RIRAO ERICSON B.
| MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I
GOVERNANCE
> Elements in society wield power, authority and
influence and enact policies and decisions
concerning public life and social uplift.
> Process of decision-making, which decisions are
implemented through power or authority.
FOUR PILLARS OF GOOD GOVERNANCE
1. Board of Directors
2. Senior Management
3. External Auditor
4. Internal Auditor CORPORATE GOVERNANCE
CHARACTERISTICS OF GOOD
GOVERNANCE:
1. Participation
- Key cornerstone of good governance.
– Direct, legitimate institutions or
representatives.
– Freedom of association, expression and
an organized civil society,
2. Rule of Law
– Fair legal frameworks, full protection
of human rights and particularly those of
minorities.
– Independent judiciary, impartial,
incorruptible police force.
3. Transparency
– Done in a manner that follows rules and
regulations.
– Freely available and directly accessible
by those who are affected by decisions
and enforcement.
– Well information provided, and easily
understandable forms of media.
4. Responsiveness
– Try to serve the needs of all
stakeholders within a reasonable
timeframe.
5. Consensus Oriented
– Requires mediation of different interest
in society – Can result from an
understanding of the historical, cultural
and social contexts of a given society or
community.
– Lon-term perspective on sustainable
human development.
6. Equity & Inclusiveness
– Do not feel excluded; involvement.
– Having opportunities to
improve/maintain well-being.
7. Effectiveness & Efficiency
– Produces results that meets the needs of
society while being resourceful at their
disposal.
– Efficiency; sustainable use of natural
resources and environment protection.
8. Accountability
- Accountable by actions or decision
made (internal or external).
– Key requirement.
> System of rules, practices and processes which
business corporation are directed and controlled.
> Distribution of rights and responsibilities among
participants in corp.
> Provides structure to attain objecting and
monitoring performance.
NB: There are no absolute rules which must be
adopted by all organizations. There is no simple
universal formula for good governance. Principles
and approaches must be tailored to the specific
needs of an organization at a given point in time.
ESSENCE OF GOOD CORPORATE
GOVERNANCE:
• to allow the board and management the freedom
to drive their organization forward and to exercise
that freedom within a framework of effective
accountability
According to the book; To facilitate effective,
entrepreneurial and prudent management that can
deliver long-term success. Enhance shareholder’s
value and protect stakeholders’ interest thru
improving corporate performance and
accountability
STAKEHOLDER – anyone who can be
influenced, whether directly or indirectly, by the
actions of the company. MANAGEMENT –
primarily responsible for the accuracy and
completeness of an organization’s financial
statements.
PARTIES INVOLVED IN CORPORATE
GOVERNANCE:
RIRAO, ERICSON B
RIRAO ERICSON B. | MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I
1. Shareholders
– provide effective oversight through
election of board members, approval of
major initiatives such as buying or selling
stock, and annual reports on management
compensation
2. Board of Directors (BOD)
– major representative of stockholders
- ensures that the organization is run
according to the organization’s charter
and that there is proper accountability.
3. Non-executive or independent directors
-they are appointed to provide an
objective and independent perspective to
the board’s decision-making process.
4. Management
– in charge of operations and
accountability. It provides accurate and
timely reports to shareholders and other
stakeholders.
5. Audit Committees of the BOD
- provide oversight of the internal and
external audit function and the process of
preparing the annual financial statements
as well as public reports on internal
control.
6. Regulators
a. Board of Accountancy (BOA)
– sets accounting and auditing standards
dictating underlying financial reporting
and auditing concepts - sets the
expectations of audit quality and
accounting quality
b. Securities and Exchange Commission
(SEC)
– ensures the accuracy, timeliness, and
fairness of public reporting of financial
and other information for public
companies
7. External auditors
– perform audits of company financial
statements to ensure that the statements
are free of material misstatements
including misstatements that may be due
to fraud
8. Internal auditors
– perform audits of companies for
compliance with company policies and
laws, audits to evaluate the efficiency of
operations, and periodic evaluation and
tests of control.
BASIC OBJECTIVES OF CORPORATE
GOVERNANCE
1. Fair and Equitable Treatment of Shareholders -
ensures equitable and fair treatment of all
shareholders of the company.
2. Self-Assessment - enables firms to assess their
behavior and actions before they are scrutinized by
regulatory agencies.
3. Increase Shareholders' Wealth - protect the
long-term interests of the shareholders
4. Transparency and Full Disclosure - ensuring a
higher degree of transparency in an organization
by encouraging full disclosure of transactions in
the company account
BASIC PRINCIPLES OF EFFECTIVE
CORPORATE GOVERNANCE
1. Transparency and Full disclosure
2. Accountability
3. Corporate control
Small Medium Enterprises (SMEs)
- Business that maintains revenues, assets or
number of employees below certain threshold.
- Business with note more than 100M assets and
not more than 199 employees.
Publicly-listed companies
- Held public initial public offering and whose
shares are traded on a stock exchange in the OTC
market. Relationship of Shareholders and other
Stakeholders
- Shareholders are always stakeholders in a
corporation, but stakeholders are not always
shareholders. A shareholder owns part of a public
company through shares of stock, while a
stakeholder has an interest in the performance of a
RIRAO, ERICSON B
RIRAO ERICSON B. | MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I
company for reasons other than stock performance > Acquaint readers
or appreciation.
> Serve as reference and guidelines to currently
- All stakeholders are informed about the day-to- existing PLCs
day operation through various reports and data.
Companies covered by the code:
- Shareholder: can elect BOD- management-
operating units with assistance from internal All registered companies and branches or
auditors. subsidiaries of foreign corporations operating in
the Philippines that:
NOTE: Shareholders demand accountability from
the BOD on the financial performance, Financial a) Sell equity to the public that are required to be
Transparency, Stewardships and Quality of registered with the commission.
Internal Control. b) Have assets in excess of 50m and at least 200
Code of corporate governance for publicly-listed stockholders who own at least 100 shares of equity
companies securities

> November 10, 2016, approved by SEC. c) Whose equity are listed on the exchange

> To help companies develop and sustain ethical d) Grantees of secondary license from the
corporate culture and abreast with recent commission
developments in CG. Exchange
> Provisions: For PLCs to establish a code of > Organized marketplace or facility that brings
business conduct. Submit new manual on CG. together buyer and seller, and execute trade of
“Standards for professional and ethical behavior.” securities or commodities
> BOD- to implement the code and compliance of Publicly-listed companies
management and employees.
> Securities listed and traded at exchange. Ex. San
> Code of Business Conduct and Ethics Challenge Miguel Corp (Food and Beverages), Security Bank
– implementation and monitoring compliance. Corp (Finance), Globe Telecom Inc.
Arrangement: (Telecommunications), Manila Electric Company
(Energy and Utilities)
1. Principle
– high-level statements of CG good SEC MEMORANDUM CIRCULAR NO. 19
practices and are applicable to all CODE OF CORPORATE GOVERNANCE
companies. FOR PUBLICLY-LISTED COMPANIES
2. Recommendations Code of Corporate Governance has 16
– objective criteria that are intended to principles that are distributed among 5
identify the specific features of corporate sections:
practice.
3. Explanation • Board’s Governance Responsibilities (Principle
– strive to provide companies with 1-7)
additional info in recommended best
• Disclosure and Transparency (Principle 8-11)
practice.
• Internal Control and Risk Management
Comply or Explain Approach
Framework
– combines voluntary compliance with mandatory
(Principle 12)
disclosure
• Cultivating a Synergic Relationship with
SEC CODE OF CORPORATE
Shareholder
GOVERNANCE
RIRAO, ERICSON B
RIRAO ERICSON B. | MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I
(Principle 13)
• Duties to Stakeholder (Principle 14-16)
DEFINITION OF TERMS
Code Of Corporate Governance for Publicly-
Listed Companies
Principle 1: Establishing a competent board
Principle 2: Establishing clear Roles and
Responsibilities of the Board
Principle 3: Establishing Board Committees
Principle 4: Fostering Commitment
Principle 5: Reinforcing Board Independence
Principle 6: Assessing Board Performance
Principle 7: Strengthening Board Ethics
Principle 8: Enhancing Company Disclosure
Policies and Procedures
Principle 9: Strengthening the External Auditor’s
Independence and Improving Audit Quality
Principle 10: Increasing Focus on Non-Financial
and Sustainability Reporting
Principle 11: Promoting Comprehensive and
Cost-Efficient access to relevant information
Principle 12: Strengthening the Internal Control
System and Enterprise Risk Management
Framework
Principle 13: Promoting Shareholder Rights
Principle 14: Respecting Rights of Stakeholders
and effective redress for Violation of
Stakeholder’s Rights
Principle 15: Encouraging Employee
Participation
Principle 16: Encouraging Sustainability and
Social Responsibility
BOARD COMMITTEES (Principle 3)
 Audit Committee
 Corporate Governance Committee
 Board Risk Oversight Committee
(BROC)
 Related Party Transaction Committee
(RPT)
Remuneration – Salaries or wages
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 the exercises the corporate
powers of a corporation, conducts all its business
and control its properties.
Management – a group of executives given the
authority by the Board of Directors to implement
the policies or 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
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 various 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.
RIRAO, ERICSON B
RIRAO ERICSON B. | MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I
Enterprise Risk Management – a process, 8. Responsible Citizenship
effected by an entity’s Board of Directors,
management and other personnel, applied in the 9. Pursuit of Excellence
strategy setting and across the enterprise that is 10. Accountability
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. Ethical
Behavior
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 the company; the company’s
directors; officers; shareholders and related
interest (DOSRI), and their close family members
(importance)
as well, as well as corresponding persons on
affiliate companies.

Related Party Transactions – a transfer of

1. Make
resources, services or obligations between a
reporting entity and a related party, regardless of
whether a price is charged.
society better
Stakeholders – any individual, organization or
society at large who can either affect and/or be
affected by the company’s strategies, policies,
2. Treat
business decisions and operations, in general. This
includes, among others, customers, creditors,
employees, suppliers, investors, as well as the
everyone
government and community in which it operates

Ethics – Set of moral principles and values that

govern actions and decisions of an individual or a
equally
group. – Involves systemizing, defending and
recommending concepts of right and wrong
behavior
3. Secure
Characteristic and Values Associated with
Ethical Behavior.
meaningful
1. Integrity

2. Honesty employment
3. Trustworthiness and Promise keeping

4. Loyalty and Confidentiality 4. Succeed

5. Fairness and Openness

6. Caring for others at Business

7. Respect for Others

RIRAO, ERICSON B
RIRAO ERICSON B. | MAS 4 TTh 4:00 – 5:30 PM | BSAIS 2-2 | UNIT I

5. Less
stress
Ethical Behavior (importance)

1. Make society better

2. Treat everyone equally

3. Secure meaningful employment

4. Succeed at Business

5. Less stress

Types of Ethics

1. Personal ethics – Ethics that a person identifies

with respect to other people and situations that
they do with in everyday life.

2. Professional ethics – Set of principle designed

to help professional distinguish right from wrong
in order to govern their decision making.

3. Business ethics – Refers to the standards of

moral conduct, behavior and judgement in
business. Deals with right and wrong while doing
business whatever the business operation is.

Main Purpose of Business Ethics

“To help business and would be business to

determine what business practices are right and
what are wrong.

Impacts:

1. Economic impact

2. Social impact

3. Environmental impact

4. Impact on business managers

CHAIRMAN EMILIO BENITO AQUINO

SEC Commissioner 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
assumes office last June 7, 2018.

RIRAO, ERICSON B