FILAMER CHRISTIAN UNIVERSITY

AUTONOMOUS STATUS – Commission on Higher Education

Accredited Level IV – ACSCU-AA1
Roxas Avenue, Roxas City, Capiz, 5800

ROWENA R. ACANG PROF. MARLENE A. AGUIRRE, MPA, MBA

MBA, Student Course Facilitator

CORPORATE GOVERNANCE

The Wall Street Journal (June 23, 1999) defined corporate governance as :

“CORPORATE GOVERNANCE”, in principle, refers to the joint responsibility imposed on the Board of
Directors and management to protect shareholder rights and enhance shareholder value.

(SEC Memorandum Circular No. 2, Series of 2002. Code of Corporate Governance)

CORPORATE GOVERNANCE refers to a system whereby shareholders, creditors and other stakeholders
of a corporation ensure that management enhances the value of the corporation as it competes in an
increasingly global market place.

According to Sir Adrian Cadbury, corporate governance is concerned with holding the balance between
economic and social goals and between individual and communal goals.

FUNDAMENTAL OBJECTIVES OF CORPORATE GOVERNANANCE

a. Improvement of Shareholder Value

Shareholders’ value can be improved by making a pre-commitment to build better relations with
primary stakeholders like employees, customers, suppliers, and communities.

b. Conscious Consideration of the Interests of other Stakeholders

When a company meets the objective of increasing the shareholder value, it will have greater internally-
generated resources in improving its commitment in meeting its environmental, community and social
obligations.

WHAT GOOD GOVERNANCE PROMOTES

1. TRANSPARENCY is vital with respect to corporate governance due to the critical nature of
reporting financial and non-financial information.
2. ACCOUNTABILITY is the recognition and assumption of responsibility for the decisions, actions,
administration, governance and implementation of programs and plans of the corporation and
 people involved, including the obligation to report, explain and be answerable for its resulting
consequences.
3. PRUDENCE is defined within the Code of Governance as “care, caution and good judgment as
well as wisdom in looking ahead.

BENEFITS OF GOOD GOVERNANCE

According to Arthur Levitt (former chairman of the US Securities & Exchange Commission) once said:
“If a country does not have a reputation for strong corporate governance practices, capital will flow
elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a
country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises
in that country suffer the consequences.”

From the investors’ perspective a simple question can be raised, “will you invest in a region or a
country the track record of which in governance is questionable? If yes, how long?”

1. Reduced Vulnerability
Adopting good corporate governance practices leads to an improved system of internal
control. This leads to greater accountability, protection of corporate resources and eventually,
better profit margins. Good corporate governance practices will also pave the way for probable
future development, diversification, including the capability to attract investors, both sourced
nationally and abroad.
2. Marketability
Embracing principles of good corporate governance can also play a role in enhancing the
corporate value of companies. This leads to easy access to capital in financial markets which
helps the company survive in an even more competitive environment. Good corporate
governance will also make the company more attractive in open market.
3. Credibility
When a company is credible, investors’ trust comes next; where investors’ is in, money
follows; when there is money, there is flexibility. It is in having that flexibility in a competitive
world that could spell out the difference between failure and success.
4. Valuation
Observed evidence and studies conducted in recent years back the idea that it pays to
have good corporate governance. It was found out that more than 84% of the global investors
are willing to pay a higher price or a premium for the shares of a well governed company over
one considered poorly governed given all financial figures comparably equal.