- Needs to be informed and organized
MGT 3
INTRODUCTION TO
CORPORATE
GOVERNANCE
WHAT IS GOVERNANCE?
- Generally, refers to a process whereby
elements in society wield power,
authority and influence and enact
policies and decisions concerning public
life and social upliftment.
- Comprises all the process of governing
- Process of decision-making and the
process by which decisions are
implemented (or not implemented)
through exercise of power or authority
by leaders of the country and/or
organizations
several contexts of governance
- corporate governance
- international governance
- national governance
- local governance
CHARACTERISTICS OF GOOD
GOVERNANCE
Participation
- Either direct or through legitimate
- institutions or representatives
- Representative democracy – concern of
most vulnerable in society
Rule of Law
- Requires fair legal frameworks that are
enforced impartially
- Requires full protection of human rights
(particularly minorities)
- Impartial enforcement of laws
(independent judiciary and incorruptible
police force)
Transparency
- Decisions taken and their enforcement à
follows rules and regulations
- Information is freely available and
directly accessible
- Enough information is provided and in
easily understandable forms and media
Responsiveness
- Requires that institutions and processes
try to serve the needs of all stakeholders
within a reasonable timeframe
Consensus Oriented
- Requires mediation of the different
interests in society
- Requires broad and long-term
perspective (sustainable human
development)
- Understanding of the historical, cultural
and social contexts of a given society or
community
Equity & Inclusiveness
- Ensures that all its members feel that
they have a stake in it
- Requires all groups to have
opportunities to improve or maintain
their well being
Effectiveness & Efficiency
- Processes and institutions produce
results that meet the needs of society
- Concept of efficiency – covers the
sustainable use of natural resources and
the protection of environment
Accountability
- A key requirement of good governance
- Not only governmental institutions but
also the private sector and civil society
organizations
- Who is accountable to whom?
- Accountable to those who will be
affected by decisions or actions
- Cannot be enforced without
transparency and the rule of law
CORPORATE GOVERNANCE: AN
OVERVIEW
Corporate governance
- System of rules, practices and
processes by which business
corporations are directed and controlled
- Involves balancing the interests of a
company’s many stakeholders
- Received growing attention in the public
- Good corporate governance – relevant
and vital for all organization
- Specifies the distribution of rights and
responsibilities among different
participants in the corporation
- Spells out the rules and procedures for
making decisions on corporate affairs
- Objectives are set (the means of
attaining and monitoring performance
PURPOSE OF CORPORATE
GOVERNANCE
- To facilitate effective, entrepreneurial
and prudent management
- To enhance shareholder’s value
- To protect the interests of other
stakeholders
- It is about what the BOD of a company
does
OBJECTIVES OF CORPORATE
GOVERNANCE
The following are the basic objectives of
corporate governance:
1. Fair and Equitable Treatment of
Stakeholders
- Group of high-net-worth individuals and
institutions à top-level positions
- All shareholders deserve equitable
treatment à safeguarded by a good
governance structure
2. Self-Assessment
- Assess company’s behavior and actions
- Strong corporate governance = limit
exposure to regulatory risks and fines
- Active and independent board à
successfully point out deficiencies or
loopholes in the company operations
3. Increase Shareholder’s Wealth
- To protect long-term interests of the
shareholders
- Strong corporate governance = have
higher valuation of shares
- Induces potential investor to invest
4. Transparency and Full Disclosure
- Ensures a higher degree of
transparency by encouraging full
disclosure of transactions in the
company accounts
BASIC PRINCIPLES OF EFFECTIVE
CORPORATE GOVERNANCE
- Effective – transparent, protects the
right of shareholders and includes both
strategic and operational risk
management
- Long-term earning potential; short-term
earnings
- Holds directors accountable for
stewardship of the business
BASIC PRINCIPLES OF EFFECTIVE
CORPORATE GOVERNANCE
A. Transparency and Full Disclosure
- Does the board meet the information
needs of investment communities?
- Does it safeguard integrity in financial
reporting?
- Does the board have sound disclosure
policies and practices?
- Does it make timely and balanced
disclosure?
- Can an outsider meaningfully analyze
the organizations actions and
performance?
B. Accountability
- Does it promote objective, ethical and
responsible decision making?
- Does it lay solid foundations for
management oversight?
- Does the composition mix of board
membership ensure an appropriate
range of mix expertise, diversity,
knowledge and added value?
- Is the organization’s senior official
committed to widely accepted standards
of correct and proper behavior?
C. Corporate Control
- Has the board built long-term
sustainable growth in shareholders’
value for the corporation?
- Does it create an environment to take
risk?
- Does it encourage enhanced
performance?
- Does it recognize and manage risk?
- Does it remunerate fairly and
responsibly?
- Does it recognize the legitimate - Effective governance framework and
interests of stakeholders? issues relating to each element

- Are conflicts of interest avoided such - Essence of any system of good

that the organization’s best interests corporate governance:
prevail at all times?
- To allow the board and management the
freedom to drive their organization

- To exercise that freedom within a

framework of effective accountability

RELATIONSHIP BETWEEN
SHAREHOLDERS/OWNER(S) AND
OTHER STAKE HOLDERS
CORPORATE
Ø Shareholders require accountability as to
GOVERNANCE how well the resources that have been
RESPONSIBILITIES AND entrusted to management and the board
have been used.
ACCOUNTABILITIES
Ø For example, the owners want
CORPORATE GOVERNANCE accountability on such things as:
RESPONSIBILITIES AND
ACCOUNTABILITIES a. Financial performance

- Characteristics of good governance in b. Financial transparency

Chapter 1 – both SME’s and large listed
public companies c. Stewardship

- Organization grow in size and influence d. Quality of internal

à issues become increasingly important control

e. Composition of BOD
- Good corporate governance – based on
and the nature of its
principles
activities
- No absolute rules which must be
Ø Owners wants disclosures from
adopted by all organizations
management that are accurate and
- “There is no simple universal formula for objectively verifiable.
good governance.”
Ø Management responsibility:
- Corporate governance à Corporate
a. To provide financial reports
governance framework
and reports in internal control
effectiveness
 b. Primary: for the accuracy
and completeness of FS
Ø From a financial reporting perspective, it
is the management’s responsibility to:
a. Choose which accounting
principles best portray the
economic substance of
company transactions.
b. Implement a system of
internal control that
assures completeness
and accuracy of financial
reporting.
c. Ensure that the FS
contain accurate and
complete disclosure
Board of Directors Broad role: The
major
representative of
stockholders to
ensure that the
organization is run
according to the
organization’s
charter and that
there is proper
accountability.
Specific activities
include among
others: Overall
Operations
- Establishing
organization’s
vision, mission,
values and
ethical
standards

PARTY OVERVIEW OF - Delegating an

RESPONSIBILTI appropriate
ES level of authority
to management
Shareholders Broad role:
- Demonstrating
Provide effective
leadership
oversight through
election of board
members, approval
of major initiatives
such as buying or
selling stock,
annual reports on
management
compensation, from
the board
 corporate
- Assuming secretary
responsibility for
the business
relationship with 2. Performance
CEO including
- Ensuring the
his or her
organization’s long
appointment,
term viability and
succession,
enhancing the
performance
financial position
remuneration
and dismissal. - Formulating and
overseeing
- Overseeing
implementation of
aspects of the
corporate strategy
employment of
the - Approving the
management plan, budget and
team including corporate policies
management
remuneration, - Agreeing key
performance performance
and succession indicators (KPIs)
planning

TO BE
- Recommending CONTINUED
auditors and
new directors to
shareholders

- Ensuring
effective
communication
with
shareholders
and other
stakeholders

- Crisis
management

- Appointment of
the CFO and
 and decisions of an individual or group.
- Personal ethics vary from individual to
individual
- Society – passes laws that define what its
citizens consider to be the more extreme
forms of unethical behavior
- Examples of prescribed sets of moral
principles or values
a. Laws and regulations
b. Church doctrine
c. Code of business ethics for
professional groups (e.g., CPAs)
d. Codes of conduct within individual
organization

v How do we know whether we are acting

ethically?

v Who decides what standards of conduct

are appropriate?

v Is any type of behavior “ethical” as long

as it does not violate a law or a rule of
one’s profession?

CHARACTERISTICS AND VALUES

ASSOCIATED WITH ETHICAL BEHAVIOR

The following list of ethical principles

incorporates the characteristics and values
that most people associate with ethical
behavior:
a. Integrity
b. Honesty
c. Trustworthiness and Promise
Keeping
d. Loyalty (Fidelity) and
Confidentiality
INTRODUCTION TO e. Fairness and Openness
f. Caring for Others
ETHICS g. Respect for Others
h. Responsible Citizenship
Ethics i. Pursuit of Excellence
- Can be defined broadly as a set of moral j. Accountability
principles or values that govern the actions
WHY IS ETHICAL BEHAVIOR
NECESSARY?
For society to function in an orderly
manner
Ethics – glue that holds a society
together
Many commonly held ethical values are
incorporated into laws
A considerable portion of the ethical
values of a society cannot be
incorporated into laws because of the
judgmental nature of certain values
WHY DO PEOPLE ACT UNETHICALLY?
Ø Unethical behavior – conduct that differs
from the way they believe would have
been appropriate given the
circumstance
Ø Each of us decides for ourselves what we
consider unethical behavior (both for
ourselves and other)
Ø Two primary reasons why people act
unethically:
1. the person’s ethical
standards are different from those of
society as a whole, or
2. the person chooses to act
selfishly
Ø 1. Person’s Ethical Standards differ
from General Society
Ø Extreme examples: drug dealers, bank
robbers, and larcenists.
Ø They feel no remorse when they are
apprehended.
Ø Less extreme examples: people who
cheat on their tax returns, treat other
people with hostility, lie on employment
applications, or perform below their
competence level as employees
Ø If other person has decided that this
behavior is ethical and acceptable, there
is a conflict of ethical values that is
unlikely to be resolved.
Ø 2. The Person Chooses to Act
Selfishly - Pork Barrel Scam
and other political scandals resulted
from the desire for political power and
wealth
- Cheating on tax returns and expense
reports is motivated by financial greed
- Performing below one’s competence
and cheating on tests are typically due
to laziness.
- The person knows that the behavior
is inappropriate, but chooses to do it
anyway because of the personal
sacrifice needed to act ethically
CATEGORIES OF ETHICAL PRINCIPLES
Principles of Personal Ethics include
among others:
o Basic justice, fairness
o Respect for the rights of others
o Concern for the rights of others
o Concern for the well-being on welfare of
others
o Benevolence, trustworthiness, honesty
o Compliance with the law
Professional Ethics include among
others:
o Integrity, impartiality, objectivity
o Professional competence
o Confidentiality
o Professional behavior
o Avoidance of potential or apparent
conflict of interest
Business Ethics include among others:
o Fair competition
o Global as well as domestic justice
o Social responsibility
o Concern for environment
CATEGORIES OF ETHICAL PRINCIPLES
The Need for Professional Ethics
§ To understand the importance of a Code
of Ethics to professionals, one must
understand the nature of a profession as
opposed to other vacation.
§ There is no universally accepted
definition of what constitutes a
profession.
§ All the recognized professions have
several common characteristics:
(1) a responsibility to serve the
public; (2) a complex body of
knowledge;
(3) Standards of admission to
the profession; and
(4) a need for public confidence
BUSINESS ETHICS
BASIC CONCEPT OF BUSINESS ETHICS
Business ethics
- Refers to standards of moral conduct,
behavior and judgment in business.
- Involves making the moral and right
decisions while engaging in such
business activities
- An area of corporate responsibility
where businesses are legally bound and
socially obligated to conduct business in
an ethical manner.
- Based on the personal values and
standards of each person engaged in
business
PURPOSE OF BUSINESS ETHICS
Main purpose
v To help business and would-be business
to determine what business practices
are right and what are wrong.
v Use this knowledge to guide them in
making the right business decisions.
Special Purpose
v To make businessmen realize that they
cannot employ double standards to the
actions of other people and to their own
actions.
v To show businessmen that common
practices which they have thought to be
right because they see other
businessmen doing it, are really wrong.
v To serve as a standard or ideal upon
which business conduct should be
based.
v Except for some country’s organizations,
professionals which have formulated
and implemented their Code of Ethics,
the business world today does not have
one universal standard code of ethics.
v Each man has to evaluate a situation
according to his own belief.
v NO code of ethics à businessmen take
actions that may be wrong
v Specific Purpose of Business Ethics: to
assist the business world in formulating
codes of conduct which can be used as
a guide in formulating business plans
and strategies and in making business
decisions.
SCOPE AND IMPACT OF BUSINESS
ETHICS
Ø Covers all conduct, behavior and
judgment in business.
Ø Includes the slightest deviation from what
is right to illegal and dishonest acts that
are punishable by law.
Ø Involves making the right choices while
engaging in business activities.
Ø Generally, actions that are NOT
forbidden by law are ethical.
Ø In some cases, what is legal MAY BE be
unethical.
Ø Therefore, business ethics covers even
acts that MAY BE legal but which are
wrong à violate ethical principles
Ø Based on the personal values and
standards of each person engaged in
business.
Ø Individual values differ à what is ethical or
unethical in making profit also varies
from person to person.
Ø There is still no uniform standards of
right and wrong from which all business
may base their actions
Fair business competition
- Businessman – most likely to observe
the business ethical rules of conduct,
behavior and judgment
- Means achieving success solely by
offering better products, services and
terms than the competitor.
- A form of business competition where
success is gained by the merits of one’s
goods or services.
Economic Impact
- Through wages paid to its employees
(positive impact: paid fair living wages
and benefits)
- Materials bought from suppliers
(positive effect: paid fairly and on time)
- Prices charged to customers (positive:
business gives them good value for the
price they pay for the products and
services)
Social Impact
- If business offers bribes to secure work
or other benefits, engage in accounting
fraud or breach regulatory and legal
limitations on their operations, the ethics
of society suffer.
- Deteriorating ethical environment (e.g.,
corruption) may unfairly raise the price
of goods for consumers or the quality of
the product or service compromised.
Environmental impact
- Environmental protection – key area of
business influence on society.
- Good environmental policies à to use
energy more efficiently, reduce waste
and in general lighten their
environmental footprint can reduce
internal costs and promote positive
image of the company.
- Environmental initiatives à force
competitors to take similar action for an
increased beneficial effect on the
environment.
Impact on Business Managers
- Acknowledge that his role is to serve
the business enterprise and the
community
- Avoid all abuse of executive power for
personal gain, advantage or prestige.
- Reveal the fact to his superior whenever
his personal business of financial
interests conflict with those of the
company.
- Be actively concerned with the
difficulties and problems of
subordinates, treat them fairly and by
example, lead them effectively, assuring
to all the right of reasonable access and
appeal to superiors.
- Recognize that his subordinates have a
right to information on matter affecting
them, and make provision for its prompt
communication.
- Fully evaluate the likely effects on
employees and the community of the
business plans for the future before
taking a final decision and
- Cooperate with his colleagues and not
attempt to secure personal advantage at
their expense.
COMMON UNETHICAL
PRACTICES OF
BUSINESS
ESTABLISHMENTS
COMMON UNETHICAL PRACTICES OF
BUSINESS ESTABLISHMENTS
Ø Unethical problems in business ethics
occur in many forms and types.
Ø The most common of these unethical
practices of business establishments are
misrepresentation and over-persuasion.
Misrepresentation
1. Direct Misrepresentation – characterized
by actively misrepresenting about the
product or customers.
2. Indirect Misrepresentation –
characterized by omitting adverse or
unfavorable information about the
product or service
Direct Misrepresentation
a. Deceptive Packaging
- The practice of placing the product in
containers of exaggerated sizes and
misleading shapes to give false
impression of its actual content.
b. Misbranding or Mislabeling
- The practice of making false statements
on the label of a product or making its
container similar to a well-known
product for the purpose of deceiving the
customer as to the quality and/or
quantity of a product being sold
c. False or Misleading Advertising
- Advertising serves a useful purpose if it
conveys the right information.
- Principal means by which people are
informed about the availability, nature
and uses of old and new products.
- Advertising DOES NOT always tell the
“whole truth and nothing but the truth” if
it greatly exaggerates the virtues of a
product and tells only half of the truth or
else sings praises to its non-existent
virtues
d. Adulteration
- The unethical practice of debasing a
pure or genuine commodity by imitating
or counterfeiting it, by adding something
to increase it bulk or volume, or by
substituting an inferior product for a
superior one for the purpose of profit or
gain.
e. Weight understatement or Short
weighing
- The mechanism of the weighing scale
is tampered with or something is
unobtrusively attached to it so that the
scale registers more than the actual
weight.
f. Measurement understatement or
Short measurement
- The measuring stick or standard is
shorter than the real length or smaller in
volume than the standard.
g. Quantity understatement or Short
numbering
- The seller gives the customer less than
the number asked for or paid for
Indirect Misrepresentation
a. Caveat emptor (“Let the buyer
beware.”)
- A practice very common among
salesmen.
- Seller is not obligated to reveal any
defect in the product or service he is
selling.
- It is the responsibility of the customer to
determine for himself the defects of the
product.
- Unethical à willingness of the seller to
generate profit by taking advantage of
the buyer’s lack of information
b. Deliberate Withholding of Information
- Deliberate withholding of significant
information in a business transaction
- No business transaction is fair where
one of the parties does not exactly know
what is he giving away or receiving in
return.
c. Passive deception
- Business ignorance – businessman is
unable to provide the customer with the
complete information that the latter
needs to make a fair decision.
Over-Persuasion
Persuasion – the process of appealing
to the emotions of a prospective
customer and urging him/her to buy an
item of merchandise he/she needs.
Persuasion used for the sole benefit of
selling a product without considering the
interest of the buyer is not ethical.
CORPORATE ETHICS
Unethical Practices of Corporate
Management
1. Practices of BOD
a. Plain graft
- Voting for themselves and
the executive officers huge per diems, large
salaries, big bonuses that do not
commensurate to the value of their services.
- Reduce the earnings going
to the other shareholders by authorizing
purchases of goods and services for the
company’s use at a price higher than
normal à certain % or commission accruing
to them.
b. Interlocking Directorship
- Often practice by a person who
holds directorial position in two or more
corporation that do business with each
other.
- May involve conflict of interest and
can result to disloyal selling.
c. Insider Trading
- Occurs when a broker or another
person with access to confidential
information uses that information to trade in
shares and securities of a corporation
d. Negligence of Duty
- When the BOD fail to attend board
meeting regularly.
- Could result to betrayal of trust of
the parties who elected them to their
positions
2. Practices of Executive Officers and Lower
Level Managers
a. Claiming a vacation trip to be a
business trip
b. Having employees do work
unrelated to the business
c. Loose or ineffective controls
d. Unfair labor practices
e. Making false claims about losses
to free themselves from paying the
compensation and benefits provided by law.
f. Making employees sign
documents showing that they are receiving
fully what they are entitled to under the law
when in fact they are only receiving a
fraction of what they are supposed to get.
g. Sexual Harassment
1. Conflict of Interest
- When an employee who is duty
bound to protect and promote the interest of
his employer violates this obligation by
getting himself into a situation where his
decision or actuation is influenced by what
he can gain personal from it rather than
what his employer can gain from it.
2. Dishonesty
- Dishonest acts of employees as
he/she carries out his/her assigned duties in
the office
ADVOCACY AGAINST
CORRUPTION
WHAT IS CORRUPTION?
· The abuse of private and public office
for personal gains.
· Includes acts of bribery, embezzlement,
nepotism, kickbacks and state capture.
· Receiving, asking for or giving any
gratification to induce a person to do a
favor for private gain.
· Covers not only public corruption
involving misuse of public power by
elected politician or appointed civil
servant but also private corruption
between individuals and businesses
HOW DOES CORRUPTION LOOK LIKE?
Corruption may take place in any of the
following forms/ways:
1. A company paying a bribe to win
the public contract to build the local
highway, despite proposing a sub-standard
offer.
2. A politician redirecting
investments to his hometown rather than to
the region most in need.
3. Public official embezzling funds
for school renovation to build his private
villa.
4. A private company manager
recruiting an ill-suited friend for a high level
position.
5. Or, local officials demanding
bribes from ordinary citizens to get access
to a new water pipe.
6. A salesman bribing the
purchasing manager of a company to give
preference to his products.
At the end of the day, those hurt most by
corruption are the world’s weakest and most
vulnerable.
WHY AND HOW DOES A PERSON
BECOME CORRUPT
Ø Corruption spread when there are
opportunities, when risk is minimal in
comparison to benefits obtained or when
one is confronted with issues like (1)
 Career advancement, (2) Earning of
more income, or (3) Financial problems
caused by illness, loss of property, etc.
Ø Those engaged in corruption learn how
be dishonest.
Ø The next corrupt actions becomes easier
to do unless one is firmly rooted on solid
principles and has been nurtured in an
upright manner
ILL EFFECTS OF CORRUPTION
Economically:
- Corruption add up to 10% of the total
costs of doing business in any part of
the world and up to 25% of the cost of
procurement programs in developing
countries.
- Corruption leads to waste or the
inefficient use of public resources.
- Corruption corrodes public trust,
undermines the rule of law, and
ultimately delegitimizes the state.
- Africa’s 700 million people under 30 are
seeking opportunities with dignity and if
mismatch between aspirations and
fulfilment continues, this could lead to
apathy, discontent and turn them to
radical extremists and join terrorist
groups.
Other significant and serious repercussions
of corruption are:
1. Can lead to a breakdown in social order
and lives are effected when ordinary
people are prevented from receiving all
the essential service that they are
entitled to.
- May have drastic impacts à most of the
public funds are used on the leisure and
lifestyle of influential people à instead of
allotting them on hospitals, schools and
other basic needs of general public.
2. Creates unfair competition and
increases the cost of doing business.
- Every form of corruption is bad for
economic growth and could result to
tarnished reputation of an entire country.
- Corruption causes businesses to flee
from the country because businessmen
find it a constant threat for their
progress.
3. A cancer that spreads rapidly all
over the body
- Corruption in Australia, Canada and few
European countries has dropped
extensively due to adoption of concrete
measures.
- Corruption in developing and
underdeveloped countries (e.g.,
Afghanistan and Somalia) is still a
critical problem
Ø Corruption is UNIVERSAL; exists in all
countries (developed and developing), in
the public and private sectors, as well as
non-profit and charitable organizations.
Ø Major corruption arises whenever major
events involving large sums of money,
multiple parties or huge quantities of
products are at stake.
Ø Corruption also flourishes in situation
involving high technology.
Ø All corruption costs are absorbed by the
consumers and the taxpayers
CHARACTERISTICS OF
CORRUPTION
a. Recipients and payers
- Corruption is the abuse of entrusted
power and elected authority for private
profit.
- Recipients à Politicians, public officials
etc.
- Payersà Who benefit from that abuse of
power and authority
b. Extortion
- Those having authority in our society
ask to be bribed or gives us the
opportunity to bribe.
- Who to blame? Shifts from the person
who pays to the person who extorts and
receives
- ‘There’s no escaping from it, for if you
don’t pay, you are bound to fall behind.’
- Potential payer à look for the
politician/public official of whom
everybody knows that he can be
‘bought’
c. Lubricant of society
- Many think that bribes is required for
smoother operation of society.
- Without occasional gift for instance
upon entering into a contract for the
supply of a product or service, such
contracts might be a lost to them and
might be assigned to others.
- To secure sales: gifts are cost item
accounted for in advance (prices)
- Macro economics à corruption costs
money to society; loss
- Micro economics à bribing entrepreneur
à profitable
d. An ethical dilemma
- Payer and recipients of bribes behavior
is secret; IMPROPER
- Corruption is an ethical and behavioral
problem
- Referred as being SINFUL,
WRONGDOING à solved thru REFORM
- Aims at improving individual and
personal behavior
- Good entrepreneurship is judged with
regard to its quality in all sign three
aspects: People, Planet and Profit
e. Poverty alleviation
- Individual poverty reduction of lower
operational staff who on an operational
level often have good opportunities to
extract extra income or privileges from
decisions they might take
- Low pay does surely not automatically
imply that, consequently, the person
concerned is corrupt.
- Greater importance: prevention of (or
fight against) corruption; clearness and
transparency of rules and of the decision
making process
- Timely payment of salaries: important
pre-condition to prevent corrupt behavior
f. Culture
- Gifts are inherent to human relations
and present in all cultures.
- Gifts received are open and visible to
everyone.
- Corrupt payments are made in hiding
and are not made known.
- A gift made in public will also impose a
certain obligation upon the recipient
g. ‘Kindness among friends’
- Gifts: Is it a sign of thoughtfulness or is
it hiding a particular purpose, an
expected ”return” in the future?
- Is it a “friendly turn” or is it an
“investment?”
THE PHILIPPINES CORRUPTION
REPORT
Ø In 2016, the Philippines loses P200 billion
from smuggling and P400 billion from
tax evasion perpetuated through
collusion with some personalities in the
government agencies.
Ø P2.6 trillion is loss annually in corruption
globally
Judicial system
- Bribes and irregular payments in return
for favorable judicial decisions
- Judiciary is formally independent, but
the rich and powerful have frequently
influenced proceedings in civil and
criminal cases.
- Low salaries for judicial officials are
said to perpetuate the problem of bribery
- Judiciary is underfunded by the state
and often depends on local sponsors for
resources and salaries, resulting in
non-transparent and biased court
decision
Police
- National police force is widely regarded
as one of the most corrupt institutions in
the country.
- Companies report that they cannot rely
on the police services.
- More than half of firms pay for private
security.
- Businesses rate the National Police’s
commitment to fighting corruption as
‘poor.
Public Services
- Approximately half of business
executives reported being asked for a
bribe by someone in the government in
2017.
- Nearly 3/5 business reported expecting
to give gifts in order ‘to get things done,’
but only 1/10 reported expected to give
gifts to get an operating license
Land Administration
- 2/5 companies report expecting to give
gifts when obtaining a construction
permit.
- Businesses have insufficient confidence
in the protection of property rights.
- The court system is slow to resolve land
disputes
Tax Administration
- Around 1 in 7 companies indicate they
expect to give gifts in meetings with tax
officials.
- Tax regulations are among the most
problematic factors for conducting
business in the Philippines.
- Companies indicate that they perceive
that only a fifth of businesses in their line
of business pay their taxes honestly.
- BIR are believed to be prone to
corruption, embezzlement and extortion.
Customs Administration
- Companies indicate that irregular bribes
and payments in import and export
procedures are very common.
- ¼ of companies indicate they expect to
give gifts when obtaining an import
license.
- A business survey indicates that the
BOC was the only agency receiving a
rating of ‘very bad’ when it came to its
commitment to fighting corruption.
- Smuggling of goods has led to the
evasion of at least $1 billion yearly.
Public Procurement
- More than 1/5 of businesses report,
they have expect to give gifts in order to
win a government contract.
- Diversion of public funds, as well as
favoritism in the decisions of public
officials, is very common.
- Local-level public procurement lacks
transparency, fostering a culture of
corruption through the misuse of the
pork barrel system; which are funds for
discretionary use by representatives for
projects in their districts
Natural Resources
- Poor value realization and revenue
management have caused the country’s
overall resource governance to be
judged as ‘weak.’
- While transparency has improved, poor
regulation and overlapping policy
responsibilities between local and
central governments have meant that
small-scale mining is still a contentious
issue.
- Government corruption has allowed
mining companies to evade government
regulations, which has resulted in
large-scale deforestation, flattened
mountaintops and water pollution.
PREVENTION OF CORRUPTION
- Corruption comes from weakness of
human nature – greed, temptation, the
desire to amass wealth or to obtain
business through unfair means.
- Even with harsh penalties, corruption
cannot be eradicated completely
Below are some measures business and
organizations can adopt to help prevent
corruption in the work-place:
a. Clear business processes
- Having defined workflows, clear
directives on financial approving
authorities, and standard procurement
 instructions can help flag irregularities in
a business or organization.
- These processes should be reviewed on
regular basis to ensure they are updated
to the shifting business environment
b. Policy on Gifts and Entertainment
- Setting policy on when gifts and
entertainment may be given and
accepted and what records need to be
kept.
- The business partners should be aware
of the organization’s gift and
entertainment policy
c. Declaration of Conflict of Interest
- The company may provide a declaration
form for COI for employees, and then
use the information to take the most
appropriate course of action
d. Convenient Corruption Reporting
System
- A key function to control corruption and
bribery risks, and can comprise a
whistle-blowing policy or feedback
channel where staff can conveniently
raise concerns and feel protected from
being identified or retaliated against.
- Allowing reports to be filed anonymously
through a publicized email address or
phone number
EFFORTS TO CURB CORRUPTION
THROUGH LEGISLATION
· Anti-Graft and Corrupt
Practices Act
· Anti-Red Tape Act
· Revised Penal Code (gifts
are classified as indirect
bribery)
· Anti-Money Laundering Act
· Act Establishing a Code of
Conduct and Ethical
Standards for Public Officials
and Employees
· Government Procurement
Reform Act
· United Nations Convention
against Corruption
VIGILANCE OF CIVIL SOCIETY
Ø PH civil society is active and is
represented by a wide variety of
different organizations.
Ø Public Participation is high and civil
society organizations (CSOs) enjoy a
high level of social capital.
Ø CSOs are normally not included in formal
decision-making, but they play a large
role in initiating legislation and steering
debate in Congress.
Ø The Constitution guarantees freedoms of
speech and of expression, but in
practice these freedoms are not
consistently upheld.
Ø The media environment is largely
privately owned and diverse, and the
state generally exercises very little
censorship.
Ø The view represented in the mainstream
media are heavily influenced by the
oligarchical owners of many of the
outlets.
Ø The Philippines is the 2nd most
dangerous country in the world for
journalists to operate in, as measured by
the number of journalist deaths.

Ø The existence of libel and defamation

laws remains a problem and are
frequently used by officials and powerful
individuals to try to silence journalist.

Ø The Philippine press is classified as

‘partly free’