIZATION

Opponents of privatization argue that it

is undesirable to transfer state-owned
assets into private hands for the
following reasons:

CONTINUE

www.reallygreatsite.com
 ACCOUNTABILITY

the public does not have any control or oversight of private

companies to state-owned enterprise.
CONCENTRATION OF
WEALTH
Profits from successful
enterprise end up in private,
often foreign, hands instead
of being available for the
common good.
CUTS IN ESSENTIAL SERVICES
governments have chosen
to keep certain companies or
industries under public
ownership because of their
strategic importance or
sensitive nature.
 D OWN S I ZI N G
A state owned company might have a longer-term view,
and thus be less likely to cut back on maintenance or staff
costs, training, etc. to stem short-term losses.

J OB L E S S
due to the additional financial burden placed on privatized
companies to succeed without any government help, unlike
the public companies jobs could be lost to keep more
money in the company.

Back to Agenda
 GOA LS
the government may seek to
use state companies as
instruments to further social
goals for the benefit of the
nation as a whole.
 NATURAL MONOPOLIES

Privatization will not result in true competition if a natural monopoly exists.

POLITICAL INFLUENCE

governments can easily

exert pressure on state-
owned firms to help
implement a government
policy.
 BALL GAME!!!
Companies should provide
accurate and timely financial
information to shareholders
Companies should disclose
material risks and how they
are managing them.
Companies should provide
accurate and timely financial
information to shareholders
Companies should provide
accurate and timely financial
information to shareholders
and the public. and the public. and the public.
PRIVATIZATION
AND
POVERTY
INSOLVENCY REGIMES
AND THEIR EFFECT
ON CORPORATE
GOVERNANCE
 INSOLVENCY
the inability of a person or an entity to pay its
debt as they fell due

2 aspects which defined insolvency:

CASH FLOW LIQUIDITY

the inability to pay debts when they fall due

ASSET INSOLVENCY
GUIDANCE
state where the entity’s asset is lesser than its
liabilities
 BALL GAME!!!
Companies should provide
accurate and timely financial
information to shareholders
Companies should disclose
material risks and how they
are managing them.
Companies should provide
accurate and timely financial
information to shareholders
Companies should provide
accurate and timely financial
information to shareholders
and the public. and the public. and the public.
 INSOLVENCY LAW
AND BUSINESS REHABILITATION

Suspension of Voluntary Involuntary

Payment insolvency insolvency
FEATURES OF
INSOLVENCY LAW
REHABILITATION

its suspension of payment

provision which allows the
restructuring of debtor’s
obligation to enable it to
continue its operation.
FEATURES OF
INSOLVENCY LAW
DISTRIBUTE
to effect an equitable
distribution of properties
among the creditors and to
benefit the debtor by
discharging him of his
obligation for him to have a
new start.
ONCE AN ANNOUNCEMENT OF
INSOLVENCY IS MADE,
STOCKHOLDERS MAY HAVE TO
DECIDE WHETHER OR NOT TO
SELL OFF THEIR SHARES OR
REMAIN WITH THE COMPANY
UNTIL IT CAN REGAIN ITS
FINANCIAL FOOTING
THE EFFECTS OF INSOLVENCY
ON CORPORATE GOVERNANCE
Companies should provide
accurate and timely financial
Companies should disclose
material risks and how they
Companies should provide
accurate and timely financial
Companies should provide
accurate and timely financial
information to shareholders are managing them. information to shareholders information to shareholders
and the public. and the public. and the public.
THE EFFECTS OF INSOLVENCY ON CORPORATE GOVERNANCE

IMPACT ON SHAREHOLDERS

Shareholders lose most of their influence during

insolvency. In some cases, their shares may become
worthless as creditors take precedence in recovering
assets.
THE EFFECTS OF INSOLVENCY ON CORPORATE GOVERNANCE

CHANGE IN BOARD
COMPOSITION AND INFLUENCE
Some insolvency regimes allow creditors to
convene meetings and vote on restructuring plans,
sometimes even overriding existing management.
THE EFFECTS OF INSOLVENCY ON CORPORATE GOVERNANCE

SHIFT FIDUCIARY DUTIES

When insolvency looms, the fiduciary duties

of directors shift towards the creditors.
THE EFFECTS OF INSOLVENCY ON CORPORATE GOVERNANCE
ACCOUNTABILITY OF
DIRECTORS
Directors are scrutinized more intensely in insolvency
situations. Many insolvency regimes have mechanisms
to hold directors accountable for wrongful or negligent
actions taken leading up to insolvency.
THE EFFECTS OF INSOLVENCY ON CORPORATE GOVERNANCE

ROLE OF EXTERNAL
ADMINISTRATORS
They replace or oversee directors, and their goal
is either to restructure the company or liquidate
its assets in the most efficient way for creditors.
 Salford & Co.

THANK
YOU!
We want to express our heartfelt gratitude
for your participation in this presentation
on corporate governance.
 True or False. Insolvency regimes
reshape corporate governance by shifting
power and responsibilities from
shareholders to creditors and external
administrators.
 True or False. Investment
climate refers to the overall
economic, regulatory, and
institutional conditions that
affect investors' willingness to
invest in a corporation.
 True or False. Privatization is a
stage or course of action of
transferring in whole or in part
the ownership of a business
enterprise, agency or public
service from the public sector to
the private sector.
True or False. There are winners
and losers in privatization?
 True or False. Privatization is a
stage or course of action of
transferring in whole or in part
the ownership of a business
enterprise, agency or public
service from the public sector to
the private sector.