CHAPTER 1: Introduction to Corporate Governance
wellbeing.
Governance- process whereby elements in society wield
power, authority and influence and enact policies
and decisions concerning public life and social
upliftment.
- Comprises all the process of governing over a social
system and whether through laws, norms, power or
language of an organized society.
- Process of decision-making and the process by which
decisions are implemented through the exercise of
power or authority by leaders of the country and
organizations.
Characteristics of Good Governance
1. Participation- key cornerstone of good governance. This
could either direct or through legitimate institutions
or representatives. 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 – require fair legal framework that are
enforced impartially. It also require full protection of
human rights, particularly of those minorities.
- Impartial enforcement of laws requires an
independent judiciary and an impartial and
incorruptible police force.
3. Transparency- decision taken and their enforcement are
done in a manner that follow rules and regulations.
It means that information is freely available and
directly accessible.
- Enough information is provided and that it is
provided in easily understandable forms and media.
4. Responsiveness- institutions and processes try to serve
the needs all stakeholders within a reasonable
timeframe.
5. Consensus Oriented- 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.
- A broad and long-term perspective on what is
needed for sustainable human development and
how to achieve the goals of such development.
- Result from an understanding of the historical,
cultural and social contexts of a given society.
6. Equity and Inclusiveness- 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 to
have opportunities to improve or maintain their
7. Effectiveness and Efficiency- processes and institutions
produce results that meet the needs of society while
making the best use of resource at their disposal.
- Concept of efficiency- covers the sustainable use of
natural resources and the protection of the
environment.
8. Accountability- key requirement of good governance. An
organization or an institutions is accountable to
those who will be affected by its decisions or actions.
This cannot be enforced w/o transparency and the
rule of law.
Corporate Governance- system of rules, practices and
processes by which business corporations are
directed and controlled.
- Involves balancing the interests of a company’s
many stakeholders, such as shareholders
management, customers, supplies, financiers,
government and the community.
- Good Corporate governance is all about controlling
one’s business
Purpose of Corporate Governance
• Facilitate effective, entrepreneurial and prudent
management that can deliver long-term success of
the company.
• Fundamental aim: to enhance shareholders’ value
and protect the interests of other stakeholders by
improving the corporate performance and
accountability.
Objectives of Corporate Governance
1. Fair and Equitable Treatment of Shareholders
2. Self- Assessment- enables firms to assess their behaviour
and actions before they are scrutinized by regulatory
agencies.
3. Increase Shareholders Wealth- to protect the long-term
interests of the shareholders. This only reflects the
positive perception that good corporate governance
induces potential investors to decide to invest in a
company.
4. Transparency and Full Disclosure- ensuring a higher
degree transparency by encouraging full disclosure
of transactions.
Basic Principles of Effective Corporate Governance b. Disclose the policy
concerning trading in
1. Transparency and Full Disclosure company securities
• Does the board meet the information needs of Safeguard integrity in a. State in writing to the board
investment communities? financial reporting that the financial reports
• Does it safeguard integrity in financial reporting? present a true and fair view.
• Does the board have sound disclosure policies and b. Establish an audit
practices? committee consists of:
➢ Does it make timely and balanced disclosure? - Non-executive directors
➢ Can an outsider meaningfully analyse the - Independent
chairperson
organization’s actions and performance?
- At least 3 members
Make timely and a. Establish written policies
2. Accountability
balanced disclosure and procedures
• Does the board clarify its role and that of b. Listing Rule disclosure
managements? requirements and to ensure
➢ Does it promote objective, ethical and accountability at a senior
responsible decision asking? management level
➢ Does is lay solid foundations for management Respect the rights of a. Discuss and disclose a
oversight? shareholders communications strategy
➢ Does the composition mix of board b. Request the external auditor
membership ensure an appropriate range and to attend annual general
mix of expertise, diversity, knowledge and meeting
added value? Recognize and manage Establish policies on risk
➢ Is the organization’s senior official committed risk oversight and management
to widely accepted standards of correct and Encourage enhanced Disclose the process for
performance performance evaluation
proper behaviour?
Remunerate fairly and a. Provide disclosure in
responsibly relation to the company’s
3. Corporate Control remuneration policies to
• Has the board built long-term sustainable growth in enable investors to
shareholders’ value for the corporation? understand:
• Does it create an environment to take risk? - Cost and benefits of
➢ Does it encourage enhanced performance? those policies
➢ Does it recognize and manage risk? - The link between
➢ Does it remunerate fairly and responsibly? remuneration paid
➢ Does it recognize the legitimate interests of b. Establish a remuneration
stakeholders? committee
c. Distinguish the structure if
➢ Are conflicts of interest avoided such that the
non-executive director’s
organization’s best interest prevail at all
remuneration from that of
times?
executives
Principle of Good Best Practice Recommendations d. Ensure the payment of
Corporate Governance equity-based executive
A company should lay Formalize and disclose the remuneration
solid foundation for functions reserved to the board Recognize the Establish and disclose a code of
management and and those delegated to legitimate interests of conduct
oversight. management stakeholders
Structure the board to a. A board should have
add value independent directors
b. Roles of chairpersons and
CEO should not be exercised
by the same individual
c. Establish a nomination
committee
Promote ethical and a. Establish a code of conduct
responsible decision-
making
 CHAPTER 2: CORPORATE GOVERNANCE RESPONSIBILITIES Management’s Responsibility (Financial Reporting
AND ACCOUNTABILITIES Perspective)

Good Corporate Governance is based on principles • Choose w/c accounting principles best portray the
underpinned by consensus and continually developing economic substance of company transactions
notions of good practice. • Implement a system of internal control that assures
completeness and accuracy in financial reporting
Relationship between Shareholders and other Stakeholders
• Ensure that the FS contain accurate and complete
Public Corporation Stakeholders disclosure
Board of Shareholders
Parties Involved in Corporate Governance and their
Delegate Directors Have Responsibilities
Shareholders Executive External
/owners Management account auditors 1. Shareholders – provide effective oversight through
Responsibilities Operational abilities Regulators election of board members, approval of stock,
Management
annual reports on management compensation from
Internal Society and
the board
Auditors others

2. Board of Directors- major representative of stockholders

Shareholders- delegating responsibilities through an elected a. Overall Operations
board of directors to management to operating units o Establishing vision, mission, values and
w/ oversight and assistance from internal auditors ethical standards
o Delegating an appropriate level of authority
Board of Directors and audit committee- oversee to management
management and are expected to protect the o Demonstrating leadership
shareholders’ rights o Assuming responsibility w/ CEO
Management- influence who sits on the board and the audit o Overseeing aspects of the employment of
committee as well as other governance controls the management team
o Recommending auditors and new directors
Stakeholders- anyone who is influenced, directly or indirectly, to shareholders
by the actions of a company. o Ensuring effective communications
o Crisis management
- Has an interest in the quality of corporate
o Appointment of CFO and corporate
governance because it has a relationship to
secretary
economic performance and the quality of financial
b. Performance
reporting
o Ensure organization’s long term viability
Owners want accountability on: and enhancing the financial position
o Formulating and overseeing
• Financial Performance implementation of corporate strategy
• Financial transparency- FS that are clear w/ full o Approving the plan, budget and corporate
disclosure and that reflect the underlying economics of policies
the company o Agreeing key performance indicators
• Stewardship- how well the company protects and o Monitoring assessment
manages the resources entrusted to it o Overseeing the risk management
• Quality of Internal Control o Monitoring development in the industry
• Composition of the board of directors and the nature of o Oversight of the organization, control and
its activities- information on how well management accountability
incentive system are aligned w/ the shareholders’ best o Approving and monitoring the progress of
interests major capital expenditure, capital
management
c. Compliance
o Understanding and protecting
organization’s financial position
o Requiring and monitoring legal and
regulatory compliance
 o Approving annual financial reports
o Ensuring an effective system of internal
controls
3. Non-Executive or Independent Directors- representative
of stakeholders
o Understand the organizations, business,
operating environment, financial position
o Apply expertise and skills in the organization’s
best interests
o Assist management to keep performance
objectives
o Understand that the role is not to act as auditor
nor a member of the management
o Respect the collective, cabinet nature of the
board’s decisions
o Prepare for and attend board meetings
o Seek information on a timely basis
o Ask appropriate questions relative to operations
4. Management- operations and accountability; provide
accurate and timely reports to shareholders and
other stakeholders
o Recommend strategic direction and translate
strategic plan into the operations
o Manage the company’s human physical and
financial resources
o Assume day to day responsibility
o Develop, implement and manage the
organization’s risk management and internal
control
o Develop, implement and update policies and
procedures
o Be alert to relevant trends in the industry
o Provide information to the board
o Act as conduit between the board and
organization
o Developing financial and other reports that
meet public, stakeholder and regulatory
requirements
5. Audit Committees of the Board of Directors- provide
oversight of the internal and external audit function
and process of preparing the annual FS and public
reports on internal control
o Selecting the external audit firm
o Approving any non-audit work
o Selecting and approving the appointment of the
Chief Audit Executive (internal Auditor)
o Reviewing and approving the scope and budget
of the internal audit function
o Discussing audit finding w/ internal auditor and
external auditor and advising the board on
specific actions
6. Regulators
A. Board of Accountancy- set accounting and auditing
standards dictating underlying financial reporting
and auditing concepts; set the expectations of audit
quality and accounting quality
o Conducting CPA Licensure Board
Examinations
o Approving accounting principles
o Approving auditing standards
o Interpreting previously issued standards
o Educating members on audit
B. SEC- ensure the accuracy, timeliness and fairness of
public reporting of financial and other information of
public companies
o Reviewing fillings w/ the SEC
o Interacting w/ the FRSC in settling
accounting standards
o Specifying independence standards
required of auditors that report on public FS
o Identify corporate frauds, investigate and
suggest remedial actions
7. External Auditors- perform audits of company FS to
ensure that they are free of material misstatements
and fraud
o Audit of public company FS
o Audit of non-public company FS
o Other service such as tax or consulting
8. Internal Auditors- perform audits of companies for
compliances w/ company policies and laws, audit to
evaluate the efficiency of operations, and periodic
evaluation and test of control
o Reporting results and analyses to management
and audit committee
o Evaluating internal controls