MABALACAT CITY COLLEGE

Institute of Business Education

Institute of Business Education

BSA 3rd Year

BECORE 4
Governance, Business Ethics, Risk Management
and Internal Control

MODULE 1
(September 28-October 2, 2020)

Rebecca Q. Lising, MBA, MAED

Instructor

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

OFFICIAL MCC MODULE DISCLAIMER

It is not the intention of the author/s or the publisher of this module to have monetary gain in using the

textual information, imageries, and other references used in its production. This module is only for the

exclusive use of a bona fide student of Mabalacat City College.

In addition, this module or no part of it thereof may be reproduced, stored in a retrieval system, or

transmitted, in any form or by any means, electronic, mechanical, photocopying, and/or otherwise,

without the prior permission of Mabalacat City College.

Approved by

Atty. Charmaine L. Venturina

Executive Vice President
Mabalacat City College

cc:

Dean, IASTE
Dean, IBE
Dean, ICS
Dean, IHTM

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

MODULE 1
CORPORATE GOVERNANCE

Lesson 1.1 – Introduction to Corporate Governance

Learning Objectives:

1. Describe what governance involves

2. Explain the meaning, purpose, and objectives of corporate governance
3. Identify the parties involved in corporate governance
4. Understand the need for the code of governance for publicly-listed companies
5. Know what constitutes a competent board and how can it be established
6. Understand how independence and objectivity of the board can be reinforced and enhanced

Overview
Corporate governance is a topic that has received growing attention in the public in recent years as policy
makers and others become more aware of the contribution good corporate governance makes to financial
market stability and economic growth. Good corporate governance is all about controlling one’s business and so
is relevant, and indeed vital, for all organizations, whatever size or structure.

Governance refers specifically to the set of rules, controls, policies, and resolutions put in place to dictate
corporate behavior. Proxy advisors and shareholders are important stakeholders who indirectly affect
governance, but these are not examples of governance itself. The board of directors is pivotal in governance,
and it can have major ramifications for equity valuation.

A company’s corporate governance is important to investors since it shows a company's direction and business
integrity. Good corporate governance helps companies build trust with investors and the community. As a
result, corporate governance helps promote financial viability by creating a long-term investment opportunity
for market participants.

Lesson Proper:
What is Governance?

Generally, governance refers to a process whereby elements in society wield power, authority and influence and
enact policies and decisions concerning public life and social upliftment.

It comprises all the processes of governing- whether undertaken by the government of a country, by a market or
by a network – over a social system and whether through the laws, norms, power or language of an organized
society.

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

Governance means the 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

Corporate Governance - is defined as the system of rules, practices and processes by which business
corporations are directed and controlled. It involves balancing the interests of a company’s many stakeholders,
such as shareholders, management, customers, suppliers, financiers, government, and the community.

Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for
a company to merely be profitable; it also needs to demonstrate good corporate citizenship through
environmental awareness, ethical behavior, and sound corporate governance practices. Good corporate
governance creates a transparent set of rules and controls in which shareholders, directors, and officers have
aligned incentives.

PURPOSE OF CORPORATE GOVERNANCE

The purpose of corporate governance is to facilitate effective, entrepreneurial, and prudent management that
can deliver long-term success of the company.

The fundamental aim of corporate governance

 To enhance shareholders’ value and protect the interests of other stakeholders by improving the
corporate performance and accountability.
 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:

1. Fair and equitable treatment of shareholders
2. Self-assessment
3. Increase shareholders’ Wealth
4. Transparency and full disclosure

BASIC PRINCIPLES OF EFFCTIVE CORPORATE GOVERNANCE

Effective corporate governance is transparent, protects the rights of shareholders and includes both strategic
and operational risk management.

It is concerned in both the long-term earning potential as well as actual short-term earnings and holds directors
accountable for their stewardship of the business.

The basic principles of effective corporate governance are threefold as presented below:

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

BEST PRACTICES FOR CORPORATE GOVERNANCE

Every corporation should follow best practices for corporate governance. Best practices apply equally to new
corporations as they do to well-established ones. Best practices for corporate governance apply to large
companies, small companies, public companies and private companies. They even apply to nonprofit
organizations and other entities.

The benefits of following best practices for good corporate governance are many and the potential impact is
boundless. Good corporate governance improves overall performance and promotes trust among shareholders
and other stakeholders. Good corporate governance provides for sound strategic planning and better risk
management. Corporations that embrace best practices for governance continually move toward long-term
sustainability. Good governance prevents litigiousness and provides far-reaching legal protections for
corporations.

Following the principles of good corporate governance takes a bit of effort. However, while corporations can
expect to invest some of their corporate dollars in governance, taking steps toward best practices doesn’t have
to be expensive.

What Are the Best Practices for Corporate Governance?

Best practices incorporate many different aspects of board work. They entail taking a critical look at the qualities
and characteristics of board directors, who they are as people, and the way they approach governing an
organization. Governance can incorporate many different practices.

Specifically, some of the primary best practices include building a competent board, aligning strategies with
goals, being accountable, having a high level of ethics and integrity, defining roles and responsibilities, and
managing risk effectively.

 Building a Competent Board

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

Corporate governance today has a new focus on diversity and independence. This is because boards have the
task of dealing with issues that are highly complex and often technical in nature. Many perspectives around the
board table make for good decision-making. Most governance experts favor the notion of boards having a
majority of independent directors.

Boards should have a composition that incorporates all of the necessary skills and abilities to make sound
decisions for the corporation. Board directors must have implicit trust in each other so that board discussions
are productive, even when debates are long and wrought with many strong opinions.

Board directors, board committees and the whole board should participate in annual self-evaluations to identify
their strengths and weaknesses.

 Aligning Strategies With Goals

Another corporate best practice refers to boards that align their strategies and risk management activities with
the company’s goals. Boards should use all of their human resources and other tools to identify and assess all
forms of risk. The board needs to work together to develop the company’s risk tolerance and risk profile.
Additionally, they need to ensure that the company has the proper framework and controls in place, so they can
monitor risk and mitigate it when necessary.

Corporate best practices require board directors to look at risk and strategy on a short- and long-term basis.

 Being Accountable

The many scandals that have made headlines demonstrate why accountability has such a strong position in best
practices for corporate governance. Boards need to develop strong internal controls and to monitor them often.

Having reporting systems that are accurate and transparent, and that have a system of adequate checks and
balances, is considered an important part of best practices.

Best practices for accountability include making decisions about the correlation between attracting the most
talented board nominees and offering them enough compensation to make board work worth their while, but
without creating a conflict of interest. It’s generally preferred for board committees to manage and oversee
board director remuneration.

 Having a High Level of Ethics and Integrity

Board directors stand as the voice of the corporation. As such, they’re often called on to make public
presentations. Board directors must consider their fiduciary duties whenever they speak for the corporation.
The best nominees are people with a high level of ethics, honesty and integrity in their speech, their works and
their relationships with people.

Boards should have a clearly stated conflict of interest policy and ensure that board directors declare all conflicts
of interest and refrain from voting on such matters. Boards should also institute policies for whistleblowing and
reporting noncompliance.

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

Lesson 1.2 – Corporate Governance Responsibilities and Accountabilities

RELATIONSHIP BETWEEN SHAREHOLDERS/OWNER(S) AND OTHER STAKEHOLDERS

The relationship between the shareholders/owners, management and other stakeholders in a corporation is
shown below:

Public Corporation STAKEHOLDERS

Board of
 Shareholders
Directors
Have /Owners
 External
Delegate Executive Auditors
Management  Regulators
Shareholders/
 Society and
Owners
Operational Accountabilities others
Management

Responsibilities Internal
auditors

PARTIES INVOLVED IN CORPORATE GOVERNANCE

1. Shareholders
2. Board of Directors
3. Non-executive or Independent Directors
4. Management
5. Audit Committee of the Board of Directors
6. Regulators
a. Board of Accountancy
b. Securities and Exchange Commission
7. External Auditors
8. Internal Auditors

Lesson 1.3 – SEC CODE OF CORPORATE GOVERNANCE FOR PUBLICLY-LISTED

COMPANIES (“CG Code for PLCs”)

Securities and Exchange Commission SEC MC No. 19, series of 2016

On November 10, 2016, the Securities and Exchange Commission approved the Code of Corporate Governance
for publicly-listed companies.

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 MABALACAT CITY COLLEGE
Institute of Business Education

Goal: To help companies develop and sustain an ethical corporate culture and keep abreast with recent
developments in corporate governance

Salient Provision for publicly-listed companies: To establish a code of business conduct and submit a new
manual on Corporate Governance that would provide standards for professional and ethical behavior as well as
articulate acceptable and unacceptable conduct and practices.

The Code of Corporate Governance is intended to raise the corporate governance standards of Philippine
corporation to a level at par with its regional and global counterparts.

The Code will adopt the “comply or explain” approach. This approach combines voluntary compliance with
mandatory disclosure.

While many companies have already developed their Code of Business Conduct and Ethics, the real challenge is
in its implementation and monitoring compliance.

Definition of terms:

Corporate Governance – the system of stewardship and control to guide organizations in fulfilling their long-
term economic, moral, legal and social obligations towards their stakeholders.

Board of Directors – the governing body elected by the stockholders that exercises the corporate powers of a
corporation, conducts all its business and controls its properties.

Management – a group of executives given the authority by the Board of Directors to implement the policies it
has laid down in the conduct of the business of the corporation.

Independent Director – a person who is independent of management and the controlling shareholder, and is
free from any business or other relationship which could, or could reasonably be perceived to, materially
interfere whit his exercise of independent judgment in carrying out responsibilities as a director.

Executive Director – a director who has executive responsibility of day-to-day operations of a part or the whole
of the organization.

Non-executive Director – a director who has no executive responsibility and does not perform any work related
to the operations of the corporation.

Conglomerate - a group of corporations that has diversified business activities in varied industries, whereby the
operations of such business are controlled and managed by a parent corporate entity.

Internal Control – a process designed and effected by the board of directors, senior management, and all levels
of personnel to provide reasonable assurance on the achievement of objectives through efficient and effective
operations; reliable, complete, and timely financial and management information; and compliance with
applicable laws, regulations, and the organization’s policies and procedures.

Enterprise Risk Management – a process, effected by an entity’s Board of Directors, management and other
personnel, applied in strategy setting and across the enterprise that is designed to identify potential events that

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

may affect the entity, manage risks to be within its risk appetite, and provide reasonable assurance regarding
the achievement of entity objectives.

Related Party - shall cover the company’s subsidiaries, as well as affiliate and any party (including their
subsidiaries, affiliates, and special purpose entities), that the company exerts direct or indirect control over or
that exerts direct or indirect control over the company.

Related Party Transactions – a transfer of resources, services or obligations between a reporting entity and a
related party, regardless of whether a price is charged.

Stakeholders – any individual, organization or society at large who can either affect and/or be affected by the
companies strategies, policies, business decisions and operations, in general.

THE BOARD ‘S GOVERNANCE RESPONSIBILITIES

Principle 1
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.

Principle 2
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 stockholders and other stakeholders.

Principle 3
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.

Principle 4
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.

Principle 5
The Board should endeavor to exercise objective and independent judgment on all corporate affairs.

Principle 6
The best measure of the Board’s effectiveness is through an assessment process. The Board should regularly
carry out evaluations to appraise its performance as a body, and assess whether it possesses the right mix of
backgrounds and competencies.

Principle 7
Members of the Board are duty-bound to apply high ethical standards, taking into account the interests of all
stakeholders.

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

Principle 8
The company should establish corporate disclosure policies and procedures that are practical and in accordance
with best practices and regulatory expectations.
Principle 9
The company should establish standards for the appropriate selection of an external auditor, and exercise
effective oversight of the same to strengthen the external auditor’s independence and enhance audit quality.

Principle 10
The company should ensure that material and reportable non-financial and sustainability issues are disclosed.

Principle 11
The company should maintain a comprehensive and cost-efficient communication channel for disseminating
relevant information. This channel is crucial for informed decision-making by investors, stakeholders, and other
interested users.

INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT FRAMEWORK

Principle 12
To ensure the integrity, transparency and proper governance in the conduct of its affairs, the company should
have a strong and effective internal control system and enterprise risk management framework.

CULTIVATING A SYNERGIC RELATIONSHIP WITH SHAREHOLDERS

Principle 13
The company should treat all shareholders fairly and equitably, and also recognize, protect and facilitate the
exercise of their rights.

DUTIES TO STAKEHOLDERS

Principle 14
The rights of stakeholders established law, by contractual relations and through voluntary commitments must
be respected. Where stakeholder’s rights and/or interests are at stake, stakeholders should have the
opportunity to obtain prompt effective redress for the violation of their rights.

Principle 15
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.

Principle 16
The company should be social 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.

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BECORE4_CORPORATE GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL
 MABALACAT CITY COLLEGE
Institute of Business Education

REFERENCES:

Corporate Governance, Business Ethics, Risk Management and Internal Control

by Ma. Elenita Cabrera and Gilbert Anthony B. Cabrera, 2019-2020 Edition, Published by
GIC Enterprises

Corporate Governance Matters, D. Larcker and B. Tayan. 2016, 2nd Edition, Pearson

What is corporate governance?:

https://searchcompliance.techtarget.com/definition/corporate-governance

The Role of the Board of Directors in Corporate Governance:

https://insights.diligent.com/corporate-governance/the-role-of-the-board-of-directors-in-
corporate-governance

https://www.investopedia.com/terms/c/corporategovernance.asp
https://insights.diligent.com/corporate-governance/best-practices-for-corporate-governance

ACTIVITY

As a form of formative assessment for the online module, we will have an assessment task
that will be made available today until 11:59 PM of October 1, 2020.

I will provide a file that contains the instructions and guide questions. Supply answers being
asked.

Worksheet 1 will be uploaded either through Messenger (GC) or EDMODO.

Prepared by:

REBECCA Q. LISING, MBA, MAED

IBE-Instructor

Reviewed by:

Myrna C. Calma, CPA, Ph.D.

Dean – IBE

Noted by:

VPAA

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