SUMMARY OF REPORT

TOPIC: EXTERNAL FORCESS AFFECTING CORPORATE GOVERNANCE

Aside from the internal environment that certainly affects corporate governance, other factors can also affect
governance such as stock exchanges, regulatory bodies, investment bankers and the like. These external bodies are
concern with the way on how the corporation is governed. This is because they are affected by such actions of the
corporation or their decisions are based on the outcome or condition of the corporation.

There are 9 main external forces affecting corporate governance and these are:

1. Competitors
2. Financiers
3. Regulatory Agencies
4. Watchdogs
5. Predator Companies
6. Information Enhancers and Gatekeepers
7. Investment Bankers
8. Financial Press
9. Stock Exchanges

First one are company’s Competitors which refers to corporations and other business entities, private or public, offering the

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same product or services that the company is offering. This external factor affect corporate governance considering that, to the eyes

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of the investors, the best run businesses are the most attractive for investment.

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Taking that into consideration, COMPETITION makes the corporation on guard on what to do for itself to gain competitive
advantage over its competitor and at the same time, scout for things that would make your competitor at a disadvantage.

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Typical examples of corporation competition are the long rivalry between internationally known food services of McDonalds
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and Burger King. We also have the Philippine long distance telecommunication versus Globe Telecommunication.

Second factor that can affect corporate governance are FINANCIERS. These are individual or entity who manages
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routinely huge amount of money. Financiers affect the company’s governance in the sense that being the fund provider, financiers
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wants their investment secured. They only invest in companies with good track record and reputation to protect and this may mean
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the company will be around for a longer period of time.

Thus, company make sure that they have good credit/financial standing in order to continue to have investors invest in their
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company for continued period of time.

Third one will be REGULATORY AGENCIES. This refers to a public authority or government agency responsible for exercising
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autonomous authority over some area of corporate activity in a regulatory or supervisory capacity.

Regulatory agencies deal in area of administrative law regulations; that is enforcing rules and regulations and imposing
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supervision or oversight for the benefit of the public at large. This regulatory agencies are more often than not a part of the executive
branch of the government or have authority to perform its functions with oversight(guidance) from the legislative branch such as
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Congress.

This regulatory agencies are there to make sure that the corporation are reminded that someone is watching them and
making sure that they are really complying with the laws, standards, and regulations.
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Example of regulatory agencies are:

National Telecommunications
Commission for Telecommunication
industry

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 Mining and Geosciences Bureau for Mining
and Environment sector

Banko Sentral ng Pilipipans for

Fourth of the external forces are WATCHDOGS. These are the independent organizations trying to police a particular
industry or corporate conduct to make certain that the activities of these companies are accordance with the acceptable standards
and existing laws.

These watchdogs affect corporate governance by trying to keep in order a certain industry. As the name itself, watchdogs
are there to remind the corporation to watch its actions and do business fairly and in accordance with the existing laws.

Common examples of watchdogs are the different partylist that are existing to make that the public interest is not
discriminated and make certain that actions of corporations do not bring bad effect to public at large such as GABRIELA, Anak-Pawis,

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and One Sagip party.

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The fifth one will be PREDATOR COMPANIES. These are the corporations that are always on the watch and waiting to take-
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over a certain company, be it via friendly or hostile takeover.

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Knowing in mind that there are predator companies that are waiting for a chance to take over in a certain company, the
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management and the person in charge in corporate governance and organization are more careful of their actions and their decision
are very well considered before implemented because they know that one mistake may destroy the whole company or the
reputation of the company.
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The sixth external factors that can affect corporate governance are the Information Enhancers, Providers, and Gatekeepers.
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According to John Coffee, Enron, is a demonstration of gatekeeper failure.

Gatekeepers- refer to independent third party persons or entity whose cooperation is important because they have
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capability to at least deter, if not prevent misconducts of corporations. Examples are Accountants and Lawyers.
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The gatekeepers to financial markets provides information on investment and business concern to investors and fund
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providers. The gatekeepers’ role is very important especially during this time wherein number of investors in financial market have
increased and some of these investors are not technically well-versed in financial things exposing them to real risk. Investors want to
mitigate this risk so they will be dependent on information provided by the gatekeepers.
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Investment banker is the seventh factor that affects corporate governance. This is an individual or entity which acts as an
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agent for corporation issuing securities. Some investment bankers also maintain a brokerage or a dealership operation and offer
advisory services to its clients.

ROLE OF INVESTMENT BANKER

1. Origination
2. Underwriting
3. Distribution

ORIGINATION -It covers the secondary operations of discovery, investigation, and negotiation. The primary function of
the Investment banking is the cautious study of the soundness and reliability of the corporation with the view of bringing
its securities to the investment market. UNDERWRITING- is an arrangement with an investment banker whereby the
investment banker agrees to buys the entire issue at a set price. Investment banker also refers to the guarantee by the IB
that the issuer company will receive a minimum amount of cash for their new issued securities for sale.

Underwriting
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 1. Negotiated Underwriting which is the agreed and arranged negotiation between issuing company and the
investment banker
2. Competitive Bidding- a set up in which the issuing company awards the offering to the investment banker that
bids the highest price.

SYNDICATE- Is a temporary union of investment bankers brought together for the purpose of selling new securities,
this usually happens when there is a large and risky security issue is involved. After which, there will be an Originating house – term
given to one investment banker who is chosen to manage and handle the syndicate.

Two types of underwriting syndicate:

a. DIVIDED SYNDICATE- Each member group has legal responsibility of selling a portion of offerings allocated to them.
b. UNDIVEDED SYNDICATE- Each member group is legally responsible for unsold securities up to the amount of its percentage
of participation regardless of the number of securities that the group has sold.

DISTRIBUTION – The investment banker acts as a professional firm to distribute securities efficiently for the corporation. The
advantage of this setup could bring to the issuing company is it saves resources of the issuer considering maintaining a division
relating to marketing and selling of securities is expensive. As an investment banker, it is expected that the firm has already
established marketing and sales network to distribute securities.

Second to the last external factors are Stock Exchanges. The well-known stock exchanges are Tokyo Exchange in Tokyo, Japan
and New York Stock Exchange. Stock exchange refers to an entity which offers trading services and facilities for stock brokers and
traders, to buy and sell shares of stock and other securities. Securities traded on stock exchange include: Shares issued by
companies, Derivatives, and Pooled Investment products.

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Lastly, FINANCIAL PRESS refers to newspapers, magazines, TV Channels, broadcast programs and other media

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specializing in financial news and updates. This Financial Press provides an avenue where the information sources and
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information seekers meet. Example are Bloomber TV, Financial Times in US, The Asset in Asia, Business Mirror and

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Business World in print, and Business Nightly over ABS-CBN Anc.
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The financial press is important to the overall business sector more specifically on the financial sector as some
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companies often publish information on these media. This published information will become the basis for some of their
investment decisions.
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