OUR LADY OF FATIMA UNIVERSITY

PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA

Course Code – Title : GBRMIC-Governance, Business Ethics, Risk Management and Internal Control

Course Description : Governance, Business Ethics, Risk Management and Internal Control Accounting aims to
equip accountancy students the basic knowledge, skills and perspective that are necessary in facing the challenge in
the continuously changing business environment whether it be in the public practice sector, accounting practice,
internal audit or accounting information system management.

Module No – Title : MO1 – Introduction to Corporate Governance

Time Frame : 1 week – 3 hrs

Desired Learning Outcomes

At the end of the learning session, you should be able to:
a) Describe what governance involves
b) Enumerate the different contexts in which governance can be applied
c) Name and explain the characteristics of good governance
d) Explain the meaning, purpose and objectives of corporate governance
e) Know and describe the principles of effective corporate governance
f) Understand how the principles of good corporate governance can be applied
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA

Content/Discussion

CHAPTER 1 INTRODUCTION TO CORPORATE GOVERNANCE

WHAT IS GOVERNANCE?

Generally, 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.

It comprises all the processes of governing – whether undertaken by the government of a country, by a market or by a
network – over a social system and whether through the laws, norms, power or language of an organized society.

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.

Governance can be used in several contexts such as corporate governance, international governance, national
governance and local governance.
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA

CHARACTERISTICS OF GOOD GOVERNANCE

Whatever context good governance is used, the following major characteristics should be present:

PARTICIPATION
RULE OF LAW ACCOUNTABILITY

GOOD EFFECTIVENESS &

TRANSPARENCY
GOVERNANCE EFFICIENCY

RESPONSIVENESS EQUITY &

INCLUSIVENESS
CONSENSUS
ORIENTED

These characteristics are briefly described as follows:

1. Participation
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA
Participation by both men and women is a key cornerstone 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.

2. Rule of Law
Good governance requires fair deal 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.

3. 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 easily understandable forms
and media.

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

5. 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.

6. Equity and Inclusiveness

Ensures that all its members feel that they have a stake in it and do not excluded from the mainstream of society. This
requires all groups, but particularly the most vulnerable, have opportunities to improve or maintain their well-being.
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA

7. 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.

8. 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: AN OVERVIEW

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 company.

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 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. By doing this, it also provides the structure through which the
objectives are set and the means of attaining those objectives and monitoring performance.
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA
PURPOSE OF CORPORATE GOVERNANCE

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
shareholder’s 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.

OBJECTIVES OF CORPORATE GOVERNANCE

1. Fair and equitable treatment of shareholders
2. Self-assessment
3. Increase shareholder’s wealth
4. Transparency and full disclosure

BASIC PRINCIPLES OF EFFECTIVE CORPORATE GOVERNANCE

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.

The basic principles of effective corporate governance are threefold as presented below:
Transparency & Full Disclosure Accountability

Is the board telling us what is going Is the board taking responsibility?

on?

Good & Effective Governance

Corporate Control

Is the board doing the right thing?

 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA

Positive answers to the following questions indicate a firm’s conformance and compliance with the basic principles of
good corporate governance:

A. 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?
B. Accountability
 Does the board clarify its role 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 ensure an appropriate range and mix of expertise,
diversity, knowledge and added value?
 Is the organization’s senior official committed to widely accepted standards of correct and proper
behavior?

C. Corporate Control
 Has the board built 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 interest avoided such that the organization’s best interests prevail at all time?

1. Assignment
Essay Questions:
1. What does governance mean?
 OUR LADY OF FATIMA UNIVERSITY
PAMPANGA CAMPUS
COLLEGE OF BUSINESS AND ACCOUNTANCY

GBERMIC – MODULE 1
KATRINE CELINE C. GUTIERREZ, CPA
2. Explain whether the following statement is TRUE or FALSE.
“Governance is exercised only by the government of a country.”
3. Differentiate transparency and accountability.

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