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.

Governance therefore means the process of decision-making and the process by which decisions are
implemented (or not implemented) through the exercise of power or authority by leaders of the country
and/or organizations.

CHARACTERISTICS OF GOOD GOVERNANCE

Participation

Participation by both men and women is a key of good governance. Participation could be either direct
or through legitimate institutions or representatives. It is important to point out that representative
democracy does not necessarily mean that the concern of the most vulnerable in society would not be
taken into consideration in decision making. Participation needs to be informed and organized. This
means freedom of association and expression on one hand and an organized civil society on the other
hand.

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.

Transparency

Transparency means that decisions taken and their - enforcement are done in a manner that follows
rules and regulations. It 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.

Responsiveness

Good governance requires that institutions and processes try to serve the needs all stakeholders within
a reasonable timeframe.

Consensus Oriented

Good governance requires mediation of the different interests in society to reach a broad consensus 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.

Equity and Inclusiveness

Ensures that all its 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.

Effectiveness and Efficiency

Good governance means that processes and institutions produce 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.

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 is defined as the system of rules, practices and processes by which business
corporations are directed and controlled. It basically involves balancing the interests of a company’s
many stakeholders, such as shareholders, | management, customers, suppliers, financiers, government
and the community.

Corporate governance is a topic that has received growing attention in the public in recent years as
policy makers and others become more aware of the contribution good corporate governance makes to
financial market stability and economic growth. Good corporate governance is all about controlling
one’s business and so is relevant, and indeed vital, for all organizations, whatever size or structure.

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent

management that can deliver long-term success of the company. In simple terms, the fundamental aim
of corporate governance is to enhance shareholders’ value and protect the interests 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 business firm.

Effective corporate governance is transparent, protects the rights of shareholders and includes both
strategic and operational risk management. It is concerned in both the long-term earning potential as
well as actual short-term earnings and holds directors accountable for their stewardship of the business.

Corporate Governance is the system of stewardship and control to guide organizations in fulfilling their
long-term economic, moral, legal and social obligations towards their stakeholders.
Corporate governance is a system of direction, feedback and control using regulations, performance
standards and ethical guidelines to hold the Board and senior management accountable for ensuring
ethical behavior — reconciling long-term customer satisfaction with shareholder value to the benefit of
all stakeholders and society.

Its purpose is to maximize the organization’s long-term success, creating sustainable value for its
shareholders, stakeholders and the nation.

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 1s 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.

Ethics can be defined broadly as a set of moral principles or values that govern the actions and decisions
of an individual or group. While personal ethics vary . from individual to individual at any point in time,
most people within a Society are able to agree about what is considered ethical and unethical behavior.
In fact, a society passes laws that define what its citizens consider to be the more extreme forms of
unethical behavior.

CHARACTERISTICS AND VALUES ASSOCIATED WITH ETHICAL BEHAVIOR

The following list of ethical principles incorporates the characteristics and values that most people
associate with ethical behavior.

Integrity

Be principled, honorable, upright, courageous and act on convictions; do not _ be twofaced or

unscrupulous, or adopt an end-justifies-the means philosophy that ignores principle.

Honesty

Be truthful, sincere, forthright, straightforward, frank, candid; do not cheat, steal, lie, deceive or act
deviously.

Trustworthiness and Promise Keeping

Be worthy of trust, keep promises, full commitments, abide by the spirit as well as the letter of an
agreement; do not interpret agreements in an unreasonably technical or legalistic manner in order to
rationalize noncompliance or create excuses and justification for breaking commitments.

Loyalty (Fidelity) and Confidentiality

Be faithful and loyal to family, friends, employers, client and country; do not use or disclose information
learned in confidence; in a professional context, safeguard the influences and conflicts of interest.

Fairness and Openness

Be fair and open-minded, be willing to admit error and, where appropriate, change positions and beliefs,
denionstrate a commitment to justice, the equal treatment of individuals, and tolerance for acceptance
of diversity; do not overreach or take advantage of another's mistakes or diversities.

Caring for Others

Be caring, kind, and compassionate; share, be giving, be of service to others; help those in need and
avoid harming others.

Respect for Others

Demonstrate respect for human dignity, privacy, and the right to selfdetermination of all people; be
courteous, prompt, and decent; provide others with the information they need to make informed
decisions about their own lives; do not patronize, embarrass, or demean.

Responsible Citizenship

Obey just laws; if all law unjust, openly protest it; exercise all democratic rights and privileged
responsibly by participation (voting and expressing informed views), social consciousness, and public
service; when in a position of leadership or authority, openly respect and honor democratic processes of
decision making, avoid unnecessary secrecy or concealment of information, and assure that others have
all the information they need to make intelligent choices and exercise their rights.

Pursuit of Excellence

Pursue excellence in all matters; in meeting your personal and professional responsibilities, be diligent,
reliable, industrious and committed; perform all _ tasks to the best of your ability, develop and maintain
a high degree of competence, be well informed and well prepared; do not be content with mediocrity;
do not "win at any cost".

Accountability

Be accountable, accept responsibility for decisions, for the foreseeable consequences of actions and
inactions, and for setting an example of others. Parents, teachers, employers, many professionals and
public officials have a special obligation to lead by example, to safeguard and advance the integrity and
reputation of their families, companies, professions and the government itself; an ethically sensitive
individual avoids even the appearance of impropriety, and takes whatever actions are necessary to
correct or prevent inappropriate conduct of others.

Business ethics refers to standards of moral conduct, behavior and judgment in business. It involves
making the moral and right decisions while engaging jn such business activities as manufacturing and
selling a product and providing q service to customers. Business ethics is an area of corporate
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.
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. Hopefully, they are going to use this knowledge to
guide them in making the right business decisions.

Special Purpose

There are other purposes which are corollary to the main purpose. These purposes include the
following:

1. To make businessmen realize that they cannot employ double standards to the actions of other
people and to their own actions.

2. To show businessmen that common practices which they have thought to be right because they see
other businessmen doing it, are really wrong.

3. To serve as a standard or ideal upon which business conduct should be based.

Economic Impact

A business has an economic impact on society through the wages it pays to its employees, the materials
that it buys from their suppliers and the prices it charges its customers. It would have a positive social
impact on its employees if they are paid fair living wages and benefits. It will have a positive effect on its
suppliers that they paid fairly and on time for their supplies. The effect on its customers is positive if the
business gives them good value for the price they pay for the products and services. , ;

Social Impact

The social impact of corporate governance contributes to the ethical climate of society. If businesses
offer bribes to secure work or other benefits, engage in accounting fraud or breach regulatory and legal
limitations on their operations, the ethics of society suffer. In addition to a deteriorating ethical
environment, such as corruption may unfairly raise the price of goods for consumers or the quality of
the product or service compromised.

Environmental Impact

Environmental protection is a key area of business influence on society. Businesses that implement good
environmental policies to use energy more efficiently, reduce waste and in general lighten their
environmental footprint can reduce their internal costs and promote a positive image of their company.
The environmental initiatives of a business leader often force competitors to take similar action for an
increased beneficial effect on the environment.

Impact on Business Managers

The concepts and principles for the ethical conduct in business are relegated to the managers of the
business enterprise. Thus, although the manager is expected to act in the best interest of the business,
he cannot be expected to act in a manner that is contrary to the-law or to his conscience.

COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

Unethical problems in business ethics occur in many forms and types. The most common of these
unethical practices of business establishments are misrepresentation and over-persuasion.

Misrepresentation may be classified into two types: direct misrepresentation and indirect
misrepresentation.

Direct Misrepresentation is characterized by actively misrepresenting about the product or customers.

This includes:

Deceptive Packaging. Deceptive packaging takes many forms and is of many types. One type is the
practice of placing the product in containers of exaggerated sizes and misleading shapes to give a false
impression of its actual contents. An example of this type of deceptive packaging is slack-fill packaging
where containers like cartons, tin cans and certain plastics are filled only up to eighty-five to ninety-five
percent of their capacity.

Misbranding or Mislabeling. Misbranding is the practice of making false statements on the label of a
product or making its container similar to a well-known product for the purpose of deceiving the
customer as to the quality and/or quantity of a product being sold.

False or Misleading Advertising. Advertising serves a useful purpose if it conveys the right information.
It is the principal means by which people are informed about the availability, nature and uses of old and
new products. However, advertising does not always tell the "whole truth and nothing but the truth" if it
greatly exaggerates the virtues of a product and tells only half of the truth or else sings praises to its
nonexistent virtues. If advertising does not provide a useful service anymore to the customers, it can
become the agent of misrepresentation.

Examples are:

a. Advertisements with pictures or statements that convey exaggerated impression of the product’s
reliability or quality.

b. Advertisement that claims that the product is the "fastest selling brand" or the "product of the year".

c. Advertisements using fictitious or obsolete testimonials.

Adulteration. Adulteration is the unethical practice of debasing a pure or genuine commodity by
imitating or counterfeiting it, by adding something to increase its bulk or volume, or by substituting an
inferior product for a superior one for the purpose of profit or gain. It is unethical because an inferior
product is passed off as a superior one. This does not meet the standard for fair service, that is achieving
success by offering better service (in the form of a superior product and terms of payment) than the
competitor.

Weight understatement or Short weighing. In short weighing, the mechanism of the weighing scale is
tampered with or something is unobtrusively attached to it so that the scale registers more than the
actual weight. An example is a foot pedal with a concealed string tied to the weighing scale. The modus
operandi of sellers is to use two sets of scales one which gives the correct weight and has been sealed by
the authorities and another which looks identical but registers more weight than the product. Short
weighing is practiced in selling products where prices depend on the weight such as sugar, meat, fish,
vegetables, fruits, nails, etc.

Measurement understatement or Short measurement. In short measurement, the measuring stick or

standard is shorter than the real length or smaller in volume than the standard. This unethical practice is
found in selling situations where the price of the product depends on its length such as selling cloth or
texQuantity understatement or Short numbering. In this unethical practice the seller gives the customer
less than the number asked for or paid for. Short numbering is often practiced in selling situations where
the Product being sold is in such a shape or is packed in a manner that would make counting the product
difficult or inconvenient. For example, a customer who is not vigilant may receive less quantity than
what he is entitled to when buying toilet paper, bond paper, carbon paper, paper clips, thumb tacks,
matches and toothpicks which are sold by the box or package.

Indirect Misrepresentation is characterized by omitting adverse or unfavorable information about the

product or service. Among the most common practices involving indirect misrepresentations are caveat
emptor, deliberate withholding of information and business ignorance.

Caveat emptor is a practice very common among salesmen. Translated, caveat emptor means "let the
buyer beware". Under this concept, the seller is not obligated to reveal any defect in the product or
service he is selling. It is responsibility of the customer to determine for himself the defects of the
product.

Caveat emptor is indirect misrepresentation and unethical because a seller is a witness for the goods he
is selling. He testifies to its nature, features, uses and qualities. As a witness, it is his obligation to "tell
the truth and nothing but the truth” about his product. What makes caveat emptor unethical is the
willingness of the seller to generate profit by taking advantage of the buyer's lack of information. This is
passive deception which is also lying. ;

Deliberate Withholding of Information. Following the argument that caveat emptor is unethical, the
deliberate withholding of significant information in a business transaction, is also unethical. No business
transaction is fair where one of the parties does not exactly know what he is giving away or receiving in
return.

Passive deception. Direct misrepresentation gives business a bad name while indirect misrepresentation
or passive deception is not as obvious, it nonetheless contributes to the impression that businessmen
are liars and are out to make a fast buck. Business ignorance is passive deception because the
businessman is unable to provide the customer with thé complete information that the latter needs to
make a fair decision.

Over-Persuasion

Persuasion is the process of appealing to the emotions of a prospective customer and urging him to buy
an item of merchandise he needs. Persuasion is legitimate and necessary in the selling of goods if it is
done in the interest of a buyer such as persuading him to get a hospitalization insurance policy.
However, persuasion ysed for the sole benefit of selling a product without considering the interest ofthe
buyer is not ethical. The common instances of over-persuasion include the following examples:

1. Urging a customer to satisfy a low priority need for merchandise.

2. Playing upon intense emotional agitation to convince a person to buy.

3. Convincing a person to buy what he does not need just because he has the capacity or money to do
so.

CORPORATE ETHICS

UNETHICAL PRACTICES OF CORPORATE MANAGEMENT

Practices of corporate management that involve ethical considerations may be classified into two:
practices of the Board of Directors and practices of executive officers. In many cases, the practices may
apply to both categories of corporate management and the only dividing line is in the financial
magnitude and implications of a particular corporate management practice.

SOME UNETHICAL PRACTICES OF THE BOARD OF DIRECTORS

1. Plain Graft

Some of the Board of Directors help themselves to the earnings that otherwise would go other
stockholders. This is done by voting for themselves and the executive officers huge per diems, large
salaries, big bonuses that do not commensurate to the value of their services. They can also reduce the
earnings going to the other shareholders by authorizing purchases of goods and services for the
company’s use at a price higher than normal, in consideration of a certain percentage of the purchase
value or commission accruing to them.

2. Interlocking Directorship
Interlocking directorship is often practiced by a person who holds directorial positions in two or more
corporation that do business with each other. This practice may involve conflict of interest and can
result to disloyal selling. Disloyal selling happens when this person is compelled to decide which of the
two corporation’s interest should be protected or upheld. Thus, whatever decisions the person makes,
he betrays the trust reposed on him by the shareholders of either of the two companies.

3. Insider Trading

Insider trading occurs when a broker or another person with access to confidential information uses that
information to trade in shares and securities of a corporation, thus giving him | an unfair advantage over
the other purchasers of these securities.

4. Negligence of Duty

A more common failure of the members of the Board of Directors than breach of trust is neglect of
duties when they fail to attend board meetings regularly. It is only in regular attendance that they can
protect the rights and interests of the shareholders and their non-attendance of board meetings could
result to betrayal of trust of the parties who elected them to their positions.

SOME UNETHICAL PRACTICES OF EXECUTIVE OFFICERS AND LOWER LEVEL MANAGERS

To a lesser extent, executive officers may also guilty of unethical practices. All: the unethical practices of
the members of the Board of Directors discussed are activities they are also capable of engaging in
though perhaps to a lesser degree because of certain limits to their authority. Unethical practices that
are more common to executive officers and lower level managers are:

1. Claiming a vacation trip to be a business trip. The President or a Vice President reports his personal
vacation in Europe or in the United States as a business trip so he can get reimbursement for his
expenses including those of his family’s.

2. Having employees do work unrelated to the business. Executive officers and lower managers ask
company employees to do personal things for them on company time such as having the company
janitors water and mow their lawns, having the maintenance men do house or appliance repairs for
them, and having subordinate employees secure a license or type letters pertaining to their other
businesses.

3. Loose or ineffective controls. Managers do not provide adequate controls to remove temptation and
to prevent or discourage employees from engaging in unethical practices. A manager has the moral
obligation to provide the proper control atmosphere so that his subordinates will not be tempted to
commit dishonest acts. A manager indirectly betrays the trust placed on him by higher executive officers
if the administrative and accounting controls in his office are so weak or effective that employees are
given the opportunity to misappropriate funds or engage in petty thievery.

4. Unfair labor practices. The labor code lists the following as unfair labor practices committed by an
employer on employees or a group of employees who have organized themselves into a union.
a. To interfere with, restrain or coerce employees in the exercise of their right to self-organization;

b. To require as a condition of employment that a person or an employee shall not join a labor
organization or shall withdraw from one to Which he belongs;

c. To contract out services or functions being performed by union members when such will interfere
with, restrain or coerce employees in the exercise of their rights to self organization;

d. To initiate, dominate, assist or otherwise in with the formation or administration of any labor
organization, including the giving of financial or other support to it;

e. To discriminate with regard to wages, hours of work, and other terms or conditions of employment in
order to encourage or discourage membership in any labor organization. To dismiss, discharge, or
otherwise prejudice or discriminate, against an employee for having given or being about to give
testimony under the Labor Code;

g. To violate the duty to bargain collectively a prescribed by the Labor Code;

h. To pay negotiation or attorneys’ fees to the union or its officers or agents as part of the settlement of
any issue in collective bargaining or any other dispute;

l. To violate or refuse to comply with voluntary arbitration awards or decisions relating to the
implementation or interpretation of a collective bar gaining agreement;

j. To violate a collective bargaining agreement.

5. Making false claims about losses to free themselves from paying the compensation and benefits
provided by law. There are employers who claim non-existent losses so they can be exempted from
paying the minimum wage and emergency-cost-of-living allowances required by law.

6. Making employees sign documents showing that they are receiving fully what they are entitled to
under the law when in fact they are only receiving a fraction of what they are supposed to get.

7. Sexual Harassment. Work, education or training-related sexual harassment is committed by an

employer, employee, manager, supervisor, agent of the employer, teacher, instructor, professor, coach,
trainer or any other person who, having authority, influence or moral ascendency over another in a
work or training or education environment, demands, requests or otherwise requires sexual favor from
the other, regardless of whether the demand, request or requirement for submission is accepted or not
by the object.tiles, electric cords or wires or on its volume such as selling rice by the sack.