CH.
6 CORPORATE SOCIAL
RESPONSIBILITY
BASIC PREMISES OF CSR :
• Business leaders - understand that long
term company value is based on the
capability of the enterprise to respond to
society’s changing needs
• Consumers - search for products of
companies they believe are doing the right
thing in terms of consumer protection,
human rights and the environment.
• Employees – have a preference to work for
companies whom they share similar mission
and values and where they can make
contribution to society.
• Investors - look for companies that
recognize and manage their risks and are
entrepreneurial in terms of attitude in
identifying emerging and promising
business opportunities.
• Local communities - wants to know that
businesses are being good citizens.
• Media - expose some examples of best and
worst practices to spotlight.
• NGO’s – expose these examples of
irresponsible corporate conduct and
campaign for greater corporate
accountability and transparency
• Regulators – want to make certain that
business activities not only generate
business opportunities, job and economic
growth but also solve serious problems.
SPECIFIC RELEVANCE OF CSR
1. Changing Social Expectations
2. Competitive labor markets
3. Disclosure demands by stakeholders
4. Dwindling Government Role
5. Globalization
6. Pressure from investors
7. Supplier Relations
8. Wealth and Vulnerabilities
9. Ethical Leadership
ETHICAL DECISION MAKING PROCESS IN
ORGANIZATIONS
• Ethics – is an organization refers to system,
values, philosophies and principles that
govern the behavior of organization
members which are the consequences of
organizational pronouncement.
• Ethical decision making – is the process
of trying to established organizational
values from which ethical decisions will be
based from
The following may help decision makers of
organizations lay down decisions aligned with
their CSR principles:
1. Withdraw
2. Be an Archivist
3. The option of doing nothing
4. Be conscious of long term effects
5. Consider legalities and ethics
6. Ask around
7. Be Comprehensively sensitive
8. Do not be a dangerous “alpha make”
9. Find a win-win solution
Myths about organizational ethics
• Being Ethical is Easy – being ethical is not
easy considering that to be ethical means
that business conduct most of the time has
to be beyond the minimum legal
requirement.
• Being ethical is not part of doing
business – it should be something that
comes with the existence of the enterprise
• Being ethical brings no benefit – it is not
true that being ethical has no reward.
Arguably, the only investment without any
loss is being ethical.
What ethics is not
• Ethics is not the same as feelings – some
people have highly developed habits that
make them feel bad when they do
something wrong but many people feel
good even though they are doing something
wrong.
• Ethics is not religion - many religions are
not religious but ethics applies to everyone.
• Ethics is not just following the laws - a
good system of laws does incorporate many
ethical standards but law can deviate from
what is ethics.
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• Ethics is not following culturally
accepted norms – some cultures are quite
ethical but others become corrupt or bind to
certain ethical concerns
• Ethics is not science – science may
provide and explanations for what humans
are like. But ethics provides reasons for how
human ought to act.
CORPORATE CITIZENSHIP
• Corporate citizenship – refers to the
acceptance by business of a conscious
effort in focusing and in satisfying the
economic, legal, ethical, philanthropic and
social responsibilities and other acts
expected from the corporation to do to its
stakeholders.
Corporate citizenship has the following key
elements
• Commitment to quality
• Ethical legal compliance
• Stewardship and governance
• Superior employee relation
• Social advocacy
• Community involvement
PHILANTROPHY OF SOCIAL INCENTIVES
• Philanthropy – is the practice of giving
money and time to help better for other
people
• Corporate philanthropy - refers to the
giving of the company’s profit directly to
charitable organization or to individual in
need with the intention of helping and
improving the quality of the different
corporate stakeholders
Benefits of corporate philanthropy
A. Benefits to business
– Enhances corporate reputation
– Improves relations with the government,
the community and the key
stakeholders
– Support a company’s strategic
business goal
B. Benefits to stakeholders
– Build employee morale and
engagements
– Enlarges sense of community and
social obligations
– Develops future workforce contributing
to a sustainable company
C. Benefits to the community
– Improves quality of life of the community
members
– Provides human and capital resources to
non-profit organizations
SOCIAL SCREENING OF INVESTMENTS
For social screening of investment, the following
strategies might corporate decision makers:
• “SCARE-OFF FROM” STRATEGY – it can
be characterized by hard policies such as
no investment to those companies with
questionable environmental records, those
engaged in child labor discrimination, those
who use animals in product testing and
many other anti-earth and anti-green
policies.
• Impact mitigation – this approach is
founded upon the idea that for everything
the company does there is always an
impact to the stakeholders.
• Whoever is the best - this strategy involves
a kind of free market model where a
companies within the same industries
compete with one another for the best
records on a variety of social issues.
• Main or derivative connections – this
strategy requires investors to decide
whether or not they are concerned if an
investment has a secondary involvement
with a social problem.
GREENWASHING
• Greenwashing - refers to the practice of
companies characterized by deceptively
making it appear that their products,
services and policies are environmentally
friendly by projecting cost cuts as reduction
in use of resources or investment in “green
concerns” like in areas of ecology and
environment
• Sin of the hidden trade-off
– “energy-efficient” electronics that
contains hazardous material
– Candies, drinks, beverages and other
sweets with “no sugar” label
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 • Sin of no proof
– Shampoos claiming to be “certified
organic” but with no verifiable certification
• Sin of vagueness
– Products claiming to be 100% natural
when many naturally-occurring
substances are hazardous like arsenic
and formaldehyde
– The use of paper bags, cups and other
packaging and capitalized the term
“biodegradable” to improve company
image.
• Sin of irrelevance
– Products claiming to be CFC-free even
though CFCs were banned 20 yrs. ago.
• Sin of fibbing
– Product falsely claiming to be certified by
an internationally recognized
environmental standard like ecologo,
energy star or green seal
• Sin of lesser of two evils
– Organic cigarettes of “environmentally
friendly” pesticides
• Sin of worshipping false labels
– this is perpetrated by a product wherein
by either words or images
WAYS ON HOW TO SPOT GREENWASHING
• Poor use of scientific facts
• The use of buzz words like “carbon
intensity”, “sustainable development”,
“carbon offsets”, and “clean technology”.
• Look at the environmental label on the
product. Save those that are backed by a
strict independent certification.
• Never abandon common sense
• Look out for negligible green claims, mainly
when a company focuses on one small
green attribute when the rest of the
company or product is not green.
CH 7 CORPORATE SOCIAL
RESPONSIBILITY AND CORRUPTION IN A
GLOBAL CONTEXT
CORPORATE SOCIAL RESPONSIBILITY - A
comprehensive set of policies practices, programs
that are integrated into business operations, supply
chains and decision making processes throughout
the company and include responsibilities for current
and past actions as well as adequate attention to
future impacts.
CORPRATE SOCIAL RESPONSIBILITY IN A
GLOBAL CONTEXT
• CSR AND DEVELOPING COUNTRY
CSR aims to examine the role of business in
society and to maximize the positive societal
outcomes of business activity.
• JUSTIFICATION FOR CSR
Two broad set of justifications for public sector
actors in the middle and low-income countries:
1. Defensive – relates to minimizing the
potential adverse effects of CSR on local
communities, environments and markets
when it is imposed through international
supply chains and investment
2. Proactive – for public sector actors to
engage with CSR is provided by the
opportunity to increase the domestic public
benefits of CSR practices in economic,
social and environmental terms.
• POTENTIAL ROLES OF GOVERNMENT
IN -THE CSR AGENDA
A first broadly defined goal of the public
engagement in CSR is the alignment of business
activities and public policy to achieve societal goals.
• THE MULTIPLICITY OF POLICY
INSTRUMENT
CSR Practice 5 distinctive roles for public
sector engagement:
1. Regulation
2. Facilitation
3. Partnership
4. Endorsement
5. Demonstration
Factors that may determine the course of
action taken by any individual government:
• Capacity Constraints
• The size of domestic markets for product
potentially affected by CSR concerns
• The degree of export orientation of the
economy in sectors affected by international
CSR drivers (e.g. agriculture, textiles,
pharmaceuticals)
• The presence of enterprises willing to
champion charge
• The degree of which different stakeholders
are comfortable working in partnership for
commonly defined outcomes.
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CSR IN INTERNATIONAL BUSINESS
Multinational enterprises’ activities are faced with
diverse legal system in each country coupled with
new public opinion, more demands on social
responsibility, sustainability and transparency.
• SUSTAINABLE DEVELOPMENT AND
ENVIRONMENT - New economic
development model that would secure the
needs of the current generation.
• HUMAN LABOR RIGHTS - The operational
conduct of the enterprise should not be
lower than the standards of the host country.
In affirmation to this, the entrepreneurial strategy of
these large enterprises should be based on the
following CSR demands:
a. Be Compliant
b. Be Consistent
• LOCAL ECONOMY AND SOCIETY - It is
undeniable that large international enterprises
can bring extraordinary impact on the
development of less-developed countries.
• TRANSPARENCY - is a form of deep-rooted
managerial initiative which evolved into a
philosophy of removing walls and facilitating free
• LEGALITY - set of laws in force is the minimum
requirement
• CONSUMER - increasing support of the scientist
who denounced the harmfulness of some
productions for the mankind and the
environment.
• SUPPLY CHAIN - The critical point for
enterprises that have chosen to adopt a socially-
responsible conduct.
CORRUPTION IN INTERNATIONAL BUSINESS
According to George Soros, International Financier
“There is always somebody who pays, and
international business is generally the main source
of corruption.”
GLOBALIZATION OF CORRUPTION
Corruption – is the abuse of public power for
private benefit.
EXPORTING CORRUPTION
They undermine development, inequality, and
poverty. They disadvantage smaller domestic firms.
• Increasing Debt - Bribes increase the
prices of projects.
• Benefiting The Company, Not The
Country - Bribing high-level officials
ensures profits and helps off-load risks.
• Bypassing Local Democratic Processes -
Bribery can be a useful way of getting
around local opposition to a project and of
bypassing the usual democratic processes
involved with awarding contracts.
• Destroying the Environment and Getting
Around Regulations - Some companies
use bribes as a way of getting round
environmental regulations.
• Promoting Arms Sales - Half of the bribery
complaints received by the US Commerce
Department concerns international defense
contracts.
HIDING THE LOOT
• Western Banks and Third World Assets -
Private banking services and offshore
financial centers are the major conduits and
repositories for bribes and corrupt gains.
• Private Banking - used for confidential
services to international elites and is
experiencing phenomenal growth.
• Offshore Banks and Companies - They
impose little or no taxes, offer themselves to
non-residents to escape taxation in their
own country, do not exchange information,
lack transparency, and attract shell
companies-businesses with no substantial
activities.
RECOVERING STOLEN WEALTH
Return money which has been stolen from the
public treasuries and stashed away in Western
banks and offshore tax havens.
CLOSING THE LOOPHOLES
Closing down offshore centers is vital to stopping
the laundering of corrupt money and the draining of
resources from the Third World.
BLACKLISTING COMPANIES
Blacklisting – action of group or authority
compiling a list of people to be avoided or
distrusted.
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GOVERNMENT ACTION
Action programs need to be designed to meet the
expectations of citizens who need to be informed of
the national strategy to combat corruption
DETERRENTS
Deterrents refers to discouragement. World
deterrents means world discouragement.
• Economic punishments- some of the most
effective deterrents to corruption
The Potential for Corruption, a problem before the
new system, is minimized by a commitment to
transparency and openness of all documents and
decisions.
RESISTANCE
Fighting corruption is increasingly engaging the
energies of civil society groups around the world.
To be effective, they must:
1. Mobilize Ordinary People - Civil society
groups need to be prepared to take on
governments in innovative and sometimes
confrontational ways. Need to be committed to
being transparent and accountable
2. Push for Freedom of Information (FOI) -
enable ordinary people to use information , if
they have the relevant knowledge the citizens
hold their governments accountable and
ensure that resources that belong to them are
used in a right way.
3. Help Increase Citizen Participation in
Decision Making
CH 8 CORPORATE GOVERNANCE
Corporate Governance – is the set of processes,
customs, policies, laws, and institution affecting the
way a corporation is directed, administrated or
controlled.
Corporations – are created as legal person by the
laws and regulations of a particular jurisdiction.
Institutional Investors - can be described as
organization that buy and sell securities in large
volume of share quantities or amounts that made
them qualify sometimes for preferential treatment
and lower commission cuts.
Examples:
• Social Security System (SSS)
• Government Service Insurance System
(GSIS)
• Armed Forced Savings and Loan
Association Incorporated (AFSLAI)
TYPES OF INSTITUTIONAL INVESTORS
a) Hedge Fund – an investment account open to a
narrow range of investors that take on a wider
range of investment and trading activities in the
additional to traditional long-term investment
funds.
b) Investment Banking – refers to a financial
institution that helps out corporations and
government in raising capital by underwriting
and acting as the agent in the issuance of both
equity and debt securities.
c) Investment Trust – refers to investors’ money
being pooled together from the sale of a fixed
number of shares a trust issues in its first
offering.
d) Mutual Fund – a professionally managed type
of collective investment scheme that pools
money from many investors and invests.
e) Pension Fund – a collection of assets forming a
separate legal entity that came into being from
contribution to a pension plan for the exclusive
purpose of financing pension plan benefits.
Cross Listing – refers to the listing of equity
shares of a company in more than one stock
exchange countries.
MOTIVES FOR CROSS-LISTING
1. To improve liquidity.
2. To increase its share price.
3. To increase firm’s visibility and acceptance.
4. To support takeover bids.
5. To support share and opinions plans.
ROLES OF INSTIUTIONAL INVESTORS IN THE
GOVERNANCE
A. Monitoring – close monitoring of corporate
performance from institutional investors is
expected considering that investment from these
type of investors usually involve large amount of
money.
B. Driver of Agent’s Performance – when the
share of investment by institutional investor
is so huge that the balance sheet figure will
significantly suffer without its investment,
agents in the corporation will at all times, be
in pursuit of pleasing its principal in terms of
performance.
F440 aka GRADWAITING
 C. Good Activist – institutional investors
especially those whose investment is
significant enough to earn a board seat can
be the fearless fiscalizers on the corporate
policies.
D. Principal-Agent Role (Duality) – when an
investor has already a huge influence in the
corporation, he can have the power to elect
the officers for the investee corporation.
E. Deterrent to Opportunism – there are a lot
of challenges to consider when one
engages in activities for purpose of
deterring opportunism. One needs
something to counter self-interested
behavior of the agents. One of the best
antidotes to opportunism is to have a voice
in the board.
CORPORATE GOVERNANCE ORGANIZATIONS
1) International Chamber of Commerce (ICC)
– an organization focusing on promoting
growth and prosperity, spreading business
expertise and advocate for international
business.
2) International Corporate Governance
Network (ICGN) – an investor-led
organization of governance professionals,
ICGN’s mission is to inspire and promote
effective standards of corporate governance
to advance efficient markets and economies
world-wide.
3) Asian Development Bank (ADB) – an
international development finance institute
whose mission is to help its developing
member countries reduce poverty and
improve the quality of life of these people.
4) International Federation of Accountants
– the global organization for the
accountancy profession. It works with its
159 members and associates in124
countries and jurisdictions to protect the
public interest by encouraging high quality
practices by the world’s accountants.
5) United Nations Conference on Trade and
Development - promotes the development-
friendly integration of developing countries
into the world economy.
6) Organization for Economic Co-Operation
and Development (OECD) - brings
together the governments of countries
committed to democracy and the market
economy from around the world to :
• Support sustainable economic growth
• Boost employment
• Raise living standards
• Maintain financial stability
• Assist other countries’ economic development
• Contribute to the growth in the world trade
Investment promotion and facilitation
Useful instruments to attract new investors,
especially in smaller, remote markets or in those
countries with a recent history of macroeconomic
and political instability.
SARBANES-OXLEY ACT OF 2002 SUMMARY
A. Metrics-based corporate governance
1. It seeks to lay the ground for a culture
proactive management of risks going
beyond the reactive approach
2. It ensures that the senior executives have
greater responsibility as well as the means
to meet them.
3. It provides for checks and balances that
were not available in the past.
4. It seeks to make companies more
transparent and vigilant by requiring the
reporting of operational risks and internal
controls.
5. It seeks to focus the attention of companies
on fortifying their companies.
B. Board of Directors
- Non-management directors should hold
regular sessions without participation of
management for brainstorming without
biased.
C. Disclosures
- Companies are required to provide
quantitative measures to reconcile the pro-
forma statements with GAAP financial
statements.
D. Fraud
- Internal controls should be able to prevent,
deter and detect fraud.
E. Government Policies
- Set up a governance committee which will
spell out the governance principles which
will be used to evaluate the board and
government.
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F. Executive Compensation
- Requires a company which restates its
financial statements due to noncompliance,
misconduct, or with any financial
requirements by the CEO or CFO.
G. Protection of whistleblowers
- Added protection to whistleblowers who
can establish a prima facie case of
retaliation when they report malfeasance in
the company
H. Compensation Committees
- Requires the board to form independent
compensation committees which have the
authority to decide on compensation
policies consistent with the business goals
of the companies.
I. Audit Committee
- Composed of directors and have the
responsibility to ensure that financial
statements and internal controls are
consistent with the regulatory policies.
J. Departures from the past
- Recognizes that the mode of compensation,
increasing share of equity and equity option,
in the packages that executives received
as responsible for frauds that were
committed.
Enterprise Risk Management
• Operational Risks – such as fraud, create
liquidity crisis for companies
• Business Risks - such as loss of intellectual
property could lead to bankruptcy.
• Enterprise Risk Dashboards - help
communicate potential threats and galvanize
organizations to react rapidly before a crisis
goes out of control.
CHALLENGES CONFRONTING INSTITUTIONAL
INVESTORS
• Diversification is driven by prudential
regulations such as capping the percentage
of a company’s equity that can be held by
investors.
• Institutional Investors act as agents for
ultimate beneficiaries are very often and no
directly remunerated on the basis of
performance of portfolio.
• Patient Family Owners takes too much
time and effort in trying to solve short-
termism appeal.
• Bread and Butter focused principle of
corporate governance issues such as voting,
nomination and election of board members.
CH. 9 FOREIGN DIRECT INVESTMENT,
PRIVATIZATION, INSOLVENCY REGIMES
FOREIGN DIRECT INVESTMENT - refers to the
direct investment in productive assets by a
company incorporated or un-incorporated in a
foreign country to the host country
Entry of Multinational Corporations (MNCs) - is
important source of international capital and
technology
Two broad classifications of technological
spillovers from FDI to domestic firms:
1. Horizontal spill (intra-industry) – refers to the
effect the presence of MNCs has on domestic
firms in the same sector.
2. Vertical spill (inter-industry) – from FDI occurs
as a result of the interaction between domestic
and foreign firms that are not in the same
industry.
Foreign Direct Investment in Developing
Countries - increasing foreign investment can be
one of the indicators that the host country’s
economy is growing and in general, opening its
windows on globalization.
Multinational Enterprises (MNEs) – own and
control operations abroad to benefit from diverse
production location and globalization of market.
4 Types of FDI
• Resource seeking
• Import substituting
• Export platform
• Rationalized or vertically disintegrated
KEY FEATURES OF THE INVESTMENT
CLIMATE
A. Access to Finance and International
Integration – access to finance considerably
influences a firm’s tendency to invest.
B. Governance – govern interactions between
business and government determine the
burden that firms face in complying with
government regulations.
C. Infrastructure – the better the infrastructure
of the host economy, the more attractive it is
to foreign investors.
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 D. Skilled Labor Force – one of the essential
requirements for economic growth of a
country is its knowledge infrastructure and
the level of human development.
E. Macroeconomics Factors – investment is
motivated by profit, and foreign investors
will always choose a country with an
optimistic business sector which is
measured in terms of Gross Domestic
Product (GDP) growth rate, inflation rate,
level of industrialization, etc.
F. Political Stability – political certainty and
transparency is a very important
determinant for developing countries to
attract FDI.
G. Technological Factor – technological
progress cast an important role in economic
growth, which encourages innovation and
attracts FDI
PRIVATIZATION
PRIVATIZATION – a stage or course of action of
transferring in whole or in part the ownership of a
business, agency or public service from the public
sector to the private sector.
Pro-privatization – proponents of privatization
believed that private entities can more efficiently
deliver goods and/or service government due to
free market rivalry.
• Accountability – managers of privately-owned
enterprises are answerable to their
shareholders and to consumers.
• Funds – private companies have easy access
of investment capital in the financial markets
more especially when the said markets are
appropriately liquid.
• Dispersion of Resources – availability of
investment to a good number of entities will
ignite the capital market, promotes activities,
and adds more spin to the economy in the
process.
• Corruption – a government monopoly is prone
to corruption considering that some decisions
are made primarily on the basis of decision
maker’s personal gain.
• Tainted Purpose – an industry may be run or
used by the government mainly as vehicles in
satisfying political goals.
• No More Subsidies – efficiency can bring in
profits
• Natural Monopolies – existence of natural
monopolies does not mean that these sectors
must be state-owned.
• Political Influence – nationalized industries
are prone to interference from politicians for
political or populist reasons.
• Profits – private companies are poised to earn
profits by being in the best position to serve the
needs of their targeted consumers.
• Security – government have had the tendency
to “bailout” poorly run businesses, often due to
the sensitivity of job losses, when economically,
it may be better to let the business fold.
ANTI-PRIVATIZATION
Opponents of certain privatization believe certain
parts of the social terrain should remain closed to
market forces in order to protect them from the
unpredictability and ruthlessness of the market.
• Accountability – the public does not have any
control or oversight of private companies.
• Capital – government can raise money in the
financial markets more cheaply to re-lend to
state-owned enterprises.
• Concentration of Wealth – profits from
successful enterprises end up in private, often
foreign, hands instead of being available for
the common good.
• Cuts in Essential Services – governments
have chosen to keep certain
companies/industries under public ownership
because of their strategies importance or
sensitive nature.
• Downsizing – private companies often face a
conflict between profitability and service levels,
and could over-react to short-term events.
• Goals – the government may seek to use state
companies as instruments to further social for
the benefit of the nation as a whole.
F440 aka GRADWAITING
 • Job Loss – due to the additional financial
burden placed on privatized companies to
succeed without any government help, unlike
the public companies, jobs could be lost to
keep more money in the company.
• Natural Monopolies – privatization will not
result in true competition if a natural monopoly
exists.
• Political Influence – government can easily
exert pressure on state-owned firms to help
implement a government policy.
• Privatization and Poverty – it is
acknowledged by many studies that there are
winners and losers with privatization.
• Profit – a private company will serve the needs
of those who are most willing to pay, as
opposed to the needs of the majority, and thus
anti-democratic.
INSOLVENCY REGIMES
INSOLVENCY – refers to the inability of a person
or an entity to pay its debts as they fall due.
2 aspects from which insolvency can be defined:
1. Cash flow liquidity - inability pay debts as
they fall due.
2. Asset insolvency – a state where the
entity’s asset is lesser than its liabilities.
Measures taken to keep the company financially
afloat at least:
• Using existing lines of credit to borrow money
• Selling off assets to other companies
• Take over from a larger corporation
CONSEQUENCE OF INSOLVENCY
Business turnaround or business recovery –
remodeling financial and organizational structure of
the corporation experiencing financial distress so
as to permit the rehabilitation and continuation of
the business
INSOLVENCY LAW AND BUSINESS
REHABILITATION
The Philippine insolvency law which was enacted in
1909 has three (3) principal subjects:
1. Suspension of payments
2. Voluntary insolvency
3. Involuntary insolvency
FEATURES OF INSOLVENCY LAW
Rehabilitative – suspension of payment provision
which allows the restructuring of debtor’s obligation
to enable it to continue its operation
Distributive – equitable distribution of properties
among the creditors and benefit the debtor by
discharging him of his obligation
REHABILITATION LAW (THE PROCESS)
Stay order – any creditors holding at least 25% of
the debtor’s total liabilities, can petition to the
Regional Trial Court to place the debtor under
rehabilitation.
Adequate Protection – a secured creditor may ask
relief from the stay order if he lacks adequate
protection.
A creditor is considered as lacking adequate
protection if it can be shown that:
• The debtor is not honoring a pre-existing
agreement to keep the property insured.
• The debtor if failing to take commercially
reasonable steps to maintain the property.
• The depreciation of the property is increasing to
the extent that the creditor becomes under-
secured.
Rehabilitation Receiver – oversees and monitors
the operations of the debtor pending proceeding.
“Equality is Equity” Principle – states that once a
company goes under rehabilitation, all creditors,
whether secured or unsecured, should be placed
on equal footing.
Cram Down – in rehabilitation, the court may
impose terms, conditions or restrictions for its
effective implementation or for the protection of
creditors if the plan fails.
In case of failure of the rehabilitation plan, the court
may terminate the proceedings.
FORMS OF DEBT RELIEF
• Suspension of payments – provides a
company a moratorium on debt payments while
it negotiates an out-of-court arrangement with is
creditors.
• Fast-Track Rehabilitation – involves the
transfer of the assets of the debtor into a new
company which will be owned by creditors in
exchange for their credit.
F440 aka GRADWAITING
 • Court-Supervised Rehabilitation – the
legislation establishes minimum standards for
the plan to maintain transparency and fairness.
• Pre-Negotiated Rehabilitation – it allows a
debtor to establish a comprehensive plan
without needing to obtain unanimity, so long as
the minimal standards in the legislation are met.
• Dissolution and Liquidation – the final
resort under the legislation
Proceeds remaining from sale and non-
mortgage property are distributed as follows:
1. To meet unpaid administrative expenses
2. To workers for back wages
3. To the government for back taxes
4. To all creditors not specifically mentioned
5. To creditors whose claims are subordinated
by law or agreement.
ASSESSMENT OF FDI SPILLOVER EFFECTS
POLICY RECOMMENDATIONS
To improve the competitiveness, the government
should adopt comprehensive approach to create an
environment conducive to the creation and
expansion of FDI-related spillovers. The following
policies are suggested:
• Human Resource and Development Training
– implement reforms in all stages of education
and training system to raise the learning
capabilities of firms and upgrade labor skills.
• Industrial and Technology Upgrading – to
move up the technology scale, design and
development skills and technological capabilities
must be improved.
• SME Financial Support Programs – the lack of
access to financing has severely constrained the
growth of SMEs.
• Linkages Improvement and Promotion of
Subcontracting and Outsourcing Activities –
It is important to develop a program to provide
information exchange to local firms to make
strategic linkages with MNCs.
• Improvement of Infrastructure and Logistics
and Overall Investment Climate – Good
infrastructure and logistics that lower production
cost and facilitate the easy supply chain
management from the procurement of inputs to
the export of outputs are important for the
operations of production networks.
• Capacity Building and Adequate Funding for
the Department of Trade and Industry and
Board of Investments’ Competitiveness ad
Linkages Program – Strengthen the capacity of
the staff and provide adequate resources for the
effective implementation of the programs to be
designed to improve industry competitiveness
and linkages between domestic firms and MNCs.
• Conversion and Transfer Policies – the
central bank has worked to relax and streamline
the Philippines foreign exchange regulatory
framework.
• Expropriation and Compensation – Philippine
law allows for expropriation of private property
for public use or in the interest of national
welfare or defense
• Dispute Settlement – In July 2012, former Pres.
Aquino signed an executive order requiring all
government contracts to include provisions for
alternative dispute resolution and the goal is to
make resolving disputes less expensive, tedious,
and time-consuming.
PERFORMANCE REQUIREMENTS AND
INCENTIVES
Established by the BOI for investors who are
granted incentives and are based on the approved
project proposal.
Incentives – fiscal incentives rationalization
publicly and listed fiscal incentives reform as a
priority legislative measure.
Right to Private Ownership and Establishment –
Phil. law recognizes the private right to acquire and
dispose of property or business interacts, subject to
foreign nationality caps specified in the Philippine
Constitution and other laws
Protection of Property Rights – the Philippines
has established procedures for registering claims n
property but delays and uncertainty caused by
judicial system remain a problem
Transparency of the Regulatory System – Phil.
national agencies are required by law to develop
regulations via a public consultation process, often
involving public hearings
Efficient Capital Markets and Portfolio
Investment – Non-residents may purchase
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domestically-issued securities and invest in equities
and money market instruments.
Philippine Stock Exchanges – Membership in the
PSE is open to foreign-controlled stock brokerages
incorporated under Phil. law
Banking – the Central Bank has worked to
strengthen banks’ capital bases, reporting
requirements, corporate governance and risk
management systems.
Anti-Money Laundering and Information
Exchange – Paris-based Financial Action Task
Force (FATF) continues to monitor implementation
of the Philippine Anti-Money Laundering Act
through the Anti-Money Laundering Council. FATF
moved the Philippines from its “dark gray” to “gray”
list of following the enactment of key laws allowing
inquiry into bank deposits/investments and making
terrorist financing a stand-alone crime.
Accounting Standards – the Philippines started to
fully adopt the Philippine Financial Reporting
Standards patterned after the International
Financial Reporting Standards issued by the
International Accounting Standards Board (IASB)..
Outward Investments – there are no generally no
restrictions on outward investments by Philippine
residents
Competition from State-Owned Enterprises –
private and state-owned enterprises generally
compete equally, with some clear exceptions. The
government’s National Food Authority (NFA)
allowed the private sector to import rice.
Corporate Social Responsibility – constitutes a
basic aspect of most significant business
operations in the Philippines.
Political Violence – the New People’s Army (NPA),
the military arm of the Communist Party of the
Philippines, is responsible for general civil
disturbance through assassinations of public
officials, bombings, and other tactics.
Corruption – is pervasive and long-standing
problem in the Philippines.
Bilateral Investment Agreement – the Philippines
has signed bilateral investment agreements with 40
countries such as Argentina, Australia, Austria,
Bahrain, Bangladesh, etc.
Taxes/Bilateral Tax Treaty – The Philippines has
a tax treaty with US for the purposes of avoiding
double taxation, providing procedures for resolving
interpretative disputes, and enforcing taxes of both
countries.
OPIC and Other Investments Insurance
Programs – the Overseas Private Investment
Corporation (OPIC) can provide US investors with
political risk insurance against risks of expropriation,
inconvertibility and transfer, and political violence,
pursuant to the US-Philippines Investment
Incentive Agreement that enables OPIC to support
investment in the country.
Labor –The Department of Labor and Employment
(DOLE) has responsibility for safety inspection, but
severe shortage of inspectors makes enforcement
extremely difficult. Congress passed the
Kasambahay Bill which provides more benefits and
protection to domestic workers.
Foreign Trade Zones/Free Ports – enterprises
located in ecozones are considered to be outside
the customs territory and are allowed to import
capital equipment and raw materials free from
custom duties, taxes, and other import restrictions.
Philippine Economic Zone Authority (PEZA) –
there are 273 operating ecozones in PEZA,
composed primarily of manufacturing. PEZA
manages three government-owned export-
processing zones (Mactan, Baguio, and Cavite)
and administers incentives to enterprises located in
the other 270 privately-owned and operated
ecozones.
Bases Conversion Development Authority
1. Clark Freeport Zone
2. John Hay Special Economic Zone
3. Poro Point Freeport Zone
4. Bataan Technology Park
5. Subic Bay Freeport Zone
Other Zones
1. Zamboanga City Economic Zone and
Freeport
2. Cagayan Special Economic Zone and
Freeport
Foreign Direct Investment Statistics – the
Philippine SEC, BOI, NEDA and Central Bank each
generate direct investment statistics. SEC, BOI and
NEDA record investments approvals.
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