SP CORE 4

Corporate Governance and Social Responsibility

MODULE 1

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PART 1.

Corporate Governance
DR. MABELLE MARIE C. CUTARA
Governance
Refers to a process whereby elements in society wield
power, authority and influence and enact policies and
decisions concerning public life and social upliftment.

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 Corporate
Governance
 “
Characteristics of
Good
Governance
Characteristics of Good Governance
No. CHARACTERISTICS EXPLANATION
I Participation • Participation by both men and women is a key cornerstone of
good governance. Participation could be either direct or
through legitimate intermediate institutions or representatives.
Participation needs to be informed and organized. This means
freedom of association and expression on the one hand and an
organized civil society on the other hand.

II Rule of law • Good governance requires fair legal frameworks that are
enforced impartially. It also requires full protection of human
rights, particularly those of minorities. Impartial enforcement of
laws requires an independent judiciary and an impartial and
incorruptible police force.
Characteristics of Good Governance
No. CHARACTERISTICS EXPLANATION
III Transparency • Transparency means that decisions taken and their enforcement
are done in a manner that follows rules and regulations. It also
means that information is freely available and directly accessible
to those who will be affected by such decisions and their
enforcement. It also means that enough information is provided
and that it is provided in easily understandable forms and media.

IV Responsiveness • Good governance requires that institutions and processes try to

serve all stakeholders within a reasonable timeframe.

V Equity and • A society’s well being depends on ensuring that all its
inclusiveness members feel that they have a stake in it and do not feel
excluded from the mainstream of society. This requires all
groups, but particularly the most vulnerable, have
opportunities to improve or maintain their well being.
Characteristics of Good Governance
No. CHARACTERISTICS EXPLANATION
VI Consensus • There are several actors and as many view points in a given
oriented society. Good governance requires mediation of the different
interests in society to reach a broad consensus in society on what
is in the best interest of the whole community and how this can
be achieved. It also requires a broad and long-term perspective
on what is needed for sustainable human development and how
to achieve the goals of such development. This can only result
from an understanding of the historical, cultural and social
contexts of a given society or community.

VII Effectiveness • Good governance means that processes and institutions produce
and efficiency results that meet the needs of society while making the best use
of resources at their disposal. The concept of efficiency in the
context of good governance also covers the sustainable use of
natural resources and the protection of the environment.
Characteristics of Good Governance
No. CHARACTERISTICS EXPLANATION
VIII Accountability • Accountability is a key requirement of good governance. Not
only governmental institutions but also the private sector and
civil society organizations must be accountable to the public and
to their institutional stakeholders. Who is accountable to whom
varies depending on whether decisions or actions taken are
internal or external to an organization or institution. In general an
organization or an institution is accountable to those who will be
affected by its decisions or actions. Accountability cannot be
enforced without transparency and the rule of law.
Corporate Governance
System of rules, practices and processes by which
business corporations are directed and controlled.

Balancing the interest of company’s stakeholders,

management, customers, suppliers, financiers,
government and community.
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Purpose of Corporate Governance
Facilitate effective, entrepreneurial and prudent management
that can deliver long-term success of the company.

Enhance shareholder’s value and protect the interest of other

stakeholders by improving the corporate performance and
accountability.

It is also about what the board of directors of a company does,

how it sets the values of the firm.

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Objectives of Corporate Governance

1 2 3
4

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Basic Principles of Effective Corporate
Governance

Transparency and Full Disclosures

• Is the board telling us what is going on?

Accountability
• Is the board taking responsibility

Corporate Control
• Is the board doing the right thing

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Principles & its Best Practice
Recommendations
No. PRINCIPLE
I Lay solid foundations for
management and oversight.
RECOMMENDATIONS
• Formalize and disclose the functions reserved to
the Board and those delegated to management.
• Formalize directors appointments in writing.

II Structure the Board to add • A majority of the Board should be independent

value directors.
• The chairperson should be an independent
director.
• The roles of the chairperson and [chief executive
officer] should not be exercised by the
same individual.
• The Board should establish a Nomination
Committee.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE RECOMMENDATIONS
III Promote ethical and • Establish a Code of Conduct to guide the
responsible decision making directors, the chief executive officer (or
equivalent), the chief financial officer (or
equivalent) and any other key executives as to:

 the practices necessary to maintain

confidence in the Company’s integrity
 the responsibility and accountability of
individuals for reporting and investigating
reports of unethical practices.

• Disclose the policy concerning trading in

Company securities by directors, officers and
employees.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE RECOMMENDATIONS
IV Safeguard integrity in • Require the chief executive officer (or equivalent)
financial reporting and the chief financial officer (or equivalent) to state
in writing to the Board that the Company’s financial
reports present a true and fair view, in all material
respects, of the Company’s financial condition and
operational results and are in accordance with
relevant accounting standards.
• The Board should establish an Audit Committee.
• Structure the Audit Committee so that it consists of:
 only non-executive directors
 a majority of independent directors
 an independent chairperson, who is not
chairperson to the Board
 at least three members.
• The Audit Committee should have a formal
charter.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE RECOMMENDATIONS
V Make timely and balanced • Establish written policies and procedures designed
disclosure to ensure compliance with ASX Listing Rule
disclosure requirements and to ensure
accountability at a senior management level for that
compliance.
VI Respect the rights of • Design and disclose a communications strategy to
shareholders promote effective communication with
shareholders and encourage effective participation
at general meetings.

• Request the external auditor to attend the

annual general meeting and be available to
answer shareholder questions about the conduct
of the audit and the preparation and content of
the Auditor’s Report.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE RECOMMENDATIONS
VII Recognize and Manage risk • The Board or appropriate Board committee
should establish policies on risk oversight and
management.
• The chief executive officer (or equivalent) and the
chief financial officer (or equivalent) should state
to the Board in writing that:
 The statement given in accordance with best
practice recommendation 4.1 (the integrity of
financial statements) is founded on a sound
system of risk management and internal
compliance and control which implements the
policies adopted by the Board.
• The Company’s risk management and internal
compliance and control system is operating
efficiently and effectively in all material respects.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE RECOMMENDATIONS
VIII Encourage enhanced • Disclose the process for performance evaluation of
performance the Board, its committees and individual directors,
and key executives.
IX Remunerate fairly and • Provide disclosure in relation to the Company’s
responsibly remuneration policies to enable investors to understand
(i) the costs and benefits of those policies and (ii) the
link between remuneration paid to directors and key
executives and corporate performance.
• The Board should establish a Remuneration
Committee.
• Clearly distinguish the structure of non-executive
directors’ remuneration from that of executives.
• Ensure that payment of equity-based executive
remuneration is made in accordance with thresholds
set in plans approved by shareholders.

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Principles & its Best Practice
Recommendations
No. PRINCIPLE
X Recognize the legitimate
interests of stakeholders
RECOMMENDATIONS
• Establish and disclose a Code of Conduct to
guide compliance with legal and other
obligations to legitimate stakeholders
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 QUESTIONS:
1. “What’s the difference between Transparency and accountability?

2.Explain this statement. “Responsiveness usually results to effectiveness

and efficiency.”

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messenger: Name and Section