Gonzales, Nicole Angeline S.

Good Governance and Corporate Social Responsibility

5BSA

Victoria Milling Company, Inc.: A Bittersweet Struggle (Part 1 of 3)

Core Issues
Conflict of interest
Implementation of Rehabilitation Plan
Summary
VMCI is the largest sugar mill operator in the Philippines, also one of the largest in Southeast Asia.
VMCI President
VMCI Vice President
VMCI Chairman
New VMCI Chairman
VMCI VP for Sales &
Nonemarco GM

Manuel Manalac
Rolando Rodriguez
Don Claudio Lazurriaga Jr. (also leading Nonemarco)
Bernardo Villegas

1993

VMCI acquired majority shares of Nonemarco

1994

VMCI and Nonemarcos monolopy stopped

March 1995

242% sudden increase in VMCIs Net Income

1996

Padilla resigned as VMCIs VP for sales and as Nonemarcos General Manager

Early 1997

Problems arise
Top officials rumors on embezzlement
Lazurriaga Jr. resigned from VMCI as chairman
Nonemarco declared cash dividend
Meeting of Creditors
MOA on debt restructuring
90-day recovery plan implementation deadline
5 creditors refused to sign MOA, said Nonemaros RSDOs are not authorized
Business World reported VMCI and financial consultant Bankers Trust failed to
Formulate rehabilitation plan
Nonemarco filed for suspension of debt payments
PCIBank dismissed Nonemarcos filing for suspension of debt payments because
it is not substantial and no proposed rehabilitation plan
VMCI filed for suspension of debt payments with proposed rehabilitation plan
SEC temporarily suspended all claims against VMCI and Nonemarco
BPI Leasing filed for replevin and damages before the Makati RTC
Metrobank filed a petition for issuance of a writ of preliminary attachment
Land Bank sought for dismissal on Nonemarcos suspension on debt payments
And filed for petition on sale of Nonemarcos properties
VMCI shutdown its milling operations
Mancom was approved by SEC

February 4, 1997
March 1997
March 10, 1997
April 1997
June 16, 1997
June 17, 1997
June 24, 1997
July 1, 1997
July 7, 1997
July 10, 1997
July 14 & 16
Mid July 1997
August 25, 1997

Luis Padilla

September 1, 1997
September 25, 1997
End of September
October 1997

Start of ManCom work

PSE halted trading of VMCI shares
Mancom found VMCI covering its losses
VMCI resumed milling operations

January 1998
April 1998

ManCom made rehabilitation plan

No rehabilitation plan implemented yet
VMCI and ManCom want their own respective rehabilitation plan to be
Implemented
SEC forced VMCI creditors to agree on which rehabilitation plan to be
implemented

July 1998
January 1999
February 1999

Still no agreement
VMCI opposed ManComs rehabilitation plan because it prohibits them from
using their pre-emptive rights

Core Issues
Summary
1. How did the Board of directors in the case fare against the OECDs consensus on the responsibilities
of the board? What particular areas need improvements? What concrete measures can ensure such
improvements?
The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the boards accountability to the company and
the shareholders.
A. Board members should act on a fully
informed basis, in good faith, with due diligence
and care, and in the best interest of the company
and the shareholders
B. Where board decisions may affect different
shareholder groups differently, the board should
treat all shareholders fairly.
C. The board should apply high ethical
standards. It should take into account interests of
stakeholders.
D. The board should fulfill certain key functions.
E. The board should be able to exercise objective
independent judgment on corporate affairs.
F. In order to fulfill their responsibilities, board
members should have access to accurate,
relevant and timely information.
2. Discuss the OECDs principle on the equitable treatment of stakeholders. What elements of this
principle were applied with regard to VMCIs creditors? What areas were missed?
A. All shareholders of the same series of a class
should be treated equally.
B. Insider trading and abusive self-dealing should
be prohibited.
C. M
3. Are the minor players of VMCI (such as the workers and middle employees, as well as minor
shareholders) taken into serious consideration in the major players struggle to rehabilitate it? Why?
Why not? Justify your answers.
4. What were the conflicts that were brought into focus in the formulation of the rehabilitation plan?
Are these conflicts legitimate? How can the conflicts in the formulation of the rehabilitation plan be
fully addressed?
5. Does the rehabilitation plan promise the possibility of putting VMCI back on track? Why or why
not? What areas must the rehabilitation plan focus on to significantly improve VMCIs chances for
an economic comeback?
Put
Here
Areas
Of
Improvement
On

Rehabilitation
Plan