SSOP wag ANIL, 2019-2020 EDITION MA. ELENITA.BALATBAT CABRERA BBA MBA CPA CMA’ GILBERT ANTON MT a MBACHAPTER 1 : ma ' 1 INTRODUCTION TO CORPORATE GOVERNANCE ‘ Generally, efers to a process whereby elements in society wi itor ar flue easier It comprises all the processes of governing — whether undertaken by the » a by over a social system and wether huh th pon or ganized society. fore means the process of decision-making and the process by which (or not implemented) through the exercise of : Govéfnance can be uséd in several contexts such as corporate governance, international governance, national governance ahd local governance. The focus of this book i§ on Corporate Governance. A CHARACTERISTICS OF GOOD GOVERNANCE \ Whatever context good governance is used, the following ‘majbrTeharacteristies’ should be present: |, ;— ly described as follows: These characteristics are briefly de Participation by both gagn andi is « ey gormaroagt cipation could be either direct or farticil o ntal ‘icy does important to point out that represen not necessarily mean that the concern of the most vulnerable in society would not be taken ES cama in decision making. Participation feeds formed and orgadized. This means? freedom off assdciatidh and’ | expression on one hand ffid an organized civil society on the other hand. Rate of La Godt governance sequires a bir. pein ? actor — g © bana enforcement yand # 5 Oa | means that and their nt. It also means that enough information is provided it i it aS inden ga _ and that it is provided in Responsiveness _ CCEA requires ‘hac ina, and processes J 7 200 Sahni within a reasonable mx how to achieve the zone of such only result from CfIntroduction to Corporate Governance _, 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 Good governance means that produce results that meet 1 making the while at their disposal. The concept of efficiency in! xt of good governance also cover o iia reSireesjpnd the + isttion ofthe environmenty Accountability, is a key requirement of good governane Not only instituti ut also the private | stor a izationsuust be accountable (0 the public and to their accountable to whom varies depending on whether ‘organization or institution. In general, an organization or an institution is accountable to those who will be affected by its decision Is or actions. annot be enforced without in CORPORATE GOVERNANCE: AN OVERVIEW$c ifies the distributi if righ emnance structure specifies the distribution Of right ang > nee Ped different participants in the corporation, such as the. board, responsibil solders, and other stakeholders, and spells out the rules and manseerss Pare TyKingadecisions on corporate Affairs, By doing this, it also Bc structure through which the objectives are set and the means of oe those objectives and monitoring performance. attaining PURPOSE OF CORPORATE GOVERNANCE The purpose of corporaté governance is tofaeilitate effective, entreprenétirialrand management that can deliver|longstermysuccessyof the wompahy. In simple terms, the fundamental aim of corporate governatige is to enhance Shareholders” value and protect the interests of other stakeholders by improving theleorporate\performanceyand accountabilify. 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 The following are the basic objectives of corporate governance: lL ? Fair and Equitable Treatment of Shareholders » /A corporate governance structure ensures equitable and fair treatment of al! shareholders of the companys Tn some organizations, a group of high- net-worth individual and institutions who have a substantial proportion of ‘their portfolios invested in the company, remain active through [eeubatiomOROpAEVEl|pOsitiONs|that enable them to guard their interest, goucvet, all shareholders deservélequitablevtreatment and his equity is Vig by a good governance structure in any organization. 2. [Self-Assessment : X ienables firms to assess their/BBHAVI6t and (ations _ are “TSerutinized by sregulatery agencies? Business with gi Goverancersysterh are better able’ fines: An active and independent Por M6SPHOES in theIntroduction to Corporate Governance 7 Another corporat objective is to protect the long- tel . 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. it is concerned in mings and The basic principles of effective corporate governance are threefold as presented below: ‘Transparency and Full Disclosure : Accountability Is the board telling us what is going on? Is the board taking responsibility? Good and Effective GovernanceRequire the chief executive of (or equivalent) and the chief financial officer (or equivalent) to state in writing to the board 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 and are in accordance with relevant accounting standards. 4-b. The board should establish an audit committee. 4-c. Structure the audit committee so that it consists of: * Only non-executive or independent directors; An independent chairperson, who is not chairperson of the board; and * _ Atleast three (3) members, Make timely and balanced disclosure. Promote timely and balanced disclosure of all material matters Concerning the ‘company. ea 5a. Establish written policies and procedures designed to ensure compliance with IFRS. 5-b. Listing Rule disclosure requirements nd to ensure accountability at a senior management level for compliance. » ‘ete is of shrshoaes and 've exercise of those ————Aueslions about the audit, _J 6a. Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings. 6-b. Request the external auditor to attend the annual general meeting and be available to answer shareholder SEE:Introduction to Corporate Governance 11 17. Recognize and manage risk. Establish a sound system of risk oversight and management and internal control. T-a. The board or appropriate board committee should establish policies on risk oversight and management. 2-a. The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the board in writing that: ‘¢ The statement given in accordance with best practice recommendation 4-a (the integrity of financial statements) is founded on a sound system of risk management and internal ‘compliance and control which implements the policies adopted \\_ by the board: and The company’s risk management and internal compliance and control system is operating efficiently in all material respects. Disclose the process for performance evaluation of the board, its committees and individual directors, and key70-a. Establish and disclose a code of conduct to guide compliance with lega, a“ | stakeholders. REVIEW QUESTIONS Questions What does governance mean? . Explain whether the following statement is true or false. “Governance is exercised only by the government of a country”. |. Explain how governance can be used in the following contexts and give appropriate examples: national governance . local governance . corporate governance |. international governance . Explain briefly the eight (8) basic characteristics of good governance. . Transparency and accountability are s i ¢ synonymous. Explain whether the Statement is correct or not. ) - Explain whether the following statement is true or false. “R ‘esponsiveness usually results to effectiveness and efficiency”. ~ Define corporate governance. + What does Sotporate governance structure involve? 9.. State the purpose « 3 Putpose of corporate =