Chapter 1: Introduction to Corporate Governance

Governance – refer to a process whereby elements in society wield power, authority, and influence and
enact policies and decisions concerning public life and social upliftment.
- it comprises all the process of governing – whether undertaken by the government of a
country, by a market or by a network – over a social system and whether through laws, norms, power or
language of an organized society.
- the process of decision-making and the process by which decisions are implemented (or
not implemented) through the exercise of power or authority by leaders of the country and / or
organizations.
- can be used in several contexts such as corporate governance, international governance,
national governance, and local governance.

CHARACTERISTICS OF GOOD GOVERNANCE

1. Participation – a. it is a key cornerstone of good governance
b. either be direct or through legitimate institutions or
representatives
c. it needs to be informed and organized
d. freedom of association and expression on one hand and an
organized civil society on the other hand

2. Rule of Law – a. G.G. requires fait legal frameworks that are enforced impartially
b. it also requires full protection of human rights, particularly those
of minorities
c. impartial enforcement of laws requires an independent judiciary
and an impartial and incorruptible police force

3. Transparency – a. means that decisions taken and their enforcement are done in
a manner that follows rules and regulations
b. it means that information is freely available and directly
accessible to those who will be affected by such decisions and
their enforcement
c. it means that enough information is provided and that it is
provided in easily understandable forms and media

4. Responsiveness – a. G.G. requires that institutions and processes try to serve the
needs all stakeholders within a reasonable timeframe

5. Consensus Oriented – a. G.G. requires mediation n of the different interests in

society to reach a broad consensus on what is in the
best interest of the whole community and how this can
be achieved
 b. it requires a broad and long-term perspective on what is
needed for sustainable human development and how
to achieve the goals of such development

6. Equity & Inclusiveness – a. ensures that all its members feel that they have a
stake in it and do not feel excluded from the
mainstream society

7. Effectiveness & Efficiency – a. G.G. means that processes and institutions

procedure results that meet the needs of society
while making the best use of resources at their
disposal
b. efficiency covers the sustainable use of natural
resources and the protection of the environment

8. Accountability – a. a key requirement of good governace

b. governmental institutions and civil society organization must
be accountable to the public and to their institutional
stakeholders
c. it cannot be enforced without transparency and the rule of
law

CORPORATE GOVERNANCE: AN OVERVIEW

Corporate Governance – a. defined as the system of rules, practices, and processes by

which business corporations are directed and controlled
b. it involves balancing the interests of a company’s many
stakeholders, such as shareholders, management,
customers, suppliers, financiers, government, and the
community
c. a topic that has received growing attention in the public in
recent years as policy makers and others become more
aware of the contribution good corporate governance
makes to financial market stability and economic growth
d. Good corporate governance is all about controlling one’s
business and so is relevant, and indeed vital, for all
organizations, whatever size or structure
e. Corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders,
and other stakeholders, and spells out the rules and
procedures for making decisions on corporate affairs

PURPOSE OF CORPORATE GOVERNANCE

 a. To facilitate effective, entrepreneurial, and prudent management that can deliver long-term
success of the company
b. To enhance shareholders’ value and protect the interest of other stakeholders by improving the
corporate performance and accountability

OBJECTIVES OF CORPORATE GOVERNANCE

a. Fair and Equitable Treatment of Shareholders

b. Self-Assessment
c. Increase Shareholders’ Wealth
d. Transparency and Full Disclosure

BASIC PRINCIPLES OF EFFECTIVE CORPORATE GOVERNANCE

Effective corporate governance is transparent, protects the rights of shareholders, and includes both
strategic and operational risk management. It is concerned in both the long-term earning potential as well
as accrual short-term earnings and holds directors accountable for their stewardship of the business.

Transparency and Full Disclosure Accountability

Is the board telling us what is going on? Is the board taking responsibility?

GOOD AND EFFECTIVE

GOVERNANCE

Corporate Control
Is the board doing the right thing?

Principles of Good Governance

1. A company should lay solid foundation for management and oversight. It should recognize and publish
the respective roles and responsibilities of board and management.
2. Structure the board to add value. Have a bard of an effective composition, size, and commitment to
adequately discharge its responsibilities and duties.
3. Promote ethical and responsible decision-making. Actively promote ethical and responsible decision-
making.
4. Safeguard integrity in financial reporting. Have a structure to independently verify and safeguard the
integrity of the company’s financial reporting.
5. Make timely and balanced disclosure. Promote timely and balanced disclosure of all material matters
concerning the company.
6. Respect the rights of shareholders and facilitate the effective exercise of those rights.
7. Recognize and manage risk. Establish a sound system of risk oversight and management and internal
control.
8. Encourage enhanced performance. Fairly review and actively encourage enhanced board and
management effectiveness.
9. Remunerate fairly and responsibly Ensure that the level and composition of remuneration is sufficient
and reasonable and that its relationship to corporate and individual performance is defined.
10. Recognize the legitimate interests of stakeholders. Recognize legal and other obligations to all
legitimate stakeholders.