GOOD GOVERNANCE 3.

Increase Shareholders' Wealth

4. Transparency and Full Disclosure

CHAPTER 1: Introduction to Corporate

Governance
Basic Principles of Effective Corporate
Governance
What is Governance?
Good and Effective Governance
The process of decision-making and the
process by which decisions are implemented  Transparency and Full Disclosure
(or not implemented) through the exercise of Is the board telling us what is going on?
power or authority by leaders of the country  Accountability
and/or organizations Is the board taking responsibility?
 Corporate Control
Is the board doing the right thing?
Characteristics of Good Governance
CHAPTER 2: Corporate Governance
 Rule of Law
Responsibilities and Accountabilities
 Participation
 Accountability. RELATIONSHIP BETWEEN
 Transparency SHAREHOLDERS AND OTHER
 Effectiveness & Efficiency STAKEHOLDERS
 Equity & Inclusiveness
 Consensus Oriented
 Responsiveness

Corporate Governance

System of rules, practices and

processes by which business corporations are
directed and controlled

Purpose of Corporate Governance Aspects where Shareholders Demand

to facilitate effective, entrepreneurial
and prudent management that can deliver
long- term success of the company
Accountability from the BOD
1. Financial Performance
2. Financial Transparency

3. Stewardship
Objectives of Corporate Governance
4. Quality of Internal Control
1. Fair and Equitable Treatment of
Shareholders 5. Composition of the board of directors and
the nature of its activities
2. Self-Assessment
PARTIES INVOLVED IN CORPORATE
GOVERNANCE
1. Shareholders
➢ also referred to as a stockholder, is any
person, company, or institution that owns at
least one share of a company's stock
➢ Oversight through election of board
members, approval of major initiatives, annual
reports on management compensation
2. Board of Directors
➢ elected group of individuals that represent
shareholders
➢ a governing body that typically meets at
regular intervals to set corporate management
and oversight policies
3. Non-Executive or Independent Directors
➢ has the same role as the board of directors
➢ Non-executive directors are not involved in
the day-to-day running of business but monitor
the executive activity and contribute to the
development of strategy
➢ Independent directors are board members
with no material relationship with the company
are not part of the management team and not
involved in day to day operations
4. Management
➢ oversee the business's daily operations and
in their different roles they are given legal
authority to act on the corporation's behalf in
almost all lawful business-related activities
5. Audit Committees of the Board of
Directors
➢ oversight of the internal and external audit
function
6. Regulators
a. Board of Accountancy
➢ set accounting and auditing standards
b. Securities and exchange Commission
➢ ensure accuracy, timeliness and fairness of
public reporting
7. External Auditors
➢performs an audit, in accordance with
specific laws or rules, of the financial
statements of a company, and is independent
of the entity being audited
➢ performs audits of company financial
statements
8. Internal Auditors
➢ performs audits of companies for
compliance with company policies and laws,
audits to evaluate the efficiency of operations,
and periodic evaluation and tests of controls
CODE OF CORPORATE GOVERNANCE
FOR PUBLICLY LISTED COMPANIES
THE BOARD’S GOVERNANCE
RESPONSIBILITIES
Principle 1
The Company should be headed by a
competent, working board to foster the long-
term success of the corporation, and to sustain
its competitiveness and profitability in a
manner consistent with its corporate objectives
and the long-term best interests of its
shareholders and other stakeholders.
Principle 2
The fiduciary roles, responsibilities and
accountabilities of the Board as provided under
the law, the company’s articles and by-laws,
and other legal pronouncements and
guidelines should be clearly made known to all
directors as well as to stockholders and other
stakeholders.
Principle 3
Board committees should be set up to the
extent possible to support the effective
performance of the Board’s functions,
particularly with respect to audit, risk
management, related party transactions, and
other key corporate governance concerns,
such as nomination and remuneration. The
composition, functions and responsibilities of
all committees established should be contained
in a publicly available Committee Charter.
Principle 4
To show full commitment to the company, the
directors should devote the time and attention
necessary to properly and effectively perform
their duties and responsibilities, including
sufficient time to be familiar with the
corporation’s business.
Principle 5
The Board should endeavor to exercise
objective and independent judgment on all
corporate affairs.
Principle 6
The best measure of the Board’s effectiveness
is through an assessment process. The Board
should regularly carry out evaluations to
appraise its performance as a body, and
assess whether it possesses the right mix of
backgrounds and competencies.
Principle 7
Members of the Board are duty-bound to apply
high ethical standards, taking into account the
interests of all stakeholders.
DISCLOSURE AND TRANSPARENCY
Principle 8
The company should establish corporate
disclosure policies and procedures that are
practical and in accordance with best practices
and regulatory expectations.
Principle 9
The company should establish standards for
the appropriate selection of an external auditor,
and exercise effective oversight of the same to
strengthen the external auditor’s independence
and enhance audit quality.
Principle 10
The company should ensure that material and
reportable non-financial and sustainability
issues are disclosed.
Principle 11
The company should maintain a
comprehensive and cost-efficient
communication channel for disseminating
relevant information. This channel is crucial for
informed decision making by investors,
stakeholders and other interested users.
INTERNAL CONTROL SYSTEM AND RISK
MANAGEMENT FRAMEWORK
Principle 12
To ensure the integrity, transparency and
proper governance in the conduct of its affairs,
the company should have a strong and
effective internal control system and enterprise
risk management framework.
CULTIVATING A SYNERGIC RELATIONSHIP
WITH SHAREHOLDERS
Principle 13
The company should treat all shareholders
fairly and equitably, and also recognize, protect
and facilitate the exercise of their rights.
DUTIES TO STAKEHOLDERS
Principle 14
The rights of stakeholders established by law,
by contractual relations and through voluntary
commitments must be respected. Where
stakeholders’ rights and/or interests are at
stake, stakeholders should have the
opportunity to obtain prompt effective redress
for the violation of their rights.
Principle 15
A mechanism for employee participation
should be developed to create a symbiotic
environment, realize the company’s goals and
participate in its corporate governance
processes.
Principle 16
The company should be socially responsible in
all its dealings with the communities where it
operates. It should ensure that its interactions
serve its environment and stakeholders in a
positive and progressive manner that is fully
supportive of its comprehensive and balanced
development.
INTRODUCTION
1. The Code of Corporate Governance is
intended to raise the corporate governance
standards of Philippine corporations to a level
at par with its regional and global counterparts.
The latest G20/OECD[1] Principles of
Corporate Governance and the Association of
Southeast Asian Nations Corporate
Governance Scorecard were used as key
reference materials in the drafting of this Code.
2. The Code will adopt the “comply or explain”
approach. This approach combines voluntary
compliance with mandatory disclosure.
Companies do not have to comply with the
Code, but they must state in their annual
corporate governance reports whether they
comply with the Code provisions, identify any
areas of noncompliance, and explain the
reasons for non-compliance.
1. The Code is arranged as follows: Principles,
Recommendations and Explanations. The
principles can be considered as high-level
statements of corporate governance good
practice, and are applicable to all companies
4. The Recommendations are objective criteria
that are intended to identify the specific
features of corporate governance good
practice that are recommended for companies
operating according to the Code. Alternatives
to a Recommendation may be justified in
particular circumstances if good governance
can be achieved by other means. When a
Recommendation is not complied with, the
company must disclose and describe this
noncompliance, and explain how the overall
Principle is being achieved.
5. The Explanations strive to provide
companies with additional information on the
recommended best practice. This Code does
not, in any way, prescribe a “one size fits all”
framework. It is designed to allow boards some
flexibility in establishing their corporate
governance arrangements. Larger companies
and financial institutions would generally be
expected to follow most of the Code’s
provisions. Smaller companies may decide that
the costs of some of the provisions outweigh
the benefits, or are less relevant in their case.
6. The Code of Corporate Governance for
publicly listed companies is the first of a series
of Codes that is intended to cover all types of
corporations in the Philippines under
supervision of the Securities and Exchange
Commission (SEC).
CORPORATE GOVERNANCE
the system of stewardship and control to
guide organizations in fulfilling their long-term
economic, moral, legal and social obligations
towards their stakeholders.
BOARD OF DIRECTORS
the governing body elected by the
stockholders that exercises the corporate
powers of a corporation, conducts all its
business and controls its properties.
MANAGEMENT
a group of executives given the authority
by the Board of Directors to implement the
policies it has laid down in the conduct of the
business of the corporation.
INDEPENDENT DIRECTOR
a person who is independent of
management and the controlling shareholder,
and is free from any business or other
relationship which could, or could reasonably
be perceived to, materially interfere with his
exercise of independent judgment in carrying
out his responsibilities as a director.
EXECUTIVE DIRECTOR
a director who has executive
responsibility of day-to-day operations of a part
or the whole of the organization.
NON-EXECUTIVE DIRECTOR
a director who has no executive
responsibility and does not perform any work
related to the operations of the corporation.
CONGLOMERATE
a group of corporations that has
diversified business activities in varied
industries, whereby the operations of such
businesses are controlled and managed by a
parent corporate entity.
INTERNAL CONTROL
a process designed and effected by the
board of directors, senior management, and all
levels of personnel to provide reasonable
assurance on the achievement of objectives
through efficient and effective operations;
reliable, complete and timely financial and
management information; and compliance with
applicable laws, regulations, and the
organization’s policies and procedures.
ENTERPRISE RISK MANAGEMENT
a process, effected by an entity’s Board
of Directors, management and other personnel,
applied in strategy setting and across the
enterprise that is designed to identify potential
events that may affect the entity, manage risks
to be within its risk appetite, and provide
reasonable assurance regarding the
achievement of entity objectives.
RELATED PARTY
shall cover the company’s subsidiaries,
as well as affiliates and any party (including
their subsidiaries, affiliates and special purpose
entities), that the company exerts direct or
indirect control over or that exerts direct or
indirect control over the company; the
company’s directors; officers; shareholders and
related interests (DOSRI), and their close
family members, as well as corresponding
persons in affiliated companies. This shall also
include such other person or juridical entity
whose interest may pose a potential conflict
with the interest of the company.
RELATED PARTY TRANSACTIONS
a transfer of resources, services or obligations
between a reporting entity and a related party,
regardless of whether a price is charged. It
should be interpreted broadly to include not
only transactions that are entered into with
related parties, but also outstanding
transactions that are entered into with an
unrelated party that subsequently becomes a
related party.
STAKEHOLDERS
any individual, organization or society at large
who can either affect and/or be affected by the
company’s strategies, policies, business
decisions and operations, in general. This
includes, among others, customers, creditors,
employees, suppliers, investors, as well as the
government and community in which it
operates.
THE BOARD’S GOVERNANCE
RESPONSIBILITIES
1. ESTABLISHING A COMPETENT
BOARD
2. ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
3. ESTABLISHING BOARD
COMMITTEES
4. FOSTERING COMMITMENT
5. REINFORCING BOARD
INDEPENDENCE
6. ASSESSING BOARD PERFORMANCE
7. STRENGTHENING BOARD ETHICS
8. ENHANCING COMPANY
DISCLOSURE POLICIES AND
PROCEDURES
9. STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND
IMPROVING AUDIT QUALITY
10. INCREASING FOCUS ON NON-
FINANCIAL AND SUSTAINABILITY
REPORTING
11. PROMOTING A COMPREHENSIVE
AND COST-EFFICIENT ACCESS TO
RELEVANT INFORMATION
12. STRENGTHENING THE INTERNAL
CONTROL SYSTEM AND
ENTERPRISE RISK MANAGEMENT
FRAMEWORK
13. PROMOTINGSHAREHOLDER RIGHTS
14. RESPECTING RIGHTS OF
STAKEHOLDERS AND EFFECTIVE
REDRESS FOR VIOLATION OF
STAKEHOLDER’S RIGHTS
15. ENCOURAGING EMPLOYEES’
PARTICIPATION
16. ENCOURAGING SUSTAINABILITY
AND SOCIAL RESPONSIBILITY
1. ESTABLISHING A COMPETENT
BOARD
The company should be headed by a
competent, working board to foster the long
term success of the corporation, and to sustain
its competitiveness and profitability in a
manner consistent with its corporate objectives
and the long-term best interests of its
shareholders and other stakeholders.
2.ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
The fiduciary roles, responsibilities and
accountabilities of the Board as provided under
the law, the company’s articles and by-laws,
and other legal pronouncements and
guidelines should be clearly made known to all
directors as well as to shareholders and other
stakeholders.
3.ESTABLISHING BOARD COMMITTEES
Board committees should be set up to the
extent possible to support the effective
performance of the Board’s functions,
particularly with respect to audit, risk
management, related party transactions, and
other key corporate governance concerns,
such as nomination and remuneration. The
composition, functions and responsibilities of
all committees established should be contained
in a publicly available Committee Charter.
4.FOSTERING COMMITMENT
To show full commitment to the company, the
directors should devote the time and attention
necessary to properly and effectively perform
their duties and responsibilities, including
sufficient time to be familiar with the
corporation’s business.
5.REINFORCING BOARD INDEPENDENCE
The board should endeavor to exercise an
objective and independent judgment on all
corporate affairs.
6. ASSESSING BOARD PERFORMANCE
The best measure of the Board’s effectiveness
is through an assessment process. The Board
should regularly carry out evaluations to
appraise its performance as a body, and
assess whether it possesses the right mix of
backgrounds and competencies.
7.STRENGTHENING BOARD ETHICS
Members of the Board are duty-bound to apply
high ethical standards, taking into account the
interests of all stakeholders.
DISCLOSURE AND TRANSPARENCY
8. ENHANCING COMPANY DISCLOSURE
POLICIES AND PROCEDURES
The company should establish corporate
disclosure policies and procedures that are
practical and in accordance with best practices
and regulatory expectations.
9. STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND
IMPROVING AUDIT QUALITY
The company should establish standards for
the appropriate selection of an external auditor,
and exercise effective oversight of the same to
strengthen the external auditor’s independence
and enhance audit quality.
10. INCREASING FOCUS ON NON-
FINANCIAL AND SUSTAINABILITY
REPORTING
The company should ensure that the material
and reportable non-financial and sustainability
issues are disclosed.
11. PROMOTING A COMPREHENSIVE AND
COST-EFFICIENT ACCESS TO RELEVANT
INFORMATION
The company should maintain a
comprehensive and cost-efficient
communication channel for disseminating
relevant information. This channel is crucial for
informed decision-making by investors,
stakeholders and other interested users.
INTERNAL CONTROL SYSTEM AND RISK
MANAGEMENT FRAMEWORK
12. STRENGTHENING THE INTERNAL
CONTROL SYSTEM AND ENTERPRISE
RISK MANAGEMENT FRAMEWORK
To ensure the integrity, transparency and
proper governance in the conduct of its affairs,
the company should have a strong and
effective internal control system and enterprise
risk management framework.
CULTIVATING A SYNERGIC RELATIONSHIP
WITH SHAREHOLDERS
13. PROMOTING SHAREHOLDER RIGHTS
The company should treat all shareholders
fairly and equitably, and also recognize, protect
and facilitate the exercise of their rights.
DUTIES TO STAKEHOLDERS
14. RESPECTING RIGHTS OF
STAKEHOLDERS AND EFFECTIVE
REDRESS FOR VIOLATION OF
STAKEHOLDER’S RIGHTS
The rights of stakeholders established by law,
by contractual relations and through voluntary
commitments must be respected. Where
stakeholders’ rights and/or interests are at
stake, stakeholders should have the
opportunity to obtain prompt effective redress
for the violation of their rights.
15. ENCOURAGING EMPLOYEES’
PARTICIPATION
A mechanism for employee participation
should be developed to create a symbiotic
environment, realize the company’s goals and
participate in its corporate governance
processes.
16. ENCOURAGING SUSTAINABILITY AND
SOCIAL RESPONSIBILITY
The company should be socially responsible in
all its dealings with the communities where it
operates. It should ensure that its interactions
serve its environment and stakeholders in a
positive and progressive manner that is fully
supportive of its comprehensive and balanced
development.
CHAPTER 5: INTRODUCTION TO ETHICS
ETHICS
set of moral principles or values that
govern the actions and decisions of an
individual.
CHARACTERISTICS AND VALUES
ASSOCIATED WITH ETHICAL BEHAVIOR
 Integrity
 Honesty
 Trustworthiness and Promise Keeping
 Loyalty and Confidentiality
 Fairness and Openness
 Caring for Others
 Respect for Others
 Responsible Citizenship
 Pursuit of Excellence
 Accountability
WHY IS ETHICAL BEHAVIOR NECESSARY?
It is necessary for a society to function
in an orderly manner.
WHY DO PEOPLE ACT UNETHICALLY?
Unethical Behavior – conduct that differs from
the way they believe would have been
appropriate given the circumstances.
2 primary reasons:
1. the person’s ethical standards are different
from those of society as a whole
2. The person chooses to act selfishly
CATEGORIES OF ETHICAL PRINCIPLES
Personal Ethics
basic justice, fairness, respect and
concern for right of others, compliance with the
law
Professional Ethics
integrity, impartiality, objectivity,
professional competence, confidentiality
Business Ethics
fair competition, global and domestic
justice, social responsibility, concern for
environment
THE NEED FOR PROFESSIONAL ETHICS
Common Characteristics of all recognized
professions
1. a responsibility to serve the public
2. a complex body of knowledge
3. standards of admission to the profession
4. a need for public confidence
CODE OF GOOD GOVERNANCE FOR THE
PROFESSION IN THE PHILIPPINES
(E.O. NO. 220, JUNE 23, 2003)
This Code is adopted by the Professional
Regulation Commission (PRC) and the 42
Professional Regulatory Boards to cover an
environment of good governance in which all
Filipino professionals shall perform their tasks.
While each profession may adopt and enforce
its own code of good governance and code of
ethics, it is generally recognized that there is a
general commonality among the various codes.
This Code which covers the common principles
underlying the codes of various professions
could be used by all professionals who face
critical ethical questions in their work.
General Principle of Professional Conduct
Professionals are required not only to have an
ethical commitment, a personal resolve to act
ethically, but also have both ethical awareness
and ethical competency.
Ethical awareness refers to the ability to
discern between right and wrong, while ethical
competency pertains to the ability to engage in
sound moral reasoning and consider carefully
the implications of alternative actions.
Specific Principle of Professional Conduct
1. Service to Others
Professionals are committed to a life of service
to others. They protect life, property, and public
welfare. To serve others, they shall be
prepared for heroic sacrifice and genuine
selflessness in carrying out their professional
duties even at the expense of personal gain.
2. Integrity and Objectivity
To maintain and broaden public confidence,
professionals shall perform their
responsibilities with the highest sense of
integrity and imbued with nationalism and
spiritual values. In the performance of any
professional service, they shall at all times,
main objectivity, be free of conflicts of interest,
and refrain from engaging in any activity that
would prejudice their abilities to carry out their
duties ethically. They shall avoid making any
representation that would likely cause a
reasonable person to misunderstand or to be
deceived.
3. Professional Competence
In providing professional services, a certain
level of competence is necessary, i.e.,
knowledge, technical skills, attitudes, and
experience. Professionals shall, therefore,
undertake only those professional services that
they can reasonably deliver with professional
competence. Corollary to this, it is their
express obligation to keep up with new
knowledge and techniques in their field,
continually improve their skills and upgrade
their level of competence and take part in a
lifelong continuing education program.
4. Solidarity and Teamwork
Each profession shall nurture and support one
organization for all its members. Though a
deep spirit of solidarity, each member should
put the broader interest of the profession
above one’s personal ambition and preference.
Through teamwork within a cohesive
professional organization, each member shall
effectively observe ethical practices and
pursue continuing professional development as
well as deepen one’s social and civic
responsibility.
5. Social and Civic Responsibility
Professionals shall always carry out their
professional duties with due consideration of
the broader interest of the public. They shall,
therefore, serve their clients/employers and the
publics with professional concern and in a
manner consistent with their reponsibilities to
society. As responsible Filipino citizens, they
shall actively contribute to the attainment of the
country’s national objectives.
6. Global Competitiveness
Every professional shall remain open to
challenges of a more dynamic interconnected
world. He or she shall rise up to global
standards and maintain levels of professional
practices fully aligned with global best
practices.
7. Equality of All Professions
All professionals shall treat their colleagues
with respect and shall strive to be fair in their
dealings with one another. No one group of
professionals is superior or above others. All
professionals perform an equally important, yet
distinct, service to society. In the eyes of the
PRC, all professions are equal and, therefore,
every one shall treat one other professionals
with respect and fairness.
CHAPTER 6: BUSINESS ETHICS
BUSINESS ETHICS
Standards of moral conduct, behavior and
judgment in business
Involves making the moral and right decisions
while engaging in business activities
PURPOSE OF BUSINESS ETHICS
• Primary: To help business and would-be
business to determine what business practices
are right and what are wrong
• Secondary:
❖make businessmen realize they cannot
employ double standards
❖show businessmen common practices they
thought was right but are really wrong
❖serve as standard or ideal upon which
business conduct should be based
SCOPE AND IMPACT OF BUSINESS
ETHICS
• Scope: all conduct, behavior, and judgment
in business
• Impact:
❖Social Impact
❖Environmental Impact
❖Impact on Business Managers
ETHICAL CHALLENGES IN TODAY’S
WORLD
In an article, “Ethical Challenges in Today’s
World” written by Ms. Mercedes B. Suleik
published in the Business Mirror on February
13, 2018 the author expressed her insights on
“Business Ethics” where an inherent conflict
between ethics and the pursuit of profit is more
pronounced.