CBMEC 1
GROUP 1 -Leo P. Plaza, Jr.
-Gabrelle C. Sio
-Denrey R. Quiñonez
-Jhonalie P. Suniel
-Kate Innahrose D. Tranquillan
-Deborah V. Adlaw
-Gjay B. Ramos
GOVERNANCE
INTRODUCTION
What is Governance?
Governance is the leadership and direction given to a company so that it achieves the
objectives of its existence.
Management is about making decisions.
Governance is about monitoring and controlling decisions.
It is the application of best management practices, compliance of 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.
Conduct of business in accordance with shareholders desires (maximizing wealth) while
confirming to the basic rules of the society embodied in the Law and Local Customs.
- Relationships among various participants in determining the direction and
performance of a corporation.
Effective management of relationships among:
*Shareholders
*Managers
*Board of directors
*Employees
*Customers
*Creditors
*Suppliers
*Community
Definitions of Governance:
Organization for Economic Cooperation and Development (OECD):
-set of relationships between a companies’ directors, stakeholders and other shareholders.
-structure through which the objectives of the company are set, and the means of obtaining
these objectives and monitoring performance.
Institute of Internal Auditors (IIA):
The system by which a company is controlled and directed. It includes the rules and procedures
for making decisions on corporate affairs to ensure success while maintaining the right balance
with stakeholders’ interest.
Securities and Exchange Commission (SEC):
It 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 behavior.
PROS ON HAVING GOVERNANCE
- The company will have improved risk management system.
- There will be clear accountability for executive decision making.
- It focuses management attention on introducing appropriate systems of internal control.
- It encourages ethical behavior and a CSR (Corporate Social Responsibility) perspective.
- It can help safeguard the organization from the misuse of assets and possible fraud.
- It can help to attract new investment into a company.
- Seeks to put limits on excessive director remuneration.
CONS ON HAVING GOVERNANCE
- It could develop an excessively risk adverse culture amongst mangers.
- There could be too much reporting and not enough time to seek and pursue profit
making activities.
- It could damper entrepreneurial activities.
- There could be too much excessive supervision, red tape and bureaucracy.
- The cost of operating internal controls exceeds any possible benefits.
- There is the possibility that the focus on meeting different stakeholder expectations will
confuse management as to their corporate responsibilities.
PURPOSE OF GOVERNANCE
- The purpose of having governance is to facilitate the effective, entrepreneurial and
prudent management that can deliver the long-term success of the company
- Good governance should contribute to better company performance by helping a board
discharge it duties in the best interest of the shareholders.
WHY GOVERNANCE?
-Better access to external finance
-Lower costs of capital – interest rates on loans
-Improved company performance sustainability
-Higher firm valuation and share performance
-Reduced risk of corporate crisis and scandals
PRINCIPLES OF GOVERNANCE
Sustainable development of all stake holders – to ensure growth of
all individuals associated with or effected by the enterprise on
sustainable basis.
Effective management and distribution of wealth – to ensure that
enterprise creates maximum wealth and judiciously uses the wealth
so created for providing maximum benefits to all stake holders and
enhancing its wealth creation capabilities to maintain sustainability.
Discharge of social responsibility – to ensure that enterprise is
acceptable to the society in which its functioning.
Application of best management practices – to ensure excellence in
functioning of enterprise and optimum creation of wealth on
sustainable basis.
Compliance of law in letter & spirit – to ensure value enhancement
for all stakeholders guaranteed by the law for maintaining
socio-economic balance.
Adherence to ethical standards – to ensure integrity, transparency,
independence and accountability in dealings with all stakeholders.
FOUR PILLARS OF GOVERNANCE
Accountability
●Ensure that management is accountable to the Board
●Ensure that the Board is accountable to shareholders
Fairness
● Protect Shareholders rights
● Treat all shareholders including minorities, equitably
● Provide effective redress for violations
Transparency
Ensure timely, accurate disclosure on all material matters, including the financial situation,
performance, ownership and corporate governance.
Independence
● Procedures and structures are in place so as to minimize, or avoid completely conflicts of
interest
● Independent Directors and Advisers i.e. free from the influence of others elements
ELEMENTS OF GOVERNANCE
Good Board Practices
*Clearly defined roles and authorities
*Duties and responsibilities of Directors understood
*Board is well structured
*Appropriate composition and mix of skills
*Appropriate Board procedures
*Director Remuneration in line with best practice
*Board self-evaluation and training conducted
Control Environment
*Internal control procedures
*Risk management framework present
*Disaster recovery systems in place
*Media management techniques in use
*Business continuity procedures in place
*Independent external auditor conducts audits
*Independent audit committee established
*Internal audit function
*Management information systems established
*Compliance function established
Transparent Disclosure
*Financial information disclosed
*Non-financial information disclosed
*Financials prepared according to international financial reporting standards (IFRS)
*Companies registry filings up to date
*High-quality annual report published
*Web-based disclosure
Well-Defined Shareholder Rights
*Minority shareholder rights formalized
*Well-organized shareholder meetings conducted
*Policy on related party transactions
*Policy on extraordinary transactions
*Clearly defined and explicit dividend policy
Board Commitment
*The board discusses corporate governance issues and has created a corporate governance
committee
*The company has a corporate governance champion
*A corporate governance improvement plan has been created
*Appropriate resources are committed to corporate governance initiatives.
*Policies and procedures have been formalized and distributed to relevant
staff
*A corporate governance code has been developed
*A code of ethics has been developed
*The company is recognized as a corporate governance leader
CONCLUSION:
Corporate Governance applies to all types of organizations not just companies in the private
sector but also in the not for profit and public sectors.
REFERENCES
https://www.youtube.com/watch?v=fI4oWkdsHPI
https://www.slideshare.net/ujjmishra1/corporate-governance-28926439
https://onlinelibrary.wiley.com/journal/14678683
https://www.governanceinstitute.com.au/resources/what-is-governance/
https://www.diligent.com/insights/corporate-governance/
