Corporate Governance 5.

Consensus Oriented (General

Definition Agreement)
➢ In a nutshell, the effective way of ● When the decision-making
“directing” and “controlling” process cannot
companies. accommodate everyone’s
➢ OECD, is the system of stewardship wishes, then at the minimum,
and control to guide organizations the decision must be accepted
in fulfilling their long-term economic, by everyone without harm to
moral, legal and social obligations anyone.
toward their stakeholders. 6. Equity and Inclusiveness
➢ Figuratively, the captain of the ship ● Justice for the community.
must navigate the ship to safer Everyone has the same
waters in the midst of bad weather. opportunity to maintain and
improve their welfare,
Characteristics of Good Governance
especially those most
1. Participation vulnerable.
● An opportunity for everyone 7. Effectiveness and Efficiency
to embody their opinions ● Every decision-making
through institutions or produces results that meet
representations. In addition, the needs of society while
everyone, without exception, making the best use of
has the right to freedom of resources at their disposal.
association and expression. ● Efficiency - sustainable use of
2. Rule of Law
natural resources and
● The legal framework in the protecting the environment.
country must be enforced 8. Accountability
impartially, especially ● The key requirement of good
concerning human rights. governance.
3. Transparency
● Cannot be enforced without
● Every policy taken and transparency and rule of law.
implemented by the ● All institutions involved in good
government must be carried governance have full
out under existing responsibility to the public for
regulations. the sake of improving the
● Enough information is quality of society.
provided and provided in easily
Corporate Social Responsibility
understandable forms and
media. ➢ is concerned with the
4. Responsiveness responsibilities and obligations
● Needs institutions and of businesses to people,
processes to attempt to communities, and the society
serve all stakeholders within around them.
reasonable time. ➢ It is to be mentioned that
corporate social
responsibility is no longer a
 mere avenue for enhancing
corporate image but for
attaining competitive edge in
today’s highly competitive
business environment.
Fulfilling one's corporate social
responsibility comes in many forms;
● Businesses provide jobs to people
living in communities around them.
● Under Labor law, businesses must
pay the appropriate salary or wage
rates to their employees.
● Mandated by the government,
businesses must pay the right
amount of taxes.
● Other businesses give to charities
and conduct philanthropic activities
voluntarily.
Consumers tend to patronize the
products and services of the companies
that are doing well in terms of fulfilling
their obligations to the society. On the
other hand, the revenues that do not
perform well in terms of corporate social
responsibility may decline.
Example: Cleaning up an Oil Spill.
Issues Usually Addressed by Corporate
Governance
Unethical problems in business
ethics occur in many forms and types. The
most common of these unethical
practices of business establishments are
misrepresentation and over-persuasion.
Misrepresentation may be classified into:
Two types: Direct misrepresentation and
Indirect misrepresentation.
➢ Direct Misrepresentation is
characterized by actively
misrepresenting about the product
or customers. This includes:
● Deceptive Packaging - actions and decisions of an individual
exaggerated sizes and misleading
shapes to give false impressions.
● Misbranding or Mislabeling - false
statement on label of a product
● False or Misleading Advertising -
advertising does not always tell
the “whole truth and nothing but
the truth”.
● Adulteration - debasing a pure or
genuine commodity by imitating
or counterfeiting it.
● Weight understatement or
short weighing - weighing scale is
tampered.
● Measurement understatement
or short measurement -
shortening of measuring stick.
● Quality understatement or
short numbering - short in terms
of numbers of products.
➢ Over-Persuasion is the process of
appealing to the emotions of a
prospective customer and urging
him to buy an item of merchandise he
needs. This includes:
● Urging a customer to satisfy
a low priority need for
merchandise.
● Playing upon intense emotional
agitation to convince a
person to buy.
● Convincing a person to buy
what he does not need just
because he has the capacity
or money to do so.
Ethics
In Definition
➢ Origin, from the Greek word “ethos”
means values, norms, and beliefs
that determine how people should
behave.
➢ Broad definition, a set of moral
principles or values that govern the
or group.
 ➢ Oxford Dictionary, ethics refers to
well-founded standards of right and
wrong that prescribe what humans
ought to do, usually in terms of
rights, obligations, benefits to
society, fairness, or specific
virtues.
Categories of Ethical Principles
Principles of Personal Ethics include
among others
● Basic justice, fairness
● Respect for the right of others
● Concern for the right of others
● Concern for the well-being on
welfare of other
● Benevolence, trustworthiness,
honesty
● Compliance with the law
Professional Ethics include among others
● Integrity, impartially, objectivity
● Professional competence
● Confidentiality
● Professional behavior
● Avoidance of potential or apparent
conflict of interest
Business Ethics include among others
● Fair competition
● Global as well as domestic justice
● Social responsibility
● Concern for environment
Business Ethics
In Definition
➢ A form of applied ethics or
professional ethics, that examines
ethical principles and moral or
ethical problems that can arise in a
business environment. It applies to
all aspects of business conduct and
is relevant to the conduct of
individuals and entire organizations.
Purpose of Business Ethics
Main Purpose
Help business and would-be business
to determine what business practices are
right and what are wrong.
Special Purpose
There are other purposes which are
corollary to the main purpose. These
purposes include the following:
1. To make businessmen realize that
they cannot employ double
standards to the actions of other
people and to their own actions.
2. To show businessmen that common
practices which they have thought
to be right because they see other
businessmen doing it, are really
wrong.
3. To serve as a standard or ideal
upon which business conduct should
be based.
Principles of Business Ethics
It's essential to understand the
underlying principles that drive desired
ethical behavior and how a lack of these
moral principles contributes to the
downfall of many otherwise intelligent,
talented people and the businesses they
represent.
● Leadership: The conscious effort
to adopt, integrate, and emulate the
other 11 principles to guide
decisions and behavior in all aspects
of professional and personal life.
● Accountability: Holding yourself and
others responsible for their
actions. Commitment to following
ethical practices and ensuring
others follow ethics guidelines.
● Integrity: Incorporates other
principles—honesty,
trustworthiness, and reliability.
Someone with integrity consistently
 does the right thing and strives to
hold themselves to a higher
standard.
● Respect for others: Everyone
deserves dignity, privacy, equality,
opportunity, compassion, and
empathy.
● Honesty: Truth in all matters is key
to fostering an ethical climate.
Partial truths, omissions, and under
or overstating don't help a business
improve its performance. Bad news
should be communicated and
received in the same manner as good
news so that solutions can be
developed.
● Respect for laws: Ethical leadership
should include enforcing all local,
state, and federal laws. If there is a
legal gray area, leaders should err
on the side of legality rather than
exploiting a gap.
● Responsibility: Promote ownership
within an organization, allow
employees to be responsible for
their work, and be accountable for
yours.
● Transparency: Stakeholders are
people with an interest in a business,
such as shareholders, employees,
the community a firm operates in,
and the family members of the
employees. Without divulging trade
secrets, companies should ensure
information about their financials,
price changes, hiring and firing
practices are available to those
interested in the business's success.
● Compassion: Employees, the
community surrounding a business,
business partners, and customers
should all be treated with concern
for their well-being.
● Fairness: Everyone should have the
same opportunities and be treated
the same. If a practice or behavior
would make you feel uncomfortable
or place personal or corporate
benefit in front of equality, common
courtesy, and respect, it is likely not
fair.
● Loyalty: Leadership should
demonstrate confidentiality and
commitment to their employees and
the company. Inspiring loyalty in
employees and management ensures
that they are committed to best
practices.
● Environmental concern: In a world
where resources are limited,
ecosystems have been damaged by
past practices, and the climate is
changing, it is of utmost importance
to be aware of and concerned about
the environmental impacts a
business has. All employees should be
encouraged to discover and report
solutions for practices that can
add to damages already done.
Code of Corporate Governance for Publicly
Listed Companies
A. The Board’s Governance
Responsibilities
1. Establishing A Competent Board
➢ Principle: The company should be
headed by a competent, working
board to foster the long-term
success of the corporation, and
to sustain its competitiveness
and profitability in a manner
consistent with its corporate
objectives and the long-term
best interests of its
shareholders and other
stakeholders.
➢ Recommendation 1.1: The Board
should be composed of
directors with a collective
working knowledge, experience
or expertise that is relevant to
the company’s industry/sector.
The Board should always ensure
that it has an appropriate mix
of competence and expertise
and that its members remain
qualified for their positions
individually and collectively, to
enable it to fulfill its roles and
responsibilities and respond to
the needs of the organization
based on the evolving business
environment and strategic
direction.
➢ Recommendation 1.2: The Board
should be composed of a
majority of non-executive
directors who possess the
necessary qualifications to
effectively participate and help
secure objective, independent
judgment on corporate affairs
and to substantiate proper
checks and balances.
➢ Recommendation 1.6: The Board
should ensure that it is assisted
in its duties by a Compliance
Officer, who should have a rank
of Senior Vice President or an
equivalent position with
adequate stature and
authority in the corporation.
The Compliance Officer should
not be a member of the Board of
Directors and should annually
attend a training on corporate
governance.
2. Establishing Clear Roles and
responsibilities of the Board
➢ Principle: The fiduciary roles,
responsibilities and
accountabilities of the Board as
provided under the law, the
company’s articles and by-laws,
and other legal
pronouncements and guidelines
should be clearly made known to
all directors as well as to
shareholders and other
stakeholders.
➢ Recommendation 2.2: The Board
should oversee the development
of and approve the company’s
business objectives and
strategy, and monitor their
implementation, in order to
sustain the company’s long-
term viability and strength.
Senior management through the
leadership of the CEO, prepares
the company’s business
strategy. The board, on the
other hand, evaluates said
business strategy in light of the
prevailing economic, market, and
business conditions.
3. Establishing Board Committees
➢ Principle: Board committees
should be set up to the extent
possible to support the
effective performance of the
Board’s functions, particularly
with respect to audit, risk
management, related party
transactions, and other key
corporate governance
concerns, such as nomination
and remuneration. The
composition, functions and
responsibilities of all
committees established should
 be contained in a publicly
available Committee Charter.
➢ Recommendation 3.2: The Board
should establish an Audit
Committee to enhance its
oversight capability over the
company’s financial reporting,
internal control system,
internal and external audit
processes, and compliance with
applicable laws and regulations.
The committee should be
composed of at least three
appropriately qualified non-
executive directors, the
majority of whom, including the
Chairman, should be independent.
All of the members of the
committee must have relevant
background, knowledge, skills,
and/or experience in the areas
of accounting, auditing and
finance. The Chairman of the
Audit Committee should not be
the chairman of the Board or of
any other committees.
➢ Recommendation 3.4: Subject to
a corporation’s size, risk profile
and complexity of operations,
the Board should establish a
separate Board Risk Oversight
Committee (BROC) that should be
responsible for the oversight
of a company’s Enterprise Risk
Management system to ensure
its functionality and
effectiveness. The BROC should
be composed of at least three
members, the majority of whom
should be independent
directors, including the
Chairman. The Chairman should
not be the Chairman of the
Board or of any other
committee. At least one member
of the committee must have
relevant thorough knowledge
and experience on risk and risk
management.
4. Fostering Board Commitment
➢ Principle: To show full
commitment to the company,
the directors should devote the
time and attention necessary
to properly and effectively
perform their duties and
responsibilities, including
sufficient time to be familiar
with the corporation’s business.
➢ Recommendation 4.2: The non-
executive directors of the
Board should concurrently
serve as directors to a
maximum of five publicly listed
companies to ensure that they
have sufficient time to fully
prepare for meetings, challenge
Management’s proposals/views,
and oversee the long-term
strategy of the company.
5. Reinforcing Board Independence
➢ Principle: The board should
endeavor to exercise an
objective and independent
judgment on all corporate
affairs.
➢ Recommendation 5.1: The Board
should have at least three
independent directors, or such
number as to constitute at
least one-third of the members
of the Board, whichever is
higher. As defined in the Code, an
independent director is a
person who is independent of
management and the controlling
shareholder, and is free from
any business or other
 relationship could reasonably be professional and ethical
perceived to, materially behavior, as well as articulate
interfere with his/her exercise acceptable and unacceptable
of independent judgement in conduct and practices in
carrying out his/her internal and external dealings.
responsibilities as a director. The Code should be properly
Under the Revised Corporate disseminated to the Board,
Code, the board of companies senior management and
vested with public interest (e.g., employees. It should also be
banks, pre-need companies, and disclosed and made available to
insurance companies) shall have the public through the company
independent directors website.
constituting at least twenty 8. Enhancing Company Disclosures
percent (20%) of such board. ➢ Principle: The company should
6. Assessing Board Performance establish corporate disclosure
➢ Principle: The best measure of policies and procedures that
the Board’s effectiveness is are practical and in accordance
through an assessment with best practices and
process. The Board should regulatory expectations.
regularly carry out evaluations ➢ Recommendation 8.1: The Board
to appraise its performance as should establish corporate
a body, and assess whether it disclosure policies and
possesses the right mix of procedures to ensure a
backgrounds and competencies. comprehensive, accurate,
➢ Recommendation 6.1: The Board reliable and timely report to
should conduct an annual self- shareholders and other
assessment of its stakeholders that give a fair
performance, including the and complete picture of a
performance of the Chairman, company’s financial condition,
individual members and results and business
committees. Every three years, operations.
the assessment should be 9. Strengthening the External
supported by an external Auditor’s Independent and
facilitator. Improving Audit Quality
7. Strengthening Board Ethics ➢ Principle: The company should
➢ Principle: Members of the Board establish standards for the
are duty-bound to apply high appropriate selection of an
ethical standards, taking into external auditor, and exercise
account the interests of all effective oversight of the same
stakeholders. to strengthen the external
➢ Recommendation 7.1: The Board auditor’s independence and
should adopt a Code of Business enhance audit quality.
Conduct and Ethics, which would ➢ Recommendation 9.1: The Audit
provide standards for Committee should have a robust
 process for approving and timely and accurate
recommending the appointment, dissemination of public, material
reappointment, removal, and and relevant information to its
fees of the external auditor. The shareholders and other
appointment, reappointment, investors.
removal, and fees of the 12. Strengthening the Internal
external auditor should be Control System and Enterprise
recommended by the Audit Risk Management Framework
Committee, approved by the ➢ Principle: To ensure the integrity,
Board and ratified by the transparency and proper
shareholders. For removal of governance in the conduct of its
the external auditor, the affairs, the company should have
reasons for removal or change a strong and effective internal
should be disclosed to the control system and enterprise
regulators and the public risk management framework.
through the company website ➢ Recommendation 12.2: The
and required disclosures. Company should have in place an
10. Increasing Focus on Nonfinancial independent internal audit
and Sustainability Reporting function that provides an
➢ Principle: The company should independent and objective
ensure that the material and assurance, and consulting
reportable non-financial and services designed to add value
sustainability issues are and improve the company's
disclosed. operations.
➢ Sustainability Report – a report ➢ Recommendation 12.5: In
prepared by an organization managing the company’s Risk
about its economic, social, and Management System, the
environmental impacts and company should have a Chief Risk
sustainability performance. Officer (CRO), who is the ultimate
11. Promoting Access to Relevant champion of Enterprise Risk
Information Management (ERM) and has
➢ Principle: The company should adequate authority, stature,
maintain a comprehensive and resources and support to fulfill
cost-efficient communication his/her responsibilities, subject
channel for disseminating to a company’s size, risk profile
relevant information. This and complexity of operations.
channel is crucial for informed 13. Promoting Shareholder Rights
decision-making by investors, ➢ Principle: The company should
stakeholders and other treat all shareholders fairly and
interested users. equitably, and also recognize,
➢ Recommendation 11.1: The protect and facilitate the
company should include media and exercise of their rights.
analysts’ briefings as channels of ➢ Recommendation 13.1: The Board
communication to ensure the should ensure that basic
 shareholder rights are disclosed
in the Manual on Corporate
Governance and on the company’s
website.
14. Respecting Shareholder Rights
and Redress of Violation of those
Rights
➢ Principle: The rights of
stakeholders established by law,
by contractual relations and
through voluntary commitments
must be respected. Where
stakeholders’ rights and/or
interests are at stake,
stakeholders should have the
opportunity to obtain prompt
effective redress for the
violation of their rights.
15. Encouraging Employees’
Participation
➢ Principle: A mechanism for
employee participation should be
developed to create a symbiotic
environment, realize the
company’s goals and participate
in its corporate governance
processes.
➢ Recommendation 15.3: The Board
should establish a suitable
framework for whistleblowing
that allows employees to freely
communicate their concerns
about illegal or unethical
practices, without fear of
retaliation and to have direct
access to an independent member
of the Board or a unit created to
handle whistleblowing concerns.
The Board should be
conscientious in establishing the
framework, as well as in
supervising and ensuring its
enforcement. Many companies
now implement a whistle-blower
hotline system. Through this, a
whistle-blower can report any
irregularity, fraud, or
corruption, to the higher-ups, or
to a specific appropriate
committee.
16. Encouraging Sustainability and
Social responsibility
➢ Principle: The company should be
socially responsible in all its
dealings with the communities
where it operates. It should
ensure that its interactions
serve its environment and
stakeholders in a positive and
progressive manner that is fully
supportive of its
comprehensive and balanced
development.
➢ Recommendation 16.1: The
company should recognize and
place an importance on the
interdependence between
business and society, and
promote a mutually beneficial
relationship that allows the
company to grow its business,
while contributing to the
advancement of the society
where it operates.