INTRODUCTION TO

GOVERNANCE
CHAPTER 1
 • Describe what governance involves
• Enumerate the different contexts in which governance can
LEARNING be applied
• Name and explain the characteristics of good governance

OBJECTIVES • Explain the meaning, purpose, and objectives of corporate

governance
• Understand how the principles of good corporate governance
can be applied

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Introduction
What comes to your mind when you
hear the word governance?

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governance
Definition
GOVERNANCE
 Derived from the Greek word ‘KUBERNAN’ which means to pilot or steer.
 A process whereby elements in a society wield power, authority and influence and enact policies and decisions
concerning public life and social upliftment.
 It comprises all process of governing over a social system and whether through the laws, norms, power or
language of an organized society
 It is a 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.

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LET’S PLAY!!!
 1 word

PARTICIPATION
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 1 word

BIYCUNATALI TCO
ACCOUNTABILITY
8
 3 words

-R
RULE OF LAW
9
 1 word

CRASANRETNYP
TRANSPARENCY
10
 3 words
E+

EFFECTIVENESS AND EFFICIENCY 11

 3 words
QYETUI NAD
UINCISVLSENES
EQUITY AND INCLUSIVENESS
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 1 word

-T

RESPONSIVENESS 13
 2 words

-B

CONSENSUS ORIENTED 14
Characteristics
of governance
 Participation

Equity and
Accountability
Inclusiveness

Characteristics of
good governance
Responsiveness
Good Rule of Law
Governance

Consensus Efficiency &

Oriented Effectiveness

Transparency

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participation Participation could be either direct or
through legitimate institutions or
representatives; needs to be informed and
organized, which means there is 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 are enforced impartially, and
full protection of human rights, particularly
those of minorities. Impartial enforcement
of laws requires an independent judiciary
and incorruptible police force.
transparency Transparency means that decisions taken
and their enforcement are done in a
manner that follows rules and regulations;
information is freely available and directly
accessible; enough information is provided
and that it is provided in easily
understandable forms and media
responsiveness
Responsiveness means trying to serve the
needs of all its 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 the best interest
of the whole community and how this can be
achieved; broad and long-term perspective on
what is needed for sustainable human
development and how to achieve these goals
Equity and
inclusiveness Good governance ensures that all members
feel that they have a stake in it and do
not feel excluded from the mainstream of
society; opportunities to improve or
maintain their well-being is given to all
groups, particularly the most vulnerable
Effectiveness
& efficiency Good governance produces results that
meet the needs of society while making
the best use of resources at their
disposal; sustainable use of natural
resources and the protection of the
environment
accountability Accountability is the key requirement
of good governance; all institutions
must be accountable to the public and
to their institutional stakeholders;
this cannot be enforced without
transparency and the rule of law.
Corporate governance
Definition
Corporate GOVERNANCE
 Defined as the system of rules, practices and processes by which business
corporations are directed and controlled.
 Basically involves balancing the interests of a company’s many stakeholders, such as
shareholders, management, customers, suppliers, financiers, government and the
community
 Contributes to financial market stability and economic growth

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Purpose of Corporate GOVERNANCE
To facilitate effective, entrepreneurial and prudent management that can deliver
long-term success of the company.

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Objectives of corporate
governance
Definition
objectives of Corporate GOVERNANCE
F –air and Equitable Shareholders
I – ncrease Shareholder’s Wealth
S – elf Assessment
T –ransparency and Full Disclosure

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Fair and equitable shareholders
A corporate governance structure ensures equitable and fair
treatment of all shareholders of the company. In some
organizations, a group of high-net-worth individuals and
institutions who have a substantial proportion of their
portfolios invested in the company, remain active through
occupation of top-level positions that enable them to guard
their interest. However, all shareholders deserve equitable
treatment and this equity is safeguarded by a good
governance structure in an organization.
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Increase shareholder’s wealth
Corporate governance aims to protect the long-term
interest of the shareholders. Firms with strong corporate
governance structure are seen to have higher valuation
attached to their shares by businessmen. This only reflects
the positive perception that good corporate governance
induces potential investors to decide to invest in a company.

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Self-assessment
Corporate governance enables firms to assess their behavior
and actions before they are scrutinized by regulatory
agencies. Business establishments with a strong corporate
governance system are better able to limit exposure to
regulatory risks and fines and an active an independent board
can successfully point out deficiencies or loopholes in the
company operations and help solve issues internally on a
timely basis.

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Transparency and full disclosure

Good corporate governance aims at ensuring a higher degree

of transparency in an organization by encouraging full
disclosure of transactions in the company accounts.

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Basic Principles of Effective
Corporate Governance
 Basic Principles of
Effective Corporate
Governance

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 Illustrative application of the basic
principles of corporate governance and
best practice recommendations
 Principles of Good Corporate Governance Best Practice Recommendations
A company should lay solid foundation for management Formalize and disclose the functions reserved to the
and oversight. It should recognize and publish the board and those delegated to management
respective roles and responsibilities of board and
management.
Structure the board to add value . Have a board of an A board should have independent directors.
effective composition, size and commitment to The role of chairperson and CEO should not be
adequately discharge its responsibilities and duties exercised by the same person.
The board should establish a nomination committee.

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 Principles of Good Corporate Governance
Promote ethical and responsible decision making.
Actively promote ethical and responsible decision-
making.
Safeguard integrity in financial reporting. Have a
structure to independently verify and safeguard the
integrity of the company’s financial reporting.
Best Practice Recommendations
Establish a code of conduct to guide the directors,
the CEO, CFO and any other key executives.
Require the CEO or the CFO to state in writing 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 are in
accordance with relevant accounting standards.
The board should establish an audit committee.
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Be the change you want to
see in the world
Mahatma Gandhi

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