POSTTEST in

Good Governance & Corporate Social Responsibility

1. Define corporate social responsibility by Mallen Baker.

Mallen Baker’s own definition is that; “CSR is about how companies manage the business processes to
produce an overall positive impact on society”.

2. Explain the meaning of the definition of CSR from the Philippines.

“CSR is about business giving back to society”.

3. Compare the Philippine and United States definitions of CSR.

Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model.
Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a
certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive
any benefit from the giving. Corporate Social Responsibility (CSR).

4. Explain the traditional/classical economic model of business as expressed by Adam Smith.

In the eighteenth century the great economist and philosopher Adam Smith expressed the traditional or
classical economic model of business. In essence, this model suggested that the needs and desires of
society could best be met by the unfettered interaction of individuals and organizations in the
marketplace. By acting in a self-interested manner, individuals would produce and deliver the goods and
services that would earn them a profit, but also meet the needs of others.

5. What changes were contributed by the industrial revolution after Adam Smith?

In the century after Adam Smith, the Industrial Revolution contributed to radical change, especially in
Europe and the United States. Many of the principles espoused by Smith were borne out as the
introduction of new technologies allowed for more efficient production of goods and services.
Millions of people obtained jobs that paid more than they had ever made before and the standard of living
greatly improved. Large organizations developed and acquired great power, and their founders and
owners became some of the richest and most powerful men in the world.

6. Explain Social Darwinism.

"Social Darwinism," which, in simple form, is “the idea that the principles of natural selection and survival
of the fittest are applicable to business and social policy”.

7. What is the Sherman Antitrust Act of 1890?

Laws and regulations, such as the Sherman Antitrust Act, were enacted. It was the first major federal
action to curb the power of the great business monopolies which grew up after the Civil War. It advocates
to rein in the large corporations and to protect employees, consumers, and society at large.
8. What is the Clayton Antitrust Act of 1914?
The Clayton Antitrust Act of 1914 passed by Congress to supplement the Sherman Antitrust Act of 1890.
Te Clayton Act specified illegal monopolistic practices, among them certain forms of interlocking
directorates and holding companies. It also legalized peaceful strikes, picketing and boycotting.

9. What is the Social Gospel movement?

A liberal Protestant social-reform associated movement in the US in 1870-1920, sometimes called the
"social gospel," advocated greater attention to the working class and the poor. The labor movement also
called for greater social responsiveness on the part of business. Among the leaders were Horace Bushnell,
Washington Gladden and Walter Rauschenbusch.

10. Discuss CSR during the period from 1900 up to 1970.

Between 1900 and 1960 the business world gradually began to accept additional responsibilities other
than making a profit and obeying the law.
In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected society's
expectations of business.

11. Discuss the three models of CSR.

1. Traditional Conflict Model- Under this model, corporations opting to practice forms of social
responsibility are likely to see added costs for doing so. Proponents of this conceptual model generally
argue that the nature of business is one of trade-offs between economic and moral values, and corporate
managers will inevitably be forced to decide between their social and fiduciary responsibilities or their
commitment to shareholder equity value.

2. Added Value Model- This model tends to focus on issues like the value of CSR in attracting socially
conscious consumers, finding socially conscious employees and managing the risks of negative press.

3. Multiple Goals Model- a third model for corporate social responsibility posts its role for social values
in corporate decisions. Under this model, corporations have goals beyond shareholder value, including
the enhancement of their community without respect to monetary gain.

12. Discuss the PROS & CONS of CSR.

Pro 1: Social Responsibility and Customer Relationships

One of the foundational elements of CSR is that it causes companies to reason beyond basic ethics to
consider the benefits of active involvement in communities.
In his article "The 7 Principles of Business Integrity," business strategist Robert Moment argues that
21st-century companies must prove themselves to customers to build long-term, trusting relationships.
They must also get involved in the community to give back.
Pro 2: Motivated Employees
Employees are a company's most valued asset. This is the premise of a company's obligation to this key
stakeholder group with regard to CSR compliance. This means treating employees with respect and
offering fair working conditions. It also means establishing fair hiring practices and promoting a non-
discriminatory workplace. This improves morale within the workplace and encourages teamwork.

Con 1: Expenses
The main reason any company would object to participating in CSR is the associated costs. With CSR, you
pay for environmental programs, more employee training and efficient waste management programs.

Con 2: Shareholder Expectations

Another challenge for companies when considering CSR is the possible negative perception of
shareholders.

13. Discuss the Interactions of Businesses and Society by Mallen Baker.

Companies need to answer to two aspects of their operations. 1. The quality of their management - both
in terms of people and processes (the inner circle). 2. The nature of, and quantity of their impact on
society in the various areas.
Outside stakeholders are taking an increasing interest in the activity of the company. Most look to the
outer circle - what the company has actually done, good or bad, in terms of its products and services, in
terms of its impact on the environment and on local communities, or in how it treats and develops its
workforce. Out of the various stakeholders, it is financial analysts who are predominantly focused - as
well as past financial performance - on quality of management as an indicator of likely future
performance.

14. Do you believe corporate social responsibility is important? Explain.

Yes, Corporate Social Responsibility helps others to have the feeling of acceptance to a great extent. In
particular, Every country, every company and every person accepts and acknowledges a person who has
been a part of some or the other social activity.

In general, being a part of corporate social activities can transform a person and is a step towards
globalization

CSR is important because businesses are based on trust and foresight. Establishing and keeping trust
with customers, communities and regulators isn’t simple and can be easily damaged or lost. To be
successful in the long-term, companies need to think beyond what’s affecting them today to what’s going
to happen tomorrow. This isn’t just about addressing changes to technology or the needs of customers,
but also taking into account alterations in social, environmental and governance issues.

15. If the need for and benefits of CSR seems to be substantial, Why don’t all organizations
practice CSR?

Most are in some way. It really depends on how you define CSR. If you focus on laws and regulations
brought forth by government, then the majority do practice CSR. However, if you look at CSR as going
above and beyond minimal requirements, then not all companies practice CSR.
At the AIC Institute for Corporate Citizenship, we help companies identify what they can do strategically
to stretch beyond what’s typical in their industries. For example, over the last few years we’ve helped
RBC expand its sense of the issues important to the company, and helped it develop a value-added CSR
strategy to reflect the company’s new understanding.

16. Do you see all companies going above and beyond minimal requirements in the near future to
remain competitive?

Most people in today’s society look for companies to go above and beyond. Governments and NGOs
expect this too. But an unexpected twist is that many companies are demanding more from their
suppliers too, as they’re worried about the backlash of purchasing products and services from
organizations deemed irresponsible.
For example, Wal-Mart now requires its bidding suppliers to report many of their CSR activities. How this
will go in the long-run is still an open question. But it does give an indication of how companies can drive
positive CSR change themselves. This is a huge switch.

17. What are the various THEORIES OF CORPORATE GOVERNANCE?

Maximization of Shareholder Value. – Under the Corporation Code of the Philippines, the generally
accepted goal of the corporation is one of that is based on what is termed as the “neoclassical economic
theory” of “Maximization of shareholder value,” which in the Philippines has been expressed in the
jurisprudential doctrine that the primary obligation of directors of a corporation is “to seek the maximum
amount of profits for the corporation.” It is otherwise referred to as the “Stockholder Theory.”

Corporate Social Responsibility (CSR). – We shall consider for our discussions herein the more
comprehensive definition of “Corporate Social Responsibility” given by the World Business Council for
Sustainable Development, which defines CSR as “the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life o

18. Discuss the three (3) reasons to support the claim for corporate social responsibility by Prof.
Emmanuel Q. Fernando.

First, is due to the fact that the corporation wields great economic power within our society rivaling that
of the government: “They have the power to create great wealth, provide jobs for the multitude, advance
the frontiers of science and technology by financing and conducting the search, either maintain the
ecological balance of or pollute the environment, create goods and services that increase the safety,
health and welfare of its consumers, provide basic needs, affect the stock market and the economy for
better or worse, and the like. Clearly, with such awesome power comes the corresponding responsibility.”
Second, is that since corporations exists and thrive under conditions that the government and society
provides, then as a matter of gratitude, corporations must reciprocate by undertaking social or public
purpose activities. Third, every corporation is granted by the state with a legal personality, and like any
other citizen, should have duties and responsibilities towards the communit

19. Explain the Moral Minimum Stakeholder Theory.

This moral minimum involves duties not to cause avoidable harm, or to honor individual stakeholder
rights or to adhere to ordinary canons of justice. It can go about its fiduciary duty of making profit for the
stockholders of the corporation so long as it does not transgress the requirements of the moral minimum.
Corporation actions, humanitarian in character with a social or public goal, are not required, although
they may be encouraged.

20. Enumerate the three (3) failures of the stakeholders’ theory by Professor Poblador

Professor Poblador echoes the observed flaws of the stakeholder theory as follows:
(a) It fails to specify corporate goals in terms of a single, well-defined variable, and thus fail to provide a
rational basis of choice: “While its concern for the interests of all stakeholders in an enterprise is well
taken, stakeholdership fails to provide a rational basis for establishing tradeoffs among these oftentimes
conflicting interests. This puts decision makers at a loss in deciding whether one course of action is to be
preferred over another.
(b) This lack of proper guideline, effectively “empowers” managers to exercise their discretion, and thus
be “able to maneuver within their specified areas of accountability and can divert corporate resources in
pursuit of their own interest. This enhances what economists call ‘agency costs.’”

(c) The theory unnecessarily politicizes the corporation by sharply drawing the boundaries between the
interest of one group and those of the others: “As a consequence, the enterprise emerges as a zero sum
game, and the stakeholders are put in a confrontational relationship vis-à -vis one another.”

21. Discuss Memorandum Circular No.2, series of 2002, officially termed as the Code of Corporate
Governance.

Memorandum Circular No.2, series of 2002, officially termed as the Code of Corporate Governance
(hereinafter referred to as “SEC Code”, providing for a system of corporate governance for public
companies, which seems much patterned after the BSP CG Circulars. The SEC Code was subsequently
supplemented SEC Memorandum Circular No. 15, series of 2002 providing for the guidelines on the
nomination and election of independent directors

22. Discuss the IC Circular No. 31-2005.

Corporate Governance for the Insurance Industry – In September, 2005, pursuant to the power granted
under the Insurance Code, the Insurance Commissioner promulgated IC Circular No. 31-2005, entitled
“Code of Corporate Governance Principles and Leading Practices,” (hereinafter referred to as “IC
Code”), to establish within the insurance industry a similar system of corporate governance

23. Discuss the report of Dr. Jesus Estanislao, the founding Chair of ICD, on the results of the 2007
CG Scorecard Project.

Dr. Jesus Estanislao, the founding Chair of ICD, formally reported on the results of the 2007 CG Scorecard
Project, with comparison with those obtained in 2005 and 2006, as follows:
a) The number of participating companies in 2007 increased markedly to 135 corporations, compared to
49 in 2005 and 65 in 2006;
b) The aggregate score for the covered publicly-listed companies in 2007 was 65%, compared to 54% in
each of 2005 and 2006, definitely showing a marked improvement in CG practice among publicly-listed
companies;
c) The character of the CG Scorecard remains steadfast:
 It reflects public perception shaped by public verifiable disclosures that companies make (although
they may or may not be factual);
 Fully consistent with OECD framework and global CG principles;
 It adopts the five major categories of the OECD Framework: rights of shareholders (65%), equitable
treatment of shareholders (81%), Role of stakeholders (55%), and board responsibilities (5 1%), all of
which showed marked improvements from the ratings achieved in 2005 and 2005;
d) There is a significant divided in ratings between the top rated and lowest ranked publicly-listed
companies: Top 10-90% rating; Bottom 10%-42% rating;
e) The lower-ranking companies have the capacity to catch-up with the top-ranking companies: even the
2007 top-ranking companies (which average 96%, were able to dramatically improve their performance
compared with their averages in 2005 (then at 63%) and 2006 (then at 74%).
24. Discuss the Securities and Exchange Commission Code about Corporate Governance.

“ . . . A SYSTEM WHEREBY SHAREHOLDERS, CREDITORS AND OTHER STAKEHOLDERS OF A

CORPORATION ENSURE THAT MANAGEMENT ENHANCES THE VALUE OF THE CORPORATION AS IT
COMPETES IN AN INCREASINGLY GLOBAL MARKET PLACE.”
The SEC Code was issued in accordance with State’s policy to actively promote corporate governance
reforms aimed to:
 Raised investor’s confidence
 Develop the capital market
 Help achieve high sustained growth for the corporate sector and the economy

25. What was principle first enunciated in A. C. Ransom Labor Union-CCLU v. NLRC?

One of them is the principle first enunciated in A. C. Ransom Labor Union-CCLU v. NLRC, where the Court
first enunciated the principle that the highest officer of a corporation should stand liable with the
corporate employer for the labor claims of illegally dismissed employees, when there are no enough
corporate assets to fully satisfy those claims.

26. Compare the BSP Code, SEC Code and IC Code concerning Corporate Governance.

The definition of “corporate governance” under the SEC Code adheres more to establishing the
theoretical basis of the system of corporate governance and is value-laden by the terms found within its
definition; whereas, the IC Code definition looks at corporate governance from its process oriented point
of view, and treats corporate governance as system of management of corporate affairs. Yet, when going
into the operative provisions of both the SEC Code and the IC Code, as well as the BSP CG Circulars, they
all essentially follow the same format: provide for governance principles, then supported by leading
practices and procedures to implement the covered corporate governance principle.

27. Explain the Case Sergio F. Naguiat v. NLRC.

In Sergio F. Naguiat v. NLRC, although admitting that “our jurisprudence is wanting as to the definite
scope of ‘corporate tort’,” nevertheless sought to encompass corporate tort to “consists in violation of a
right given or the omission of a duty imposed by law . . , tort is a breach of a legal duty.” In that case, for
failure of the corporate employer to grant separation pay to employees in case of closure or cessation of
operations of establishments or undertaking not due to serious business losses or financial reverses as
mandated in Article 283 of the Labor Code, the Court held the corporate employer liable for tort,
including its stockholders who was actively engaged in the management or operation of the business.

The basis of liability for corporate tort is the act of negligence committed by an officer or authorized
agent of the corporation on behalf of the corporate business enterprise, rather than a breach of a
fiduciary obligation owed to the victim of the negligent act. Although it is true that violation of the
common duty of diligence would make the corporation and the acting director or officer liable, such
liability pertains to a breach of duty to a stakeholder, unlike tort liabilities which may arise in relation to
a stranger to the corporation who has suffered damage by virtue of a negligent corporate act. Also, mere
negligence causing damage to a person or entity is actionable in corporate torts situation, in violation of
Corporation Code, the level of negligence has to be “gross negligence.’
Nevertheless, the “doctrine of corporate responsibility” espoused in Professional Services, Inc., properly
characterizes the “fiduciary duty” that a corporation that opens its facilities to the public, has to a group
of stakeholder which has been referred to as “the public” or “the community.” It means therefore that
apart from public utilities and common carriers, any another company that by the nature of its business
or operations, caters to the demands or needs of the public, such as a hospital corporation, assume a
fiduciary obligation to the public of to the community that it serves to look at their safety and well-being.
Thus, the Court held that in the case of a corporate hospital, “the duty of providing quality medical service
is no longer the sole prerogative and responsibility of the physician” because “the modern hospital now
tends to organize a highly-professional medical staff whose competence and performance need also to be
monitored by the hospital commensurate with its inherent responsibility to provide medical care.”

28. Explain the Trust Fund Doctrine.

The definition of the trust fund doctrine that has been much adhered to in Philippine jurisdiction is one
given by Fletcher: “The capital stock of a corporation, or the assets of an insolvent corporation
representing its capital, is a trust fund for the benefit of the company’s creditors.”

29. Explain the SEC Rules Governing Redeemable and Treasury Shares of 1982.

The SEC Rules Governing Redeemable and Treasury Shares (1982), expressly adopts the doctrine as
follows: “The outstanding capital stock of a corporation, including unpaid subscriptions, shall constitute a
trust fund held by the corporation for the benefit of its creditors which shall not be returned to the
stockholders by repurchase of shares or otherwise, except in the manner as provided for under the
Corporation Code and these rules.”

30. Discuss the Case of the Commissioner of Internal Revenue v. Court of Appeals.

In Commissioner of Internal Revenue v. Court of Appeals, the Court reiterated that “under the trust fund
doctrine, the capital stock, property and other assets of the corporation are regarded as equity in trust for
the payment of the corporate creditors.”

31. Discuss the Case of A. C. Ransom Labor Union-CCLU v. NLRC on corporate laws.

In A.C. Ransom Labor Union-CCLU v. NLRC, the Court in interpreting he Labor \code held that since a
corporate employer is an artificial person, it must have an officer who can be presumed to be the
employer, being the “person acting in the interest of employer” as provided in the Labor Code. Therefore,
A.C. Ransom held that “the responsible officer of the employer corporation can be held personally, not to
say even criminally, liable for non-payment of backwages; and that in the absence of definite proof as to
the identity of an officer or officers of the corporation directly liable for failure to pay backwages, the
responsible officer is the president of the corporation jointly and severally with other presidents of the
same corporation

It must be noted, however, that the Supreme Court has now and then, not on a consistent basis, rejected
the universal application of the A.C. Ransom doctrine for being contrary to the main Corporate Law
principle expressed under Section 31 of the Corporation Code, that imposes personal liability on a
corporate director or officer only when he is shown to have acted with fraud, bad faith or gross
negligence. Thus, it has been held that only the responsible officer of a corporation who had a hand in
illegally dismissing an employee should be held personally liable for the corporate obligations arising
from such act; and for the separate juridical personality of a corporation to be disregarded as to make the
highest corporate officer personally liable on labor claims, the wrong doing must be clearly and
convincingly established.

32. Expound the doctrine of corporate responsibility.

The term “doctrine of corporate responsibility” has formally entered into Philippine jurisprudence in the
recent decision in Professional Services, Inc. v. Court of Appeals, where the Supreme Court held the
hospital corporation liable for the medical malpractice or professional negligence of a physician, who was
a member of its medical staff, thus –
The challenged Decision also anchors its ruling on the doctrine of corporate responsibility. The duty of
providing quality medical service is no longer he sole prerogative and responsibility of the physical. This
is because the modern hospital now tends to organize a highly-professional medical staff whose
competence and performance need also to be monitored by the hospital commensurate with its inherent
responsibility to provide quality medical care. Such responsibility includes the proper supervision of the
members of its medical staff. Accordingly, the hospital has the duty to make a reasonable effort to
monitor and oversee the treatment prescribed and administered by the physicians practicing in its
premises.

Unfortunately, the term doctrine of corporate responsibility was used in Professional Services, Inc., to
mean “corporate negligence doctrine . . . These special tort duties arise from the special relationship
existing between a hospital or nursing home and its patients, which are based on the vulnerability of the
physically or mentally ill persons and their inability to provide care for themselves.

“Corporate tort” as an independent source of liability that is not based on any fiduciary relationship, has
long been recognized in our jurisdiction, as to make the corporate principal and the corporate actor
jointly and severally liable as joint-tortfeasors.

33. -40. Explain the following:

33.1. Integrating social, environmental and economic terms into business values and actions.
Integrating social, environmental and economic terms into business values and actions. Some examples:
treating workers in foreign countries fairly; using environmentally sound practices regarding energy
consumption, waste and recycling.

33.2. Operating in an open, accountable and transparent way and showing concern for employees
and the communities and societies in which the business operate.

Operating in an open, accountable and transparent way and showing concern for employees and the
communities and societies in which the business operate.
Example: The Company may wish to contribute to some development project in a country, such as
providing clean water or building skills in local workers or staff working for the firm’s distributors or
agents.

33.3. Complying with local laws and regulations and avoiding corrupt practices.

Complying with local laws and regulations and avoiding corrupt practices such as giving or taking bribes.

33.4. Living up to Company commitments.

Living up to Company commitments. Make sure people understand the business culture and concern to
be a ‘good corporate citizen’ overseas. This starts with supplying quality goods and services that meet or
exceed the claims the Company make for them.

33.5. Make sure people understand the business culture and concern to be a ‘good corporate
citizen’ overseas.

This starts with supplying quality goods and services that meet or exceed the claims the Company make
for them

33.6. Monitoring Company image and success in implementing its principles in export markets.

Monitoring Company image and success in implementing its principles in export markets. What can
change or improvement for the better?

33.7. Demonstrating good business practice: invoicing and paying bills on time, delivering what
has been promised, and exceeding expectations.

The business must provide friendly customer service that exceeds expectations. Customer service starts
with hiring friendly and knowledgeable team members, but it ends by paying attention to what matters
most: Making sure the invoice process gets you paid on time.

33.8. The Company should be aware that in some markets corruption can be a major problem.

The Company should be aware that in some markets corruption can be a major problem. A useful source
of information on the target market is Transparency International’s annual Corruption Index.