Exam:
Section 1 – Stakeholders
Section 2 – Competition Law, Consumer, Governance (Stakeholders, Donner and
Competition)
Governance on Charity – other than doners in charity, volunteers are also the
stakeholders
3 Provision of Competition Law
CPFTA – Retailer, what can retailers do about it – Refund, Replace, Reduce Prices
Lemon Law – about the things your bought, not really suited for the services – and Lemon
law is only applicable if you purchase the items from a registered business in Singapore
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Stakeholder Theory
Stakeholders – Stakeholders theory is that one will create and destroy values for people,
community, customer, supplier and shareholders.
Pluralistic Society is to prevent power from being concentrated in the hands of few, increase in
freedom of expression, diversity of views, provide check and balances which will minimize
domination of business/government becoming overly influential.
Values’ in stakeholder does not merely refers to the monetary benefits the business provide but
also the motivating factors of each stakeholders in the framework. Each Stakeholder in each
firms are different and have different interest.
Business, Government, Society – 3 main stakeholders in this course
The salience Model:
1. Power Factor: whether does one have the authority and influence to the project, when
a stakeholder have power, they can be viewed as a dormant stakeholder.
2. Urgency Factor: are the stakeholders claim to the business of important that requires
immediate attention, they can have no power and legitimacy.
3. Legitimacy Factor: are they discretionary stakeholders that does not have an impact on
the business.
If all are presented in the Stakeholders, this means that they have the highest salience hence
they are known as Definite Stakeholders.
In a business, the stakeholders of each firms is being shown in the table below.
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Chapter: CSR and Stakeholders
Corporate Social Responsibility – promote sustainability development in economic and social
aspects of the community at large. CSR is to better impacted the stakeholders of a businesses.
CSR Greenwashing: Intentionally seeking to convey the image of a socially responsible firm
when the evidence of their practices does not support this conclusion.
Political CSR: Entails those responsible business activities that turn corporations into political
actor by engaging in public deliberations, collective decisions.
Corporate Social Responsiveness vs Corporate Social Responsibilities. We measure it based
on the responsiveness of the firms as it shows an action-oriented variant of CSR.
Caroll’s Corporate Social Performance Model
Using the Caroll’s Corporate Social Performance Model, we can measure the level of
Corporate Social Responsibility one company is at.
We can refer to this model to find out at which level is the business at currently. For social
responsibility, there is economic responsibilities (Being the most basic of any business model),
Legal Responsibility, Ethical Responsibility and Discretionary Responsibility where business
go beyond their expectations.
The type of response from the stakeholders is further expanded by Reactionary, Defensive,
Accommodating and Proaction. Being proactive will show the firm’s sincerely in dealing with
important issues. The social issues are the issues at which the company is being involve.
Caroll’s CSR Pyramid
Philanthropic
Ethical
Legal
Economic
Going beyond what is expected of the firms. At this level, the firms, is
providing service that is not expected by was given a choice to perform
it. Doing good for the community
At this level, firm’s should be acting in the way that the society expect/
Ensure that firm’s is obeying the law
The most basic of any business, there interest to ensure that the
organisation is profitable and they pay attention to the monetary impact
However, firms need to attain economic responsibility, failure to do so, they will not be able to
attain the rest as a firms’ purpose is to be profitable and able to sustainable economically in the
long run. The purpose of CSR is to encourage businesses to think beyond their business model,
however, firms need to remember that doing CSR equates to cost, hence affecting profitability.
Striking the right balance between economically viable and CSR is vital to the business.
In conclusion, once the firms is able to achieve, economic responsibilities, legal responsibilities,
ethical responsibilities and philanthropic responsibilities, the firms will then be able to attain
total corporate social responsible to the society. In short, it means that firms need to strive to
make a profit, they need to obey the law, be ethical and be a good corporate citizen.
Social Entrepreneurship are set up with serving the society at heart. This means to meet the
various need of Society. (So is NTUC Fairprice a social enterprise?)
Benefit of CSR Adoption:
Business Criticism Social Response Cycle
When criticism of business arise from the society, the business will have to respond to it
effectively in order to regain the public image. In recent years, criticism often surround the
increased concern for the social environment, a changed social control. This led to businesses
to start to embark on various Corporate Social Responsibility programs. CSR is usually adopted
in larger companies that usually have more influence in the market they are in. The social
responsiveness, social performance which is measured by the Caroll model and a better
corporate citizen. This will lead to a more satisfied society which ultimately led to fewer
business criticism as well as an increased in expectations.
Traditional CSR vs Newer Concepts
The newer concepts of CSR
is about how to leverage on
the CSR program to benefit
the company. For example,
by giving out scholarships to
promising students, this will
reduce the need for HR to
actively to head hunt for
suitable talents for the
companies.
Adopting CSR
Company can adopt CSR through:
1. Generic Social Issue: Doe does not impact the firm operation
2. Value Chain Impact: Firm operation affects the society
3. Social Dimension of Competitive Context: It will affect the competitiveness of firm’s
competitiveness.
To be involved in CSR, one can be responsive CSR where they donate to social issue or through
strategic CSR making it part of their business processes. (So does education involve CSR?)
Corporate Governance
Corporate Governance is adopted in business to ensure legitimacy when operating the business.
Legitimation is a dynamic process by which business seeks to perpetuate its acceptance to the
goals and values of the social system within which they operate.
There are 2 main type of legitimacy:
1. Micro level of legitimacy: Individual firms achieving and maintaining legitimacy by
conforming to societal expectation. For example, company may adapt its methods of
operating to what it perceives to be the prevailing standard
2. Macro level of legitimacy: A corporate system (Business Enterprise), at this level is
about the question of what stake is the acceptance of the form of business as an
institution in our society?
Shareholders who are the owners of public firms must count on board of directors to make
certain that their companies are steered properly in their absence. For business to be legitimate
and to maintain its legitimacy in the eyes of public, it must be steered in a way that corresponds
to the will of the people.
The Major Group of Corporate Governance
Even though corporate governance is set up to ensure the independence of the business from
the various stakeholders, however there are issues that will commonly arise in corporate
governance, which includes the separation of ownership from control and agency problems.
Agency Problems
How will investors know that their investments are protected, who are running in the interests
of the investors?
#Quarterly Reporting
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Promoting short termism as companies prioritize immediate gain to please investors
and analyst, however, this can be expensive to perform as it requires time and effort.
In Singapore, there is no need for quarterly reporting since 2020, therefore, reduces
compliance cost.
Quarterly update can be used as an risk assessment for company, identify potential risks
and challenges faced by the company. They will react promptly to risk however,
company may manipulate the result.
The Governance Impact of the Market for Corporate Control
1. Poison Pill: Intended to discourage or prevent a hostile takeover.
2. Golden Parachutes: Provision in an employment contract in which corporation agrees
to make payments to key officers in the event of a change in control of the corporation.
3. Insider Trading: Practice of buying or selling a security by someone who has access to
material information that is not available to the public.
# The Market for Corporate Control
-
Merger and Acquisition (Poison Pills – discourage a hostile takeover by making the
firm difficult to take on)
Golden Parachute is a compensation agreement that provides significant financial
benefits to a top executive who loses their job due to a change in control or a
merger/acquisition of the company
# Prevent Insider Trading
-
Having information that is not available to the publics
# Clawback Provisions
-
Payback in the event the performance of CEO is not on par
Improving Corporate Governance:
1.
2.
3.
4.
Legislative efforts – rotating the auditors
Change in Board of Directors: Board Diversity
Outside Directors: Questionable on the objectivity
Use of Board Committees: Audit Committee is responsible for assessing the adequacy
of internal control systems. Ensure that internal control is sufficient
An Alternative Model of Corporate Governance
3 Main Actors in the Business, Shareholders, Board of Directors and the Managers in the
business.
In Corporate Governance, we look into:
1.
2.
3.
4.
5.
6.
7.
8.
Accountable
Transparency
Responsive
Consensus Oriented
Participatory
Inclusivity
Following the rule of law
Efficiency
Aspect
For Profit
Charities
Responsibility CEO Pay - since CEO pay is being
reveal, then the society will expect
the CEO to act on it to be deserving
of the pay
Relationship among Board (Family)
Accountable
CEO Pay
Board Committee - to ensure that they act
on it - showing the attendance rate of the
committee - involvement
CEO Pay - to ensure that CEO is not
overpaid with respect to the
industry norms
Need to disclose family relationship so to
ensure that there is no conflict of interest
Committee - to give you the responsibility to
govern the business in good faith
Fairness
Transparent
Chapter 4 Corporate Governance
Legitimacy and Corporate governance; Organisations are legitimate to the extent that their
activities are congruent with the goals and values of the social system within which they
function.
Mirco level of legitimacy, we refer to individual business firms achieving and maintaining
legitimacy by conforming to societal expectations, companies seek legitimacy in several ways.
1. Adapt its method of operating to conform to what it perceives to be the prevailing
standard.
2. Company may try to change the public’s values and norms to conform to its own
practices by advertising and other techniques
Increase its legitimacy by;
1. Identify itself with other organisations, people, values or symbols that have a powerful
legitimate base in society
Macro level of legitimacy is the level which is the concern of this chapter. Macro level refers
to the corporate system – the totality of business enterprises. It has to be mandated by the
society, government. Legitimacy is constantly subjected to ratification and must realise that it
has no inherent right to exist.
Purpose of Corporate Governance – Corporate Governance refers to the method by which a
firm is being governed, directed, administered, or controlled and to the goals for which it is
being governed. Corporate governance is concerned with the relative roles, rights and
accountability of such stakeholder who have a stake in the firm’s Governance.
Components of Corporate Governance
The 4 major groups:
1. Shareholder – own stocks of the firms, give them the ultimate control over the
corporation
2. Board of Directors – elected by the shareholders to govern and oversee the management
of the business.
3. Management – the group of individuals being hired by the board of directors to run the
company and manage it on a daily basis
4. Employees – hired to run the company on a daily basis whereby its’ primarily task is
focused on the operations of the company.
Corporate Governance Problems
#1 Separation of Ownership from Control
With the introduction of shares, more owners are involve, and this led to a distancing of the
shareholders with the CEO and the business itself. This is due to the number of shareholders is
too large to run the company effectively if all where to be involved in the operation of the
business.
Therefore, they will elect the board of directors to serve as their representative to watch over
the management.
In today’s context, with many shares being disperse in the market, most of us see ourselves
with the business shares as a investor and not a “true owner” of the company. Therefore, there
is no real supervision of the corporate boards.
This result in an Agency Problems
1. The interest of the shareholders was not aligned with the interest of the manager.
Managers began to pursue self-interest instead of the owners’ best interests. Agents
have the ability to do this because they have more information about the working of the
business than the shareholders.
2. Managers in the management team also have the ability to influence the decision of the
board of directors
#2 The Need for Board Independence
There need to be a clear gap between inside directors and outside directors. Outsider directors
are independent from the firms and its top managers. They come from a variety of background
but one thing in common that they have is that they have no other substantive relationship to
the firm or the CEO.
Insider Directors have some sort of relationship to the firm. They can be the top managers,
family members.
#3 The CEO Pay-Firm Performance Relationship
Strengthening CEO pay through:
1. Stock Options – designed to motivate the recipient to improve the value of the firm’s
stock, if the company stock increase, they will earn in, thus by doing so, CEO will want
to increase the value of the firm’s stock so that they will be able to exercise their option.
2. Stock Option Backdating – able to purchase yesterday’s stock price. Backdating results
in an immediate gain and is not in keeping with the purpose of the stock. Problems such
as insider knowledge that stock price will change.
3. Spring Loading – Granting of stock option at today’s price but with the inside
knowledge that something good is about to improve which will improve the stock value.
4. Bullet dodging – Delaying of a stock option grant until right after bad news.
5. Restricted Stock – has replaced stock option plans in attempts to incentivise CEOs,
Managers and directors and align them with the owners. Long term benefit
#4 Excessive CEO Pay
1. Say on Pay movement where it was required to put a remuneration report to
shareholders in each annual meeting.
2. Clawback Provision – which are compensation recovery mechanisms that enable a
company to recoup compensation funds, typically in the event of a financial restatement
or executive misbehaviour.
3. Executive Retirement Plans and Exit Package – these packages are usually negotiated
well in advance without any link to performance. Usually, workers does not have a
retirement package provided by the company.
4. Outside Director Compensation; Board members are being paid for their effort in
overseeing the organisation.
5. Transparency; disclosure of executive compensation are designed to address some of
the more obvious problems by making the entire pay packages of executive transparent.
The Governance Impact of the Market for Corporate Control
Mergers and acquisitions are another form of corporate governance, one that comes from
outside the corporation. The threat of a possible takeover will motivate top managers to pursue
shareholder, rather than self interest. The merger, acquisition and hostile takeovers craze have
cause many corporate CEOs and boards to protect themselves from such situation.
#1 Poison Pill
Intended to discourage the or prevent a hostile takeover. When an acquirer tries to swallow a
company, the poison pill makes the company very difficult to ingest, can take a variety form,
this poison pill provides that other shareholders be able to purchase the shares. Prevent
Corporate to take over the business. Poison Pill are installed in the agreement is to prevent the
ending of the independence of the company.
#2 Golden Parachutes
A provision in an employment contract in which a corporation agrees to make payments to key
officers in the event of a change in the control of the corporation. This is to provide top
executives involved in takeover battles with an incentive for not fighting a shareholder wealthmaximising takeover attempt in an effort to preserve their employment.
Insider Trading
The practice of buying or selling a security by someone who has access to material information
that is not available to the public. Material information is information that a reasonable investor
might want to use and that is likely to affect the price of a firm’s stock once that information is
released to the public. Charges to those who attempt to practice insider trading is being dealt
with punishment if it is deemed as illegal. Tipper are those who provides the information.
Improving the Corporate Governance
#1 Legislative Efforts
The Accounting Reform and Investor Protection Act of the 2002, also known as the SrbanesOxly Act of 2002 (aka SOX or Sarbox) – ensure the auditor independence by limited the
nonauditing services an auditor can provide, requiring auditing firms to rotate the auditors who
work with a specific company and making it unlawful for accounting firms to provide auditing
services where conflicts of interest exit.
#2 Board Diversity
Board of Directors should come from various backgrounds, a mixed of genders. A diverse
group of boards is better at hearing the concerns and responding to the needs. Diverse boards
are less likely to fall prey to groupthink because they would have a range of perspectives
necessary to question the assumptions that drive group decisions.
#3 Outside Directors
Outside Directors have the ability to be objective and therefore it is one of the core attributes
needed for a director to be an effective monitor of management as they have no direct interest
to the business. However, some problems arise for their expertise, their experience and the time
they have available to give to their post. The most important characteristic for outside directors
is the ability to ask difficult questions and speak truthfully about concerns, without letting ties
to the firm get in the way,
#4 Use of Board of Committees
Aduit Committee is responsible for assessing the adequacy of internal control systems and the
integrity of financial statements. Audit Committee under the law mandate that at least one
member to be identified as a financial expert; the principal responsibilities of an audit
committee;
1.
2.
3.
4.
Ensure that published financial statements are not misleading
Ensure that internal controls are adequate
To follow up on allegations of material, financial, ethical and legal irregularities\
To ratify the selection of the external auditor
Nominating committee which should be composed of outside directors has the responsibility
of ensuring that competent, objective board members are selected. The function of the
nominating committee is to nominate candidates for the board and for senior management
positions.
The Compensation committee has the responsibility of evaluating executive performance and
recommending terms and conditions of employment.
Risk Committees are put in place to provide an oversight about risks regarding strategy and
tactics across operational, financial and compliance areas.
Other committees are put in place to ensure that the companies have dealt with other issues
such as diversity, equal employment opportunities and more.
The Board’s Relationship with the CEO
The board responsibility if for monitoring CEO performance and dismissing poorly performing
CEOs. However, there are situations where CEOs are protected from being fired. CEO duality,
which occurs when CEO serves a dual function, being both CEO and Chair of the board. One
can only wonder how the board’s responsibility to monitor the CEO can be fulfilled effectively
when the CEO is heading the process.
CEO duality can be a double-edged sword. This is because, when the CEO that serve as the
chair are able to act decisively in responding to a competitive marketplace however that comes
at a cost of a reduced ability of the board to monitor effectively.
Board Member Liability
The business judgment rule holds that courts should not challenge board members who act in
good faith, making informed decisions that reflect the company’s best interests instead of their
own self-interest. The argument for the business judgement rule is that board members need to
free to take risks without fear of liability. This means that the board of directors is supposed to
act at their best of abilities to govern the systems of reporting, ensuring that there is no
opportunity for misbehaviour of employees. Such there be a fraud, the board is held responsible
for their failure of fiduciary duty.
The Role of Shareholders
#1 Shareholders Democracy
One vote for one shares are not common in some firms. Majority vote is the requirement that
board members be elected by a majority of vote cast. Classified boards are those that elect their
members in staggered terms. This means that the members will change every 4 years or so,
ultimately in 12 years, it will comprise of new board members. This may be time consuming.
Charity Governance
For charity governance; one of their main stakeholders is the doners compared to profit driven
businesses where the main stakeholders is the shareholders. However, they face the same the
same Agency Problems; Responsibility, Accountability, Fairness and Transparency.
Purpose for having a Code of Governance;
For charity – Governance is important because it affects how a charity is run and the services
that the organisation provides. The board of a charity is responsible for putting in place the
principles and practices of good governance in the organisation. The Code also helps charities
to be more effective, transparent and accountable to their stakeholders.
For the Public – Members of the public donate and volunteer services to charities. This Code
aims to help the public understand what are the fundamental good governance practices and to
also aid the public to make an informed decision on which charity to support.
Objectives of the Code;
1. Make charities more effective
2. Provide guidance to Board Members
3. Boost public confidence in the charity sector
Tiered Guidelines;
Tier 1: Small and Medium Non-IPC Charities; with gross annual receipts or total expenditure
from $50,000 to less than $10 million
Tier 2: All IPCs and Large Non-IPC Charities; with gross annual receipts or total expenditure
of $10 million or more
Principle of Charity Organization
1. The charity serves its mission and achieve its objectives
Clear statement of the charitable purpose in the charity’s governing instrument.
Development and implementation of strategic plans to achieve the stated charitable
purposes.
2.
3.
4.
5.
6.
The charity has an effective Board and Management
The charity acts responsibly, fairly and with integrity
The charity is well-managed and plans for the future
The charity is accountable and transparent
The charity communicates actively to instil public confidence
Competition
Market Competition, in the economy there are two main types of market; Perfect Competition
and the Monopoly Market.
Market Competition exist in Singapore such as Grab vs Foodpanda.
Benefit of Market Competition in the society
Businesses
More efficient and
innovative solution
Level playing field
Consumers
Competitive Prices
Higher quality goods and
services
Wider range of goods and
services
Economy
Higher quality goods and
services
Wider range of goods and
services
Spur innovation and
contribute to productivity
and economic growth.
Fair Trading is important because it allows consumers to make informed decisions.
Businesses
Level playing field for
all businesses
Consumers
Provided with clear, correct
and sufficient information to
make informed decisions
about whether to make a
purchase
Economy
Economic activity flourishes
with more trust in the
marketplace
In Singapore, we have the CCCS, also known as the Competition and Consumer
Commission Singapore. They are the governing body for ensuring that fair trading practices
is adhered to in the marketplace.
Investigations
Enforces the Competition Act 2004 (“CA”)
Investigate and adjudicate anti-competitive activities, issue
directions to stop or prevent anti-competitive activities and impose
financial penalties
Market Studies
Administering agency of the Consumer Protection Act 2004
(CPFTA)
Outreach
Representing Singapore internationally in respect of competition and
consumer protection matters
Advisory and Policy Advise the government and public authorities on national needs and
Review
policies in respect of competition and consumer protection matters
generally
The Competition Act
Section 34 CA Prohibition – Anti-competitive Agreements
Agreement Anti-Competitive – When people of the same trade meet together and the
conversation ends in a conspiracy against the public to raise prises.
4 Types:
1. Price Fixing – All firms in the market fixed the price
2. Bid Rigging – All firms agree to discuss what price to bid, bidding for the highest price
as much as possible
3. Market Sharing – Dividing the Market, one company take portion of the market
4. Production Control – Keeping low supply, increasing the price
(Refer to slides 12 to 20 for the full details)
Section 47 CA Prohibition – Abuse of Dominance
Example of Potential Abuse;
1. Exclusive Dealing: only deal with one dominant suppliers in the market, forbid to deal
with other players
2. Predatory Pricing: Big players set prices below costs to deter new players in the market
3. Refusal to Supply: Dominant players in the market does not supply competitors with
the materials needed
4. Discount Schemes: Dominant player tie down customers with discounts
(Refer to Slides 25 to Slides 37)
Section 54 CA Prohibition – Mergers that lead to a substantial lessening of Competition
When are Merger bad for competition? – In Singapore
1. Mergers that lead to a substantial lessening of Competition are prohibited.
CCCS will look into the market share: merged entity have >40% market share or 20-40%
market share but after merger >70%
Barriers to entry and expansion
(Refer to Slides 41 to 48)
2. Mergers that can be pro-competitive and deliver economic efficiency
3. Singapore has a voluntary merger notification regime
4. Parties can notify CCCS for a decision on an anticipated or completed mergers
CPFTA – Unfair Practices
Consumer Protection Policy – Singapore’s consumer protection policy is implemented through
five key pillars, the CPFTA is the principal legislation on consumer protection in Singapore.
Unfair Practice - Under section 4 of the CPFTA, it is an unfair practice for a supplier, in relation
to a consumer transaction;
(a) To do or say anything, or omit to do or say anything, if as a result a consumer might
reasonably be deceived or misled
(b) To make false claim
(c) To take advantage of a consumer if the supplier knows or ought reasonably to know
that the consumer – is not in a position to protect his or her own interests or is not
reasonably able to understand the character, nature, language or effect of the transaction
or any matter related to the transaction
(d) To do anything specified in the Second Schedule to the CPFTA (Contains 27 specific
unfair practices)
(Refer to slides 52 to 56)
Role of Government in Market; Government involvement in the Market is due to;
1. Setting rules for the market to function effectively
2. Influence market outcomes to deliver desirable outcomes – such as achieving other
policy objectives which include social cohesion, address market failures
Direct and Indirect Involvement in the Market;
(Refer to slide 60 to 64)
Government Impact Assessment Framework
Lemon Law
-
It protects consumer against defective goods that fail to conform to contract or are of
unsatisfactory quality or performance standards at the time of delivery.
2 Stage recourse framework:
1. Consumer can ask businesses to repair or replace the defective goods
2. Consumer may keep the defective goods and request for a reduction in price, or return
the defective for a refund if the business did not provide repair or replacement within a
reasonable time or without significant inconvenience to the consumer/ Repair or
Replacement by the business is not possible or will incur a very high cost
Timeframe
If a defect is found within six months of delivery it is assumed the defect existed at the time of
delivery unless business can prove otherwise