Corporate Social Responsibilities

External Institutions/Factors of
Corporate Governance
Mr. Paul Mora
 Things to discuss:
 Choices within legal constrains
 The External Institution of Corporate Governance
 Models of corporate governance
 Board of
Directors

Top Under
Management Management

Corporate
Governance

Sharesholders Society
 Choices within legal constrains
 Anti-takeover Defense
 Mitigation and indemnification of director and officer liability
 Anti-takeover Defense

There are 3 ways to take over a public company

1. Vertical Acquisition
2. Horizontal Acquisition
3. Conglomerated Acquisition

With this in mind, some basic defense strategies can be used by the management of potential target
companies to deter unwanted acquisition advances.
 Vertical Acquisition
Direction Explanation Example
Forward

Forward Acquiring a Manufacturer

business buys a
further up the distributor
supply chain

Backward Acquiring a Retailer buys a

business wholesaler
operating
earlier in the
supply chain Backward
 Horizontal Acquisition
Acquiring a business at the same stage of supply chain
Example: Manufacturer buys a competitor

Jollibee Mang Inasal

 Conglomerated Acquisition
 The buyer has no clear connection to the business
 Also called as diversification
 With this in mind, some basic defense strategies can be used by the management of potential
target companies to deter unwanted acquisition advances.
 Defense Strategies
 Poison Pill Defense – Making the company unattractive to the acquiring/hostile company
through proper management of shares and equity
 Staggered Board Defense – election of new BOD in staggered method to prevent take over
of other hostile investors
 White Knight Defense – a friendly acquirer that agrees to maintain the companies
management and governance
 Greenmail Defense - Greenmail is the practice of buying enough shares in a company to
threaten a hostile takeover so that the target company will instead repurchase its shares at
a premium.
 Mitigation and indemnification of director and officer liability

 In order to mitigate the liability of the Directors and Officers of the company they need to apply
for the
 Directors & Officers insurance – it provides indemnity to the directors and officers of the
concerned company against costs incurred in defending proceedings instituted against and in
respect of any damages awarded to the claimants against them, such as an out-of-court
settlement.
 A-side coverage. This part covers directors, officers, and sometimes employees for defense costs,
settlement fees, or judgments in situations when they are not indemnified by the company.
 B-side coverage. This covers the company for the losses incurred by its directors, officers, and
employees when the company does indemnify them
 C-side coverage. This financially protects the entire corporation, against any loss and is also known as
‘entity coverage’.
The External Institution of Corporate Governance
 Regulations – or also known as legal environment. It determines the following
 The domestic laws of home countries
 The domestic laws of each of foreign markets
 International Law in general
 Markets – considered as the most important institution of corporate governance
 Auditors – their job is to ensure that firms are run efficiently by keeping public records
accurate, adhering standards of reporting for public purposes and taxes paid property and on
time.
 Models of corporate governance
 The Anglo-Saxon Model - This model presents the board of directors the management and the
shareholders
 Continental European – this model presents the corporate shareholders, main bank, and the
firm

 Japanese Model – main bank (major shareholder), Financial/Industrial network or Keiretsu,

Management, and Government
 Board of
Directors

The Anglo-Saxon Model

Corporate
Governance

Top Under
Management Management
 Board of
Directors

Top Under
Management Management

Corporate
Governance

Investors Society
 Board of
Directors

Continental European

Corporate
Governance

Corporate
Main Bank
Shareholders
 Firm/Manage
ment

Government
Corporate Keiretsu
Governance
Japanese Model

Main Bank (Major

Shareholder)