Regulation and Why It’s Important

What is Regulation?
Regulation means the rules or laws that a country uses to control how businesses work.
Companies are like people in the eyes of the law — they can do things like sign contracts, own
property, and make deals.

Corporate Governance and CSR (Corporate Social Responsibility)

 Corporate Governance is about making sure a company follows the law and is run
properly. This is done by a group called the board of directors.
 Corporate Social Responsibility (CSR) is when companies choose to do the right thing
and help society, even if the law doesn’t make them. It means being fair and ethical to
everyone the company affects — like workers, customers, and the community.

Sometimes, CSR and corporate governance rules overlap because both want companies to
behave well. CSR is usually something companies choose to do, especially in Western countries,
while corporate governance is more about following the law.

What is EBIT?

EBIT stands for Earnings Before Interest and Taxes. It means the money a company makes
from its regular business activities before it pays for things like interest on loans or taxes to the
government.

Think of it like this:

 Imagine you run a lemonade stand.

 You sell lemonade and make money from it — that’s your earnings.
 But before you pay your parents back for the money they lent you to buy lemons (that’s
like interest), or give some money to your school (like taxes), you count how much you
made just from selling lemonade.
 That amount is like EBIT — it shows how well your business is doing just from selling
the product.

What Mr. Ulysses King Says:

Mr. Ulysses King is the Chief Financial Officer of Omnicom Media Group in the Philippines. He
explains that companies want to make money, like showing a good profit and doing well
financially while following the law. But it’s not always easy to follow every rule perfectly.

To handle this, the company tries to make decisions that help the most people, following a way
of thinking called Utilitarianism, which means choosing the option that brings the greatest good
for the greatest number of people. They also try to be responsible and support social causes,
keeping up with changes both locally and around the world.

Why Do We Need Regulation?

 Economics is the study of how people make and use goods and services. A famous
economist, Milton Friedman, believed that if there is more money moving around in an
economy, the government should get less involved. He thought free markets (where
businesses are mostly on their own) help people live better lives.
 A free market means businesses make their own decisions about buying and selling
without much government control. But in real life, no market is completely free because
governments need to protect people and companies with some rules.
 Regulations help protect the economy and people by making sure no one cheats or breaks
the law. Without rules, bad behavior could hurt honest businesses and customers.
 Regulations also help the government make money through taxes and fees, which they
use for important programs to help the country.

In Summary:
Regulations are important because they make sure businesses act fairly and safely. They protect
both companies and people, and help the government support the country’s needs.

Laws, Rules (Codes), and Guidelines (Regulation) for Businesses

Sarbanes-Oxley Act (SOX)

This is a law from the United States that helps make sure companies are honest about their
money and how they report it. It was made stronger in 2002 because of big company scandals
like Enron, where companies hid their problems and lost a lot of money. SOX makes sure
companies are more careful and open, so investors (people who put money into companies) can
trust them. Later, after the financial crisis in 2008, a new law called the Dodd-Frank Act was
made to watch banks more closely.

Enron was a very large company that lied about how much money it was making. They hid their
problems and made the company look much better than it really was. When people found out the
truth, the company lost a lot of money and many people lost their jobs and savings. This scandal
helped show why laws like the Sarbanes-Oxley Act are important to keep companies honest.

Why did companies like Enron hide their problems?

Companies sometimes hide their problems because they want to look successful and make more
people want to invest money in them. If a company seems to be making a lot of money, more
people might buy its stock (which means they own a part of the company). But hiding problems
is dishonest and can cause a lot of trouble later when the truth comes out.

Scenario: Imagine a company called TechCo. Before SOX, the leaders lied about how much
money the company was making to look successful. After SOX, they had to be honest and show
the real numbers. This way, people who invested money in TechCo wouldn’t get tricked.

Organization for Economic Cooperation and Development (OECD)

The OECD is a group that helps countries work together to make businesses fair and responsible.
They have important rules about how companies should be run, called the G20/OECD
Principles. Here are the main ideas from these principles:

1. Fair and Clear Rules

Companies should follow fair rules and be open about what they do, so everyone knows
what's happening.

Scenario: A company, GreenGames, has clear rules everyone must follow. They don’t
hide important information, so all workers and customers know exactly what the
company is doing.

2. Fair Treatment of Shareholders

People who own parts of the company (shareholders) should have their rights protected,
whether they own a lot or just a little, and no one should be treated unfairly.

Scenario: In a bakery called Sweet Treats, both big and small owners get the same
information about the company and can vote on decisions. No one is left out or treated
unfairly.

3. Good Role of Investors and Markets

Investors and stock markets should encourage companies to be responsible and help keep
them in check.

Scenario: At SportsGear, investors ask questions and suggest ideas to help the company
grow honestly. The stock market makes sure SportsGear follows the rules so everyone
can trust it.

4. Respect for Everyone Involved

Companies should respect everyone affected by their business, like workers and
customers, and work together with them.

Scenario: At Family Foods, the company listens to its workers and customers. They
make sure workers have safe places to work and customers are happy with the products.
 5. Sharing Information
Companies should share important and honest information about how they are doing
financially, who owns them, and how they are managed.

Scenario: FastRide shares reports every year that explain how much money they made,
who owns the company, and who runs it. This way, investors and the public know what’s
going on.

6. Responsibility of the Board

The people who make big decisions in the company (the board of directors) should guide
the company well, watch over managers, and be responsible to the owners.

Scenario: The board at TechWorld meets regularly to decide the company’s goals and
checks that the managers are doing their jobs well. They answer to the owners if things
go wrong.

The Philippine Corporation Code: What You Need to Know

The Philippine Corporation Code is a law approved in 1980 that sets the rules for creating and
running corporations in the Philippines. A corporation is a type of business owned by many
people but treated by law as a single entity. This law tells us how to start a corporation, how the
board of directors should work, the powers corporations have, and how meetings should be held.

Understanding this law is very important if someone wants to start or manage a business because
“not knowing the law” is not an excuse for breaking it. After almost 40 years, the law was
updated in 2019 to make it easier to do business in the Philippines and help the economy grow.

Here are some important changes made in the 2019 update:

 No minimum number of people is needed to start a corporation.

 Stock corporations must have at least ₱1,000,000 capital to start.

 Corporations can now exist forever—they don’t have to close after 50 years.

 A new type of business called a One-Person Corporation (OPC) was created, so one person
can own a corporation.

 Meetings and filing reports can now be done online through the Internet.

 The Securities and Exchange Commission (SEC) can remove directors or trustees who are not
qualified.
COMPANY CODES (CODE OF CONDUCT)

A formal document that outlines the expected behaviors, principles, and standards all employees
and management must follow.

Purpose:

 Set clear expectations for ethical and professional behavior.

 Promote integrity and fairness within the organization.
 Protect the company’s reputation and assets.
 Guide employees in decision-making.
 Ensure compliance with legal and regulatory requirements.

Core Values Typically Included:

 Integrity: Being honest and ethical in all actions.

 Respect: Valuing diversity, fairness, and dignity.
 Accountability: Taking responsibility for actions and decisions.
 Transparency: Open and honest communication.
 Collaboration: Encouraging teamwork and support.
 Customer Focus: Commitment to quality and service.
 Innovation: Embracing creativity and continuous improvement.
 Sustainability: Commitment to environmental and social responsibility.

WORKPLACE CONDUCT

What It Is:

Behavior expected from employees to maintain a positive, respectful, and productive work
environment.

Key Principles:

 Treat everyone with respect and courtesy.

 Maintain professionalism and honesty.
 Follow company policies and procedures.
 Protect confidential information.
 Ensure health and safety standards are met.
 Avoid harassment, discrimination, and conflicts of interest.
 Be punctual, reliable, and accountable.

BUSINESS ETHICS
What It Is:

Moral principles that guide the company’s business practices and decisions.

Importance:

 Builds trust with customers, partners, and employees.

 Promotes fairness and transparency in dealings.
 Prevents unethical practices like bribery, corruption, and fraud.
 Enhances the company’s reputation and long-term success.

Typical Ethical Practices:

 Fair treatment of customers and suppliers.

 Honest marketing and truthful advertising.
 Responsible use of company resources.
 Avoiding conflicts of interest.
 Commitment to social responsibility and sustainability.

COMPLIANCE WITH LAWS

What It Is:

Adhering to all applicable laws, regulations, and industry standards in the company’s operations.

Purpose:

 Avoid legal penalties, fines, and lawsuits.

 Protect employees’ rights and safety.
 Ensure fair competition and market integrity.
 Foster ethical corporate citizenship.

Common Compliance Areas:

 Labor and employment laws.

 Health and safety regulations.
 Environmental laws.
 Data privacy and protection.
 Anti-corruption and anti-bribery laws.
 Financial reporting and tax regulations.
🏛️Political Issues and Corporate Governance

What is Corporate Governance?

Corporate governance is how a company is run and managed. It includes making decisions,
following rules, and doing the right thing for the company, its workers, customers, and the
community.

🧠 Why Are Political Issues Important to Businesses?

Political issues are big problems or decisions made by the government that can affect
everyone, including companies. For example:

 Climate change
 Healthcare
 Taxes
 Corruption or bribery in government

These issues can change the way companies work. That’s why companies have to pay attention
and be ready to adjust.

📌 Examples:

1. COVID-19 Pandemic (2020):

This was a health issue, but it caused huge problems for businesses—factories closed,
workers got sick, and people couldn’t go to work or shop like before.
2. TRAIN Law (Philippines, 2017):
This law changed the way people and businesses pay taxes. Companies had to make
changes in how they set prices or pay their workers.

🌍 What About the Environment?

Even if the government hasn’t made strong rules yet, people care a lot about pollution and
climate change. So, big companies try to:

 Use energy wisely

 Recycle and reduce waste
 Protect the environment

This is called Corporate Social Responsibility (CSR) — it means doing good for society, not
just making money.
✅ Why Does This Matter?

If companies don’t care about these political and social issues:

 They could lose money

 People might stop buying from them
 The government might fine or punish them

So, good corporate governance means:

 Doing the right thing

 Planning for changes
 Caring about people and the planet

🌱 Kohlberg’s Stages of Moral Development

Kohlberg divided moral development into three levels, each with two stages:

🧒 Level 1: Pre-Conventional Morality

(Typically ages 4–10; based on external consequences)

Stage 1: Obedience and Punishment Orientation

 Morality is based on avoiding punishment.

 Actions are judged right or wrong based on what happens afterward, especially if
punishment is involved.
 Children obey rules to avoid negative consequences, not because they understand right
from wrong.

Example: "If I steal, I’ll get in trouble—so I won’t."

Stage 2: Instrumental Relativist orientation (Self-Interest Orientation)

 Moral reasoning is guided by self-interest and personal gain.

 There is an understanding of reciprocity, but it’s still self-centered: “You scratch my
back, I’ll scratch yours.”
 Right action is what meets one's own needs or benefits both parties.
Example: “I’ll help you if you help me.”

🧑 Level 2: Conventional Morality

(Typically older children to adults; based on social approval and law)

Stage 3: Interpersonal Relationships (Good Boy/Good Girl Orientation)

 Morality is about pleasing others and being seen as a good person.

 Actions are judged based on intentions and how they affect relationships.
 Focus on approval, loyalty, and maintaining trust.

Example: “I won’t lie because I want my friends to trust me.”

Stage 4: Maintaining Social Order (Law and Order Orientation)

 Morality is about following laws and respecting authority.

 Rules are seen as necessary to keep society running smoothly.
 Doing one’s duty and respecting the system is most important.

Example: “We have to follow the law, even if we don’t like it.”

🧠 Level 3: Post-Conventional Morality

(Some adults; based on abstract principles and ethics)

Stage 5: Social Contract and Individual Rights

 People see laws as social agreements, not fixed rules.

 Laws are only valid if they protect individual rights and benefit the majority.
 Open to changing laws if they are unjust.

Example: “If a law harms people, it should be changed.”

Stage 6: Universal Principles

 Moral decisions are based on universal ethical principles like justice, equality, and
human rights.
  A person may go against laws or norms if they conflict with these higher moral values.
 This stage reflects deep moral reasoning, often putting ethics over legality.

Example: “Even if it’s illegal, I will do what is right for humanity.”

🏢 Building an Ethical Organization

Human Resource Management (HRM) is important in any company because it takes care of
the people who work there. HR handles things like hiring, paying, training, and making sure
everyone follows the rules.

People often call HR the “moral conscience” of a company because they make tough decisions
that affect employees, like layoffs, salaries, and solving conflicts.

How HR Builds an Ethical Company:

1. Be an Ethical Leader
The boss or HR leader should set a good example by being honest, trustworthy, and
respectful. When leaders act ethically, employees are more likely to follow their lead.
2. Support Training and Development
Offering training helps employees learn and grow. It keeps them interested and
committed to their work.
3. Value Diversity
Hiring should be based on skills, not race, gender, religion, or background.
Understanding and accepting different people makes ethical decision-making easier.
4. Manage Conflicts of Interest (COI)
Sometimes people’s personal interests can cause problems at work. HR must make sure
everyone follows the company’s ethics and rules to avoid this.
5. Keep Things Confidential
HR knows private information about employees. It’s their job to keep this info safe and
private.
6. Know and Follow the Law
HR must always follow labor laws and company policies to keep things fair and legal.

📜 Code of Ethics vs. Code of Discipline

When someone joins a company, they get two important documents:

 Code of Ethics: This explains the company’s values and what it believes is right and
wrong. It helps guide how employees behave honestly and with integrity. Everyone
knows these rules because they are often shared publicly.
  Code of Discipline (Conduct): This is more about specific rules employees must follow,
like attendance, dress code, and behavior. Breaking these rules can lead to penalties,
suspension, or even being fired.

Why Are These Important?

Together, the Code of Ethics and Code of Discipline help build a workplace where everyone
knows what’s expected, acts fairly, and respects others.