Title: Problems of Corporate Governance in the Philippines Chapter I THE INTRODUCTION AND THE PROBLEM This chapter presents

the background and brief description of the study. This includes introduction and statement of the problem. Introduction Corporate governance has become an essential tool for improving corporate performance and advancing the development of market-oriented democracies. Good governance practices maintain the integrity of business transactions and in so doing strengthen the rule of law and democratic governance. A powerful antidote to corruption, corporate governance clarifies private rights and public interests, preventing abuses of both. Corporate governance infuses the democratic values of fairness, accountability, responsibility, and transparency into corporations. At its core, corporate governance structures the relationships among investors, board of directors, managers, and other stockholders. Its goal is to maximize long term shareholder value by improving corporate decision-making and performance. This involves establishing incentives and procedures that serve the interest of shareholders while respecting the interest of other stakeholders in the corporation. A well-run corporation generates value for investors and lenders as well as for its employees, customers, and society as a whole. Good corporate governance contributes to a healthy business climate that encourages domestic and foreign investment, in turn creating jobs and increasing the welfare of a countrys citizens.

(http://inec.usip.org/resource/corporate-governance-emerging-markets-cipe-reformtoolkit)

For emerging market countries, improving corporate governance can serve a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, and leads to capital market development. Weak corporate governance frameworks reduce investor confidence, and can discourage outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings. Over the past several years, the importance of corporate governance has been highlighted by an increasing body of academic research. Studies have shown that good corporate governance practices have led to significant increases in economic value added (EVA) of firms, higher productivity, and lower risk of systemic financial failures for countries. (http://www.worldbank.org/ifa/rosc_cg_phl_07.pdf Date Retrieved: January 07,2012) In the Philippine setting, the government has defined corporate governance as 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 Philippine definition explicitly includes stakeholders as a concern of corporate governance. This recognizes the far reaching impacts of business activities on parties other than the managers and owners of the corporation .This are crucial in the fragile development environment of the Philippines. (http://dlsps-online.com/file.php/1/Corporate_governance_by_Benito_Teehankee.pdf) The problems of corporate governance in the Philippines are some corporate executives will do almost anything to meet earnings expectations and keep the firms stock price stable or rising, the ethical climate in a firm is set by top management, auditors and their clients can get too close, application of GAAP is subject to significant management discretion and firms must make their earnings more transparent, there is

no way for accounting standards to stop fraud and lastly, over-reliance on a single amount earnings per share can be a disaster. (http://www.slideshare.net/alizaracelis/corporate-governance-6026560) According to Corporate Governance Watch 2010 by Hong Kong-based brokerage firm CLSA, the most disappointing market is the Philippines, which achieved what it has long threatened since we began this survey - last place, with its score dropping from 41% in 2007 to 27%. The survey specifically took note of International Container Terminal Services and San Miguel Corp. which both disenfranchised minority shareholders of their rights of pre-emption by changing their bylaws. (http://www.abscbnnews.com/business/09/26/10/%E2%80%98rp-corporate-governance-mostdisappointing%E2%80%99 Date Retrieved: January 07,2012)

Statement of the Problem

The purpose of this study is to identify the problems of corporate governance in the Philippines. It aims to answer the following questions: 1. What are the problems affecting corporate governance in the Philippines? 2. What are the causes and effects of the problems in corporate governance in the Philippines? 3. What are the possible solutions made to overcome the problems in corporate governance in the Philippines? Definition of Terms Corporate Governance. It is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled.

Good Governance. It is a relatively new term that is often used to describe the desired objective of a nation-states political development. Democratic Governance. The capacity of a society to define and establish policies and resolve their conflicts peacefully within the existing legal order. Stakeholders. A person, group, or organization that has direct or indirect stake in and organization because it can affect or affected by the organizations actions, objectives, and policies. Board of Directors. An appointed or elected body or committee that has overall responsibility for the management of a nonprofit or non stock organization, such as a foundation, university or mutual fund.