Introduction to Corporate
system in pursuit of service, excellence, and
Governance
SEC MEMORANDUM CIRCULAR NO.19 CODE
OF CORPORATE GOVERNANCE FOR
PUBLICLY-LISTED COMPANIES
MANDATE- The Securities and Exchange
Commission (SEC) or the Commission is the
national government regulatory agency charged
with supervision over the corporate sector, the
capital market participants, and the securities and
investment instruments market, and the
protection of the investing public.
SEC is the registrar and overseer of the Philippine
corporate sector; it supervises more than 600,000
active corporations and evaluates the financial
statements (FS) filed by all corporations
registered with it.
VISION- By 2025, the SEC with its driven, highly-
trained and customercentric team of
professionals, equipped with innovative
technology and automated registration and data
management systems, is the premier investor
champion and catalyst of a broadened and
informed investor-based capital market and
business sector considered among the best in the
Southeast Asian Region.
MISSION- We are the gateway to doing business
in the Philippines. We provide a competitive and
secure environment for easy company
registration, efficient capital formation, and broad
investor participation.
CORE VALUES
INTEGRITY- We are ethical, honest, fair, and
sincere in our private and public lives.
PROFESSIONALISM- We are capable and
competent in performing our mandate, we excel
in our fields of expertise, and we possess high
ethical principles and standards which are
essential in providing timely, quality, and
committed public service.
ACCOUNTABILITY- We are responsible for our
actions and decisions.
TEAMWORK- We collaborate to achieve our
common goals and tasks in a seamless and
efficient manner
INDEPENDENCE- We act without fear or favor and
render sound judgment in the performance of our
duties and responsibilities.
Emilio Benito Aquino is the first CPA-Lawyer
appointed as Chairperson and CEO of the
Securities and Exchange Commission (SEC). He
will serve for a term of seven years. He assumed
office last June 7, 2018.
SEC QUALITY POLICY STATEMENT
We, the Securities and Exchange Commission, the
prudent registrar and supervisor of the corporate
sector, and the independent guardian of the
capital market, commit to:
Serve our stakeholders with utmost integrity and
professionalism in compliance with customer,
legal, regulatory, and other applicable
requirements;
Excel in performing our mandate through
continuing institutional capability enhancement
and effective resource management; and,
Continually improve our quality management FOUR PILLARS OF GOOD GOVERNANCE
commitment. ➢ BOD
➢ THE MANAGEMENT
CODE OF CORPORATE GOVERNANCE FOR ➢ EXTERNAL AUDITORS
PUBLICLY LISTED COMPANIES
➢ INTERNAL AUDITORS
➢ The Board’s Governance Responsibilities
Each independent, knowledgeable,
(1-7)
➢ Disclosure and Transparency (8-11)
competent, trustworthy, forthright; Strong
➢ Internal Control System and Risk interaction (teamwork, communication)
Management Framework (12) between each; Common objectives.
➢ Cultivating a Synergic Relationship with
Stakeholders (13)
➢ Duties to Stakeholders (14-16) BUSINESS ETHICS
CORPORATE GOVERNANCE- The system of
Introduction to ETHICS- can be defined
stewardship and control guide organization in
broadly as a set of moral principles or values
fulfilling their long-term economic, moral,
that govern the actions and decisions of an
legal, and social obligations towards their
individual or group. While personal ethics
stakeholders.
vary from individual to individual at any point
INDEPENDENT DIRECTOR- A person who is in time, most people within society are able
independent of management and the to agree about what is considered ethical and
unethical behavior.
controlling shareholders.
EXECUTIVE DIRECTOR- A director who has ETHICS- Knowing the difference between
executive responsibilities of day-to-day what you have the right to do and what is the
operations of a part or the whole of the right thing to do.
organization.
Characteristics and values associated with
NON-EXECUTIVE DIRECTOR- A director who ethical behavior
has no executive responsibility and does not
➢ INTEGRITY
perform any work related to the operations of
➢ HONESTY
the corporation.
➢ TRUSTWORTHINESS AND PROMISE
BOARD OF DIRECTORS- The governing body KEEPING
elected by the stockholders that exercises the ➢ LOYALTY (FIDELITY) AND
corporate powers of a corporation, conducts CONFIDENTIALITY
all its business, and controls its properties. ➢ FAIRNESS AND OPENNESS
➢ CARING FOR OTHERS
MANAGEMENT- A group of executives given
➢ RESPONSIBLE CITIZENSHIP
the authority by the BOD to implement the
➢ PURSUIT OF EXCELLENCE
policies it has laid down in the conduct of the
➢ ACCOUNTABILITY
business of the corporation.
Why ethics is necessary? Our whole word will
CONGLOMERATE- A group of corp. that has
be full of chaos, violence, misunderstandings,
diversified business activities in varied
and hatred.
industries, whereby the operations of such
businesses are controlled and managed by a Ethical behavior is necessary for a society to
parent corporate entity. function in an orderly manner and to have a
harmony.
INTERNAL CONTROL- A process designed and
effected by the BOD, senior management, Why do people act unethically? (3 reasons)
and all levels of personnel to provide
➢ The person’s ethical standards are
reasonable assurance on the achievement of
different from general society.
objectives.
o Cheat on their tax returns
ERM- A process, affected by an entity’s BOD, o Treating people rudely
o Judging someone because of
management, and other personnel, applied in
strategy setting and across the enterprise. his race
o Stealing money from parents
RELATED PARTY- Shall cover the company’s
➢ The person chooses to act selfishly
subsidiaries, as well as affiliates and any party
o Plagiarism
that the company exerts direct or indirect
o Cheating to your partner
control over the company.
o Corruption
RELATED PARTY TRANSACTIONS- A transfer ➢ People are having cultural numbness
of resources, service or obligations between a o Victim blaming
reporting entity and related party, regardless o Family body shaming
of whether a price is charged.
STAKEHOLDERS- Any individual, organization, Categories of Ethical Principles
or society at large who can either affect
• Personal ethics
and/or be affected by the company’s
• Professional ethics
strategies, policies, business decisions, and
• Business ethics
operations, in general.
PROFESSIONAL ETHICS
If you don’t have integrity, you have nothing.
You can’t buy accountability. You can have all
the money in the world, but if you are not a
moral and ethical person, you really have
nothing.
Common characteristics of recognized
professions
• A responsibility to serve the public
• Complex body of knowledge
• Standards of admission to the
profession
• A need for public confidence
In looking for people to hire, look for three
qualities: INTEGRITY, intelligence, and
energy. And if they don't have the first, the
other two will kill you. – Warren Buffett
BUSINESS ETHICS
• Standards of moral conduct,
behavior, and judgement in business.
• Involves making the moral and right
decisions while engaging in such
business activities.
• An area of corporate responsibility
where business are legally bound and
socially obligated to conduct business
in an ethical manner.
PURPOSE:
MAIN PURPOSE: to help business and would
be businesses to determine what business
practices are right and what are wrong.
SPECIAL PURPOSE:
1. Make businessmen realize they
cannot employ double standards to
the actions of other people and to
their own actions.
2. Show businessmen that common
practice which they think are right
because they see others doing it, are
wrong.
3. Be a standard or ideal upon which
business conduct should be based.
NO UNIVERSAL STANDARD CODE OF ETHICS
The businessman who provides fair business
competition is most likely to observe the
business ethical rules of conduct, behavior,
and judgement.
DIRECT MISREPRESENTATION
• Deceptive packaging- Bags of chips
• Misbranding or labeling- No sugar
added
• False or Misleading Advertising-
Burger
• Adulteration- Gatas ng kalabaw,
prutas and vegies
• Weight understatement or short
weighing – sa palengke may pabigat
yung mga timbangan
• Measurement understatement or
short measurement
• Quantity understatement or short
numbering
Vanity sizing- example pants from different
stores. Binabawasan yung sizes
INDIRECT MISREPRESENTATION
• Caveat emptor- sa pagpapatayo ng
resort (iba yung lugar na pinakita sa
picture sa actual talaga)
• Deliberate with holding of
information- second hand na
sasakyan
• Passive deception- related siya sa
dalawa
Over persuasion- persuading a buyer to
purchase the product without
considering his interest (for the sole
benefit of selling only)
UNETHICAL PRACTICE OF CORPORATE
MANAGEMENT
• Practices of the BOD
• Practices of the Executive Officers
• Practices of Employees
Integrity Initiative Campaign
• Started by the Makati Business Club
and the ECCP
• Aims to strengthen ethical standards
in society
• An integrity Compliance handbook
• Project SHINE
RA 7394 The Consumer Act of The Phil.
RA 3720 The Food, Drug, and cosmetics act
RA 8293 Intellectual Property Code of the
Phil.
CORPORATE SOCIAL
RESPONSIBILITY
Refers to strategies that companies put into
action as part of corporate governance that
are designed to ensure the company’s
operations are ethical and beneficial for
society.
EXAMPLES:
• Google
• Coca cola
• Ford Motor Company
• Netflix
• Spotify
• Pfizer
• Starbucks
• The Walt Disney Company
THE POTENTIAL BENEFITS OF CSR TO
COMPANIES INCLUDE:
• Better brand recognition
• Positive business reputation
• Increase sales and customer loyalty
• Operational costs savings
• Better financial performance
• Greater ability to attract talent and
retain staff
• Organizational growth
• Easier access to capital
FOUR CATEGORIES OF CSR
ENVIRONMENTAL, ETHICAL,
PHILANTROPHIC, ECONOMIC
ENVIRONMENTAL CSR
• Concerns the environmental aspects
of CSR
• It is commonly defined as is the way
in which organizations can
incorporate environmental issues
into their operations in order to
eliminate waste and emissions,
maximize the efficiency and
productivity of its resources and
minimize practices that badly affect
the country’s natural resources.
• Why Environmental CSR is
important? It encouraged or
compelled companies to integrate
environmental concerns in business
strategy.
ETHICAL CSR
• Programs focus on ensuring that all
stakeholders in a business receive
fair treatment, from employees to
customers.
• Ethical responsibilities are self-
enforced initiatives that a company
puts in place because they believe it
is the morally correct thing to do
rather than out of any obligation.
• Why Ethical CSR is important?
People, planet, and profit. By taking
social responsibility into account in
your processes, strategies, and
values, the company can better its
reputation significantly. It will most
likely better a company’s image and
help build its brand.
PHILANTROPIC CSR
• It can include things such as funding
educational programs, supporting
health initiatives, donating to
causes, and supporting community
beautification projects.
• IMPORTANCE: Company image,
increase sales, and community
benefits
ECONOMIC CSR
• It is an interconnected field that
focuses to strike a balance between
business, environmental, and
philanthropic practices.
• Companies try to find out a solution
that can facilitate their business
growth and generate profits by
benefiting the community and our
society.
• IMPORTANCE: Cost savings,
minimize wastage, community
benefits
ASSESSMENT ON THE PRACTICE OF CSR
A. Arguments in support of CSR
• Long Run Self Interest
• Business Resources
• Viability of Business
• Public Image
• Profit From Real Social Problems
STEPS:
1. Assemble a CSR leadership team
2. Develop a working definition of CSR
3. Identify legal requirements
4. Review Corporate documents,
process, and activities.
5. Identify and engage key
stakeholders.
ARGUMENTS AGAINST THE PRACTICE OF
CSR
• Profit maximization
• Lack of social accountability
• Lack of social skills
• High cost for the firm
• Hypocritic CSR
CORPORATE CITIZENSHIP
• How a company exercises its rights,
obligation, privileges, and overall
corporate responsibility within its
local and global environments.
FIVE STAGES OF CC DEVELOPMENT
1. ELEMENTARY
2. ENGAGED
3. INNOVATIVE
4. INTEGRATED
5. TRANSFORMING
The ultimate goal of CC is to produce higher
standards of living and quality of life for the
communities that surround them while still
maintaining profitability for stakeholders.
CORPORATE PHILANTROPHY- is the act of a
corporation or business promoting the
welfare of others, generally through
charitable donations of funds or time to
foundation whose mission is to fight a cause
and deliver social impact.
CSR VS CP
CSR CP
Overall attitude of Covers a narrower
an org. toward form of csr
society at large
Not just about Money aspect of
giving money CSR
Matching Gifts- type of corporate giving
program that essentially matches an
employee’s initial donation to an eligible
non-profit organization.
NONPROFITS ELIGIBLE FOR MATVHING
GIFTS
• Educational institutions
• Health and human services
• Environmental organizations
• Community organizations
TOP MATCHING GIFTS COMPANIES
• GOOGLE
• CHEVRON
• AMERICAN EXPRESS
• GENERAL ELECTRIC
VOLUNTEER GRANTS- also known as dollars
for doers’ programs, are when the
employees of a company donate time (as
volunteers) and their company matches their
time with money.
TOP VOLUNTEER GRANTS COMPANIES
• MICROSOFT
• APPLE
• WALMART
• EXXON MOBIL
OTHER TYPES OF CP
• Employee grant stipends- some
corporations will award grants to
employees to donate to the nonprofit
of their choice.
• Community grants- companies, not
employees, are the ones who initiate
community grants.
• Volunteer support initiatives-
companies partner their employees
with nonprofits to provide specialized
support only that company can
provide.
• Corporate sponsorships- companies
frequently give financial support to a
nonprofit to help further their
mission.
RISK MANAGEMENT
RISK- is the possibility of something bad
happening.
✓ involves uncertainty about the
effects/implications of an activity with
respect to something that humans value,
often focusing on negative, undesirable
consequences.
❖ in a business context, is anything that
threatens an organization’s ability to
generate profits at its target levels.
TYPES of RISK
FRAUD RISK- financial statements,
intentional deceptions
NON- COMPLIANCE RISK- certain laws
and regulations
BUSINESS RISK- there’s a possibility that
the business will inadequate profit
(change in preferences)
OPERATIONAL RISK- ineffective internal
properties (NO CURRENT, OVER
CAPACITY)
Others:
LIQUIDITY RISK AND CREDIT RISK
OBJECTIVES, RISKS, CONTROLS
OBJECTIVES: What do we want to
achieve?
RISKS- What might thwart our efforts?
CONTROLS- How can we control risk?
RISK RESPONSES
AVOIDANCE- Do not proceed!
MITIGATION- Improve controls to reduce
likelihood/impact.
TRANSFER- Shift responsibility to an
external party.
ACCEPTANCE- Accept the risk!
CREATION- Seek risk activities
strategically to maximize opportunities.
According to International Organization
for Standardization (ISO 31000), Risk
Management is the identification,
assessment, and prioritization of risks
followed by coordinated and economical
application of resources to minimize,
monitor, and control the probability
and/or impact of unfortunate events and
to maximize the realization of
opportunities.
Risk management is systematic approach
in identifying, analyzing, and controlling
areas or events with the potential for
causing unwanted change. Risk can come
from uncertainty in financial market,
project failures, legal liabilities, credit
risks, accidents, natural causes, and
disasters as well as deliberate attack
from adversary or events of uncertain or
unpredictable root cause (Cabrera, 2019)
Enterprise risk management (ERM) is the
process of identifying and addressing
methodically the potential events that
represent risks to the achievement of
strategic objectives, or to opportunities
to gain competitive advantage.
TRADITIONAL RISK ERM
MANAGEMENT
Segmented/ Holistic approach
departmentalized
Each department/ Emanates from the top,
bus. Unit/ silo deals typically the BOD
w/ own risk
Little or no knowledge Broad perspective on
overall organization
risks
Focus is on preventing Lowering risk,
loss w/in the bus. unit increasing
(tactical) sustainability, and
providing savings/value
across the entire
organization.
(Strategic)
Manages Assesses entire asset
uncertainties around portfolio including
physical and financial intangibles
assets.
Solutions to Mitigating risk based on
mitigating risk based strategy-setting across
on each silo’s the entire organization.
expertise and
decision-making skills.
RISK MANAGEMENT SYSTEM Sarbanes and U.S. Representative False Billing- pay the goods not received, pay
Michael G. Oxley. service that not rendered
Oversight activities:
• The 2002 SOX ACT established new
False reimbursement- expenses na hindi
Define goals and objectives, roles and corporate governance rules
naman na incurred
responsibilities, common language, and • Created company accounting
oversight structure oversight board Bribery- amount of money for favor
• Increased accountability for company
TOP MANAGEMENT’S INVOLVEMENT Cookie jar accounting- form of reserves, not
officers and BOD
recognizing the sales. Kapag mababa yung
Set management policy, establish • Increased white collar crime sales doon lang irerecognize.
context, set limits and tolerance. penalties
RISK MANAGEMENT PROCESS: • prohibits a company’s external audit Ghost employees- nandyan pero hindi mo
firms from providing financial nararamdaman, payroll fraud
Step 1. Assess Risks: Identify, source, information systems First: Identify fraud symptoms
measures.
Accounting Anomalies • Ledger Doesn’t
Ensure that process captures all business
Balance
risks. INTERNAL CONTROL
Internal Control Weakness • No Vacations
Step 2. Develop/Design Action Plans: Error- unintentional
Reduce, avoid, retain, transfer, exploit. Analytical Anomalies- unusual analytical
Fraud- intentional
relationships
Ensure that all available tools and
An intentional act by one or more individuals
methodologies are used. SYMPTOMS OF FRAUD
among management, those charged with
Step 3. Implement Action Plans governance, employees, or third parties, Extravagant Lifestyle- BOC yung sa security
involving the use of deception to obtain an guard
Review effectiveness of the plan. Check
unjust or illegal advantage.
capabilities Unusual Behavior
Occupational fraud - the use of one’s
Step 4. Monitor and report risk management Tips and Complaints
occupation for personal enrichment through
performance
the deliberate misuse or misapplication of the THE FRAUD TRIANGLE
Review and evaluate regular reports on organization’s resources or assets.
OPPORTUNITY
performance. (Association of Certified Fraud Examiners
(ACFE))
Step 5. Continuously improve risk
management capabilities This type of fraud occurs when an employee,
manager, or executive commits fraud against
Evaluate recommendation for improvements
his or her employer
FRAUD TRIANGLE
Nag-iiba yung level of risk tolerance.
Financial reporting fraud
Connected siya sa CC
PRESSURE RATIONALIZATION
▪ revenue fraud
The RISK MANAGEMENT FRAMEWORK
should guide the Board in identifying - channel stuffing - “round-tripping”
units/business lines and enterprise-level risk WHAT IS INTERNAL CONTROL?
▪ improper capitalization
exposures, as well as the effectiveness of risk
It is a process, effected by an entity’s BOD,
management strategies. ▪ “hiding” liabilities
management, and other personnel,
The Board should establish a separate Board ▪ intentional omission of disclosures designed to provide reasonable assurance
Risk Oversight Committee that should be regarding the achievement of objectives
▪ “big bath”
responsible for the oversight of a company’s relating to.
Enterprise Risk Management System to ▪ improper “cookie jars”
• Internal control is what we do to ENSURE
ensure its functionality and effectiveness.
▪ other that the things we want to happen (our
The BROC should be composed of at least business objectives) will happen.
Asset Misappropriation
three members, the majority of whom
BUSINESS OBJECTIVES
should be independent directors, including ▪ cash larceny
the Chairman. • Accuracy/Reliability of financial
▪ skimming
reports
The Chairman Should not be the Chairman of
▪ Inventory pilferage • Effective operations
the Board or of any committee. At least one
member of the committee must have • Compliance of regulations and
▪ theft of other assets
relevant through knowledge and experience guidelines
▪ payroll fraud
on risk and risk management. COSO CUBE- Mother of all frameworks
▪ “ghost” purchases
SARBANES – OXLEY ACT OF 2002 Reasonable Assurance
▪ lapping
Also known as • What ensures that all recorded purchases
▪ misuse of assets actually occurred? – OCCURRENCE
• Public Company Accounting Reform
and Investor Protection Act in the ▪ other • What ensures that all shipment goods are
Senate. recorded? - COMPLETENESS
CORRUPTION
• Corporate and Auditing
• What ensures that assets are reflected at
Accountability and Responsibility Act ▪ bribery
appropriate amounts? – VALUATION
in the House.
▪ illegal gratuities; kickbacks
• Sarbanes-Oxley, Sarbox, SOX
• Enacted on July 30, 2002, and named ▪ economic extortion
after sponsors, U.S. Senator Paul
▪ others
Prevention and Detection-False billing ENRON SCANDAL (2001)
• Variance analysis (budget vs. actual) Houston-based commodities, energy and
service corporation
• Large billings broken into smaller amounts
so as not to attract attention Sherron Watkins- former VP of Enron
Company
• Vendors with similar sounding names
Alerted then-CEO Ken Lay in August 2001 to
• Duplicate payments
accounting irregularities within the
• Personal visit to vendor’s place of company
business to determine if it is actually
operating
Prevention and detection – False
reimbursements
• Formal reimbursement approval policy
• Require original OR in the name of the
company
• Limits on reimbursements
• Periodic audits of reimbursements
• Analytical review – watch out for spikes
in reimbursable expenses (i.e.,
Representation, food)
• Random verification with payor
Identify red flags – Payroll fraud
• Compare budgeted salaries with actual
amount
• Look for missing employee data (i.e., TIN,
SSS No.)
• Search for employees with unusually low
withholding tax or no withholding tax
• Look for matches addresses and/or bank
accounts.
• Periodic reconciliation of head count of
employees per payroll records and HR
• Random face-to-face
encounter/inspection of employee
Controls in General
• Use of chart of standard accounts
• Use of pre-numbered forms
• Access to records limited to authorized
persons
• Mandatory vacation leaves for employees
with accountabilities
• Job rotation
• Separation of record-keeping from
custodianship
• Bonding of employees handling assets
• Conflict of interest policy
• Record retention policy
WORLCOM SCANDAL (2002)
Company- Telecommunications company,
now MCI, Inc.
CYNTHIA COOPER

• Director of internal audit

• Her team discovered $3 billion in
questionable expenses