The Corporate organization Structure

ROLES OF EACH POSITION

•Shareholders: The shareholders elect the Board of Directors (BOD). Each share held is equal to
one voting right. Since the BOD is elected by the shareholders, their responsibility is to carry out
the objectives of the shareholders otherwise, they would not have been elected in that
position. Ask the learners again what the objective of the shareholders is just to refresh.
•Board of Directors: The board of directors is the highest policy making body in a corporation.
The board’s primary responsibility is to ensure that the corporation is operating to serve the
best interest of the stockholders. The following are among the responsibilities of the board of
directors:
- Setting policies on investments, capital structure and dividend policies.
- Approving company’s strategies, goals and budgets.
- Appointing and removing members of the top management including the president.
- Determining top management’s compensation.
- Approving the information and other disclosures reported in the financial statements
•President (Chief Executive Officer): The roles of a president in a corporation may vary from
one company to another. Among the responsibilities of a president are the following:
- Overseeing the operations of a company and ensuring that the strategies as approved by the
board are implemented as planned.
- Performing all areas of management: planning, organizing, staffing, directing and controlling.
- Representing the company in professional, social, and civic activities.
Although the president carries out the decision making for all functions, it would be difficult for
him/her to do this alone. The president cannot manage the company on his own, especially
when the corporation has become too big. To assist him are the vice presidents of different
functional areas: finance, marketing, production and administration.
•VP for Marketing: The following are among the responsibilities of VP for Marketing -
Formulating marketing strategies and plans.
- Directing and coordinating company sales.
- Performing market and competitor analysis. - Analyzing and evaluating the effectiveness and
cost of marketing methods applied.
- Conducting or directing research that will allow the company identify new marketing
opportunities, e.g. variants of the existing products/services already offered in the market.
- Promoting good relationships with customers and distributors.
•VP for Production: The following are among the responsibilities of VP for Production:
- Ensuring production meets customer demands.
- Identifying production technology/process that minimizes production cost and make the
company cost competitive.
- Coming up with a production plan that maximizes the utilization of the company’s production
facilities.
- Identifying adequate and cheap raw material suppliers.
•VP for Administration: The following are among the responsibilities of VP for Administration: -
Coordinating the functions of administration, finance, and marketing departments.
- Assisting other departments in hiring employees.
- Providing assistance in payroll preparation, payment of vendors, and collection of receivables.
- Determining the location and the maximum amount of office space needed by the company
. Identifying means, processes, or systems that will minimize the operating costs of the
company.

Examples of Debt Instruments:

•Treasury Bonds and Treasury Bills are issued by the Philippine government. These bonds and
bills have usually low interest rates and have very low risk of default since the government
assures that these will be paid.
•Corporate Bonds are issued by publicly listed companies. These bonds usually have higher
interest rates than Treasury bonds. However, these bonds are not risk free. If the company
which issued the bonds goes bankrupt, the holder of the bonds will no longer receive any
return from their investment and even their principal investment can be wiped out. - Equity
Instruments generally have varied returns based on the performance of the issuing company.
Returns from equity instruments come from either dividends or stock price appreciation. The
following are types of equity instruments:
•Preferred Stock has priority over a common stock in terms of claims over the assets of a
company. This means that if a company were to be liquidated and its assets have to be
distributed, no asset will be distributed to common stockholders unless all the claims of the
preferred stockholders have been given. Moreover, preferred stockholders have also priority
over common stockholders in cash dividend declaration. Dividends to preferred stockholders
are usually in a fixed rate. No cash dividends will be given to common stockholders unless all
the dividends due to preferred stockholders are paid first.
• Holders of Common Stock on the other hand are the real owners of the company. If the
company’s growth is spurring, the common stockholders will benefit on the growth. Moreover,
during a profitable period for which a company may decide to declare higher dividends,
preferred stock will receive a fixed dividend rate while common stockholders receive all the
excess
Public offering - The sale of either bonds or stocks to the general public.
Private placement - The sale of a new security directly to an investor or group of investors.
Secondary market - Financial market in which preowned securities (those that are not new
issues) are traded.
Money market - A financial relationship created between suppliers and users of short-term
funds.
Capital market - A market that enables suppliers and users of long-term funds to make
transactions.
PRIMARY vs. SECONDARY MARKETS
• To raise money, users of funds will go to a primary market to issue new securities (either debt
or equity) through a public offering or a private placement.
• The sale of new securities to the general public is referred to as a public offering and the first
offering of stock is called an initial public offering. The sale of new securities to one investor or
a group of investors (institutional investors) is referred to as a private placement.
• However, suppliers of funds or the holders of the securities may decide to sell the securities
that have previously been purchased. The sale of previously owned securities takes place in
secondary markets.
• The Philippine Stock Exchange (PSE) is both a primary and secondary market.
MONEY MARKETS vs. CAPITAL MARKETS
•Money markets are a venue wherein securities with short-term maturities (1 year or less) are
sold. They are created because some individuals, businesses, governments, and financial
institutions have temporarily idle funds that they wish to invest in a relatively safe, interest-
bearing asset. At the same time, other individuals, businesses, governments, and financial
institutions find themselves in need of seasonal or temporary financing.
• On the other hand, securities with longer-term maturities are sold in Capital markets. The key
capital market securities are bonds (long-term debt) and both common stock and preferred
stock (equity, or ownership).

EXAMPLES OF FINANCIAL INSTITUTIONS

- Commercial Banks - Individuals deposit funds at commercial banks, which use the deposited
funds to provide commercial loans to firms and personal loans to individuals, and purchase
debt securities issued by firms or government agencies.
- Insurance Companies - Individuals purchase insurance (life, property and casualty, and health)
protection with insurance premiums. The insurance companies pool these payments and invest
the proceeds in various securities until the funds are needed to pay off claims by policyholders.
Because they often own large blocks of a firm’s stocks or bonds, they frequently attempt to
influence the management of the firm to improve the firm’s performance, and ultimately, the
performance of the securities they own.
- Mutual Funds - Mutual funds are owned by investment companies which enable small
investors to enjoy the benefits of investing in a diversified portfolio of securities purchased on
their behalf by professional investment managers. When mutual funds use money from
investors to invest in newly issued debt or equity securities, they finance new investment by
firms. Conversely, when they invest in debt or equity securities already held by investors, they
are transferring ownership of the securities among investors.
- Pension Funds - Financial institutions that receive payments from employees and invest the
proceeds on their behalf. - Other financial institutions include pension funds like Government
Service Insurance System (GSIS) and Social Security System (SSS), unit investment trust fund
(UITF), investment banks, and credit unions, among others.
How Financial Institutions Provide Financing for Firms