Governance Business Risk and Internal
Control
Corporate Governance
What is CORPORATE GOVERNANCE?
► Corporate Governance is the
application of best management
practices, compliance to law in true
letter and spirit, and adherence to ethical
standards for effective management and
distribution of wealth and discharge of
social responsibility for sustainable
development of all stakeholders.
► Corporate governance is the system
of rules, practices, and processes by
which a firm is directed and controlled.
► Corporate governance essentially
involves balancing the interests of a
company's many stakeholders, such as
shareholders, senior management
executives, customers, suppliers,
financiers, the government, and the
community.
► The 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.
➤ It also provides the structure
through which the objectives are set and
the means of achieving those objectives
and monitoring performance.
► Corporate governance is the
structure of rules, practices, and
processes used to direct and manage a
company. A company's board of
directors is the primary force influencing
corporate governance. Bad corporate
governance can cast doubt on a
company's operations and its ultimate
profitability.
How does corporate governance help
companies in the Philippines?
▸ Strong corporate governance is
founded on the principles of fairness,
accountability and transparency. It is
key to increasing the global
competitiveness of Philippine
corporations in a manner that optimizes
long term value to the company and its
shareholders, as well as recognizes the
role of its various stakeholders.
What is the purpose of corporate
governance?
► To facilitate effective entrepreneurial
and prudent management that can
deliver long-term success of the
company
► To enhance shareholders' value and
protect their interests by improving the
corporate performance and
accountability.
1. Fair and Equitable Treatment of
Shareholders
► A corporate governance structure
ensures equitable and fair treatment of
all shareholders of the company.
➤ Although there are high net-worth
individuals, groups or institutions who
have substantial proportion of their
portfolios invested in the company and
therefore occupy top level positions that
enable them to guard their interests,
however, a good governance structure
should ensure that all shareholders
deserve equitable treatment and this
equity is safeguarded.
2. Self-assessment
► Corporate governance enables firms
to assess their behavior and actions
before they are scrutinized by regulatory
agencies.
► Business establishments with strong
corporate governance system are better
able to limit exposure to regulatory risks
and fines.
► An active and independent t board
can successfully point out deficiencies
or loopholes in the company operations
and help solve issues internally on a
timely basis.
3. Increase shareholder's wealth
► Protect the long-term interests of the
shareholders.
► Firms with strong corporate
governance structure are seen to have
higher valuation attached to their shares
by businessmen. This only reflects the
positive perception that good corporate
governance induces potential investors
to decide to invest in a company.
4. Transparency and full disclosure
► Good corporate governance aims at
ensuring a high degree of transparency
in an organization by encouraging full
disclosure of transactions in the
company accounts.
BASIC PRINCIPLES OF
EFFECTIVE CORPORATE
GOVERNANCE
* TRANSPARENCY AND FULL
DISCLOSURE
*ACCOUNTABILITY
*CORPORATE CONTROL
1. TRANSPARENCY AND FULL
DISCLOSURE
► Full disclosure is when we share
everything we know with our
stakeholders.
► Transparency, however, is focused on
what our stakeholders need to know. It
requires us to understand them and, most
importantly, make a few judgment calls
on what works best for the particular
context.
► Transparency, leading to full
disclosure as both action and behavior,
is understood in corporate governance as
establishing standards of corporate
ethics to deter unscrupulous corporate
practices while preserving a fair
business environment.
1. TRANSPARENCY AND FULL
DISCLOSURE
Does the Board meet the information
needs of investment communities?
► Does it safeguard integrity in
financial reporting?
► Does the board have sound disclosure
policies and practices?
Does it make timely and balanced
disclosure?
Can an outsider meaningfully analyze
the organization's actions and
performance?
2. ACCOUNTABILITY
► Does the Board clarity its roles and
that of management?
► Does it promote objective, ethical
and responsible decision making?
► Does it lay solid foundations for
management oversight?
► Does the composition mix of board
membership ensures an appropriate
range and mix of expertise, diversity,
knowledge, and added value?
▸ is the organization's senior officials
committed to widely accepted standards
of correct and proper behavior?
3. CORPORATE CONTROL
The term "corporate control" refers to
the authority to make the decisions of a
corporation regarding operations and
strategic planning, Including capital
allocations, acquisitions and investments,
top personnel decisions, and major
marketing, production, and financial
decisions.
▸ Has the Board build long-term
sustainable growth in shareholders'
value for the corporation?
► Does it create an environment to
take risk?
► Does it encourage enhanced
performance?
► Does it recognize and manage risk?
► Does it remunerate fairly and
responsibly?
► Does it recognize the legitimate
interests of stakeholders?
▸ Are conflicts of Interests avoided
such that the organization's best interests
prevail at all times?
BASIC PRINCIPLES OF
CORPORATE GOVERNANCE AND
BEST PRACTICES
RECOMMENDATIONS
Principles of Good Corporate
Governance
A company should lay solid foundation
for management and publish the
respective roles and management
responsibilities of board and
Structure that board to add value. Have a
board of an effective composition, size,
and commitment to adequately
discharge is responsibilities and duties.
Best Practice Recommendations
a. Formalize and disclose the functions
reserved to the board and those
delegated to management.
a. A board should have independent
directors
b. The roles of chairperson and chief
executive officer should not be exercised
by the same individual.
ETHICS defined
► Ethics is a set of moral principles or
values that govern the actions and
decisions of an individual and group.
➤ Examples of prescribed set of moral
principles include laws and regulations,
church doctrine, code of ethics for
professional groups such as teachers,
CPAs, nurses, lawyers, etc.
CHARACTERISTICS AND
VALUES ASSOCIATED WITH
ETHICAL BEHAVIOR
► Integrity
- Pursuit of excellence
> Honesty
>accountability
►Trustworthiness and promise keeping
► Loyalty and confidentiality
► Fairness and openness
► Caring for others
► Respect for others
► Responsible citizenship
WHY IS ETHICAL BEHAVIOR
NECESSARY?
► Ethical behavior is necessary for a
society to function in an orderly manner.
What would happen if for example we
cannot depend on the people we deal
with to be honest. If parents, teachers,
employees, co-workers and friends all
consistently lied.
➤ Many company had ethical values are
incorporated into laws. Example, driving
while intoxicated, selling defective
products, etc
► However, a considerable portion of
the ethical values cannot be incorporated
into laws because of the judgmental
nature of certain values. It is very
difficult to establish meaningful laws
related to integrity, loyalty, pursuit of
excellence.
WHY DO PEOPLE ACT
UNETHICALLY?
2 PRIMARY REASONS:
► 1. The person's ethical standards are
different from those of the general
society. Examples are drug dealers, bank
robbers. Most people who commit such
acts feel no remorse when they are
apprehended, because their ethical
standards differ from that of the society
as a whole
> 2. the person chooses to act selfishly.
A considerable portion of unethical
behavior results from selfish behavior.,
Pork barrel scam, corruption, financial
greed.
CATEGORIES OF ETHICAL
PRINCIPLES
► Principle of Personal Ethics
 basic justice, fairness
 respect for the right of others
 concern for the right of others
 concern for the welfare of others
 benevolence, trustworthiness,
honesty
 compliance with the law
2. To show businessmen that common
practices which they have thought to be
right because they see other
businessmen doing it.
3. To serve as a standard or ideal upon
which business conduct

►Professional Ethics
 integrity, impartiality, objectivity
 professional competence
 confidentiality
 professional behavior
 avoidance of conflict of interest

► Business Ethics
 fair competition
 social responsibility
 concern for the environment

Business Ethics defined

- Business ethics refers to standards of
moral conduct, behavior, and judgement
in business
-It involves making the moral and right
decisions while engaging in such
business activities as manufacturing or
selling a product or providing a service
to customers.
-Business ethics is an area of corporate
social responsibility where businesses
are legally bound and socially obligated
to conduct business in an ethical manner.
-Business ethics is based on the personal
values and standards of each person
engaged in business.

Purposes of Business Ethics

Main Purpose
>The main purpose of business ethics
is to help business and would be
business to determine what business
practices are right and what are wrong.
Special Purposes
1. To make businessmen realize that
they cannot employ double standards to
the actions of other people and to their
own actions.