BACC 131

MODULE 5
GOOD GOVERNANCE IN THE
PRIVATE SECTOR
BY
LORENCE M RESURRECCION
Good Governance in the
Private Sector
OUTLINE OF PRESENTATION:

❑Review of functions of management

❑Features of corporate governance
❑Influential codes/ influencers of corporate
governance
❑Difficulty of convergence of CG principles
❑Aspects of corporate governance
Functional Areas of
Management
3 major functional areas: finance,
production/operation and marketing
Extended list of management functions:
the three major functions + purchasing,
industrial engineering, public relations,
distribution, accounting, maintenance and
personnel/ human resource management
 Features of Corporate
Governance
1. It helps to ensure the adequate and appropriate system of controls operate
within a company and hence assets may be safeguarded.
2. It prevents any single individual being too powerful and influential.
3. It is concerned with the relationship between company management, the
board of directors, shareholders and other stakeholders.
4. It aims to ensure that the company is managed in the best interest of all
stakeholders
5. It primarily reflects transparency and accountability because investors are
increasingly looking for such in corporate management and performance.
6. It requires that the BOD is accountable and fair.
7. It requires that the company deals responsibly with internal and external
issues relative to the stakeholders.
8. It is directly related to integrity, long-term growth and profitability and is
aimed to solve endemic corruption, inefficiency and chronic
underinvestment.
 Influential Codes of
Corporate Governance
1. Cadbury Code (1992)
2. OECD Principles (1999)
3. WB/IMF
4. Global Corporate Governance Network
5. International Corporate Governance Network (1999)
6. Commonwealth Association for Corporate Governance
7. EU Company Law Experts
8. BASLE Committee ( 1999)
9. US Corporate Governance
10. Sarbanes –Oxley Law (2002)
Influencers of Corporate
Governance
▪OECD commissioned a group to see any common
themes in governance agenda of countries to see
the need to develop policy guidance on CG .
The group was known as the BSAG ( Business
Sector Advisory Group
The BSAG members:
Ira Millstein (USA), Adrian Cadbury(UK), Michel
Albert (France), Dieter Feddersen (Germany)
and Isikko Takkei (Japan)
Difficulty of convergence of
CG principles
Reasons for Difficulty
1. International variety of circumstances from economic and political
perspectives
2. International variety of objectives
3. International variety of corporate forms
4. International variety of history and traditions
5. The resistance to change
6. Involvement of vested interests
Aspects of Corporate
Governance
1) Corporate structure and ownership
2) Legal framework
3) Legal, regulatory and institutional bodies
4) Board structure
5) Codes, standards and good practice guidelines
6) Disclosure and transparency
7) Shareholders and stakeholders relations
8) Director development activity
Aspects of Corporate
Governance
1) Corporate structure and ownership relate to the type of share
ownership:
- individual versus collective
- foreign versus domestic
- more government control or less government control
2) Legal framework entails the use and enforcement of appropriate legal
and regulatory mechanisms that suit business, political and cultural norms
like
- Sarbanes-Oxley Act of 2002which imposed criminal sanctions to CEO
and CFO who knowingly sign off false financial statements
- OFR ( Operating and Financial Review) in UK which started in 2005
Aspects of Corporate
Governance
3) Legal regulatory and institutional bodies like the Institute
of Directors (IoD) in UK that emphasized on director
professionalism which cooperated with other bodies to
create the Global Director Development Circle (GDDC)
which was intended as an internationally recognized body
for corporations aiming to meet the development needs of
directors through research, education, dialogue and
advocacy.
Aspects of Corporate
Governance
4) Board structure must answer issues regarding the
separation of the role of chairman and CEO, the
establishment of audit, remuneration and nomination
committees and increased number of non-executive
directors of the board that meet “independence” criteria.
5) Codes, standards and good practice guidelines entail the
need for a national corporate governance code initiated by
government or by private sector or partnership of both like
the UK’s Combined Code of Corporate Governance,
Aspects of Corporate
Governance
6) Disclosure and transparency entail the need for auditing competency
regarding how they conduct their duties in relation to non-audit
services and accounting standards; and the need for internal audit,
control and risk management and improvement in non-financial
disclosure particularly in the area of CSR
7) Shareholders and stakeholders relations entail the demand of
institutional investors to take active role and influence on the board
decisions regarding director remuneration, nomination and service
contracts and in improving minority shareholders rights especially in
cases of family holdings
Aspects of Corporate
Governance
8) Director Development Activity entail the professionalism
of directors, improvement of standards of individual
directors and board performance through education,
certification and evaluation with institutes delivering
training programs.
Additional Notes: Corporate
Governance