INTRODUCTION TO CORPORATE
GOVERNANCE
WHAT IS GOVERNANCE?
● Generally, it refers to a 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
● Process of decision-making and
the process by which decisions are
implemented (or not implemented)
through exercise of power or
authority by leaders of the country
and/or organizations.
SEVERAL CONTEXT OF
GOVERNANCE
● corporate governance
● international governance
● national governance
● local governance.
CHARACTERISTICS OF GOOD
GOVERNANCE
Participation
- Either direct or through legitimate
institutions or representatives
- Representative democracy –
concern of most vulnerable in
society
- Needs to be informed and
organized
Rule of Law
- Requires fair legal frameworks
that are enforced impartially
- Requires full protection of human
rights (particularly minorities)
- Impartial enforcement of laws
(independent judiciary and
incorruptible police force)
Transparency
- Decisions taken and their
enforcement → follows rules and
regulations
- Information is freely available and
directly accessible
- Enough information is provided
and in easily understandable forms
and media
Responsiveness
- Requires that institutions and
processes try to serve the needs of
all stakeholders within a
reasonable timeframe
Consensus Oriented
- Requires mediation of the different
interests in society
- Requires broad and long-term
perspective (sustainable human
development)
- Understanding of the historical,
cultural and social contexts of a
given society or community
Equity & Inclusiveness
- Ensures that all its members feel
that they have a stake in it
- Requires all groups to have
opportunities to improve or
maintain their well being.
Effectiveness & Efficiency
- Processes and institutions produce
results that meet the needs of
society
- Concept of efficiency – covers the
sustainable use of natural
resources and the protection of
environment
Accountability
- A key requirement of good
governance
- Not only governmental institutions
but also the private sector and civil
society organizations
- Who is accountable to whom?
- Accountable to those who will be
affected by decisions or actions
- Cannot be enforced without
transparency and the rule of law.
CORPORATE GOVERNANCE: AN
OVERVIEW
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
● Received growing attention in the
public
● Good corporate governance –
relevant and vital for all
organization
Corporate governance structure
● Specifies the distribution of rights
and responsibilities among
different participants in the
corporation
● Spells out the rules and
procedures for making decisions
on corporate affairs
● Objectives are set (the means of
attaining and monitoring
performance)
PURPOSE OF CORPORATE
GOVERNANCE
● To facilitate effective,
entrepreneurial and prudent
management
● To enhance shareholder’s value
● To protect the interests of other
stakeholders
● It is about what the BOD of a
company does.
OBJECTIVES OF CORPORATE
GOVERNANCE
The following are the basic objectives of
corporate governance:
1. Fair and Equitable Treatment of
Stakeholders
- Group of high-net-worth individuals
and institutions → top-level
positions
- All shareholders deserve equitable
treatment → safeguarded by a
good governance structure
2. Self-Assessment
● Assess company’s behavior and
actions
● Strong corporate governance =
limit exposure to regulatory risks
and fines
● Active and independent board →
successfully point out deficiencies
or loopholes in the company
operations.
3. Increase Shareholder’s Wealth
● To protect long-term interests of
the shareholders
● Strong corporate governance =
have higher valuation of shares
 ● Induces potential investor to invest
4. Transparency and Full Disclosure
● Ensures a higher degree of
transparency by encouraging full
disclosure of transactions in the
company accounts
BASIC PRINCIPLES OF EFFECTIVE
CORPORATE GOVERNANCE
● Effective – transparent, protects
the right of shareholders and
includes both strategic and
operational risk management
● Long-term earning potential;
short-term earnings
● Holds directors accountable for
stewardship of the business
A. Transparency and Full Disclosure
● Does the board meet the
information needs of investment
communities?
● Does it safeguard integrity in
financial reporting?
● • Does the board have sound
disclosure policies and practices?
● Does it make timely and balanced
disclosure?
● Can an outsider meaningfully
analyze the organizations actions
and performance?
B. Accountability
● Does it promote objective, ethical
and responsible decision making?
● Does it lay solid foundations for
management oversight?
● Does the composition mix of board
membership ensure an appropriate
range of mix expertise, diversity,
knowledge and added value?
● Is the organization’s senior official
committed to widely accepted
standards of correct and proper
behavior?
C. Corporate Control
● Has the board built long-term
sustainable growth in
shareholders’ value for the
corporation?
● Does it create an environment to
take risk?
● • Does it encourage enhanced
performance?
● Does it recognize and manage
risk?
● Does it remunerate fairly and
responsibly?
● Does it create an environment to
take risk?
● • Does it recognize the legitimate
interests of stakeholders?
● Are conflicts of interest avoided
such that the organization’s best
interests prevail at all times?
CORPORATE GOVERNANCE
RESPONSIBILITIES AND
ACCOUNTABILITIES
● Characteristics of good
governance in Chapter 1 – both
SME’s and large listed public
companies
● Organization grow in size and
influence → issues become
increasingly important
● Good corporate governance –
based on principles
● No absolute rules which must be
adopted by all organizations
● “There is no simple universal
formula for good governance.”
● Corporate governance →
Corporate governance framework
● Effective governance framework
and issues relating to each
element
● Essence of any system of good
corporate governance:
-To allow the board and
management the freedom to drive their
organization
- To exercise that freedom
within a framework of effective
accountability
MANAGEMENT
- Preparation of FS sound and
effective system.
RELATIONSHIP BETWEEN
SHAREHOLDERS/OWNER(S) AND
OTHER STAKEHOLDERS
● Shareholders require
accountability as to how well the
resources that have been
entrusted to management and the
board have been used.
● For example, the owners want
accountability on such things as:
- Financial performance
- Financial transparency
- Stewardship
- Quality of internal control
- Composition of BOD and
the nature of its activities
● Owners want disclosures from
management that are accurate and
objectively verifiable.
● Management responsibility:
- To provide financial reports
and reports in internal
control effectiveness
- Primary: for the accuracy
and completeness of FS
From a financial reporting perspective, it is
the management’s responsibility to:
- Choose which accounting
principles best portray the
economic substance of company
transactions.
- Implement a system of internal
control that assures completeness
and accuracy of financial reporting.
- Ensure that the FS contains
accurate and complete disclosure.

CODE OF CORPORATE GOVERNANCE
FOR PUBLICLY LISTED COMPANIES
THE BOARD’S GOVERNANCE
RESPONSIBILITIES
1. ESTABLISHING A COMPETENT
BOARD
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.
NOTES:
- Competent BOD
- Collective working knowledge,
experience or expertise relevant to
the company’s industry.
- members remain qualified for their
positions individually and
collectively
- right combination of non-executive
directors (NEDs) independent
directors and executive directors.
- NEDs assure protection of the
company’s interest over the
interest of the individual
shareholders.
- orientation program for first-time
directors→ at least eight hours
- continuing training→ at least four
hours.
- All directors should be properly
oriented upon joining the board
- The Board should have a policy on
board diversity.
- board diversity policy is not limited
to gender diversity
- increase the number of female
directors, including female
independent directors.
- Corporate Secretary→ should be
a separate individual from the
Compliance Officer, not a member
of the BOD, should annually attend
a training on corporate
governance.
- Responsibilities of Corp. Sec
● set agendas for those
meetings
● preserves the integrity of
the minutes of the meetings
as well as other official
records of the corporation
● Keeps stay-up-to-date on
relevant laws, regulations,
and all governance issues.
● Informs members of the
Board the agenda of their
meetings at least five
working days in advance,
● Attends all Board meetings
- Compliance Officer→ should
have authority in the corporation
- Compliance Officer should not be a
member of the BOD and should
annually attend a training on
corporate governance
- Responsibilities of Comp. Officer
● Ensures proper onboarding
of new directors
● Reports the matter to the
Board if violations are found
● Ensures the integrity and
accuracy of all documentary
submissions to regulators
 ● Ensures the attendance of
board members and key
officers to relevant trainings
● Collaborates with other
departments to properly
address compliance issues,
which may be subject to
investigation
2. ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
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.
NOTES:
- should act on a fully informed basis
in good faith, with due diligence
and care.
- two key elements of the
fiduciary duty:
● duty of care→ act on a
fully informed basis, in good
faith, with due diligence and
care.
● duty of loyalty→ act in the
interest of the company and
all its shareholders, and not
those of the controlling
company of the group or
any other stakeholder.
- Sound strategic policies and
objectives translate to the
company’s proper identification
and prioritization of its goals and
guidance on how best to achieve
them
- The Board should be headed by a
competent and qualified
Chairperson.
- Board should be responsible for
ensuring and adopting an effective
succession planning program for
directors key officers and
management.
3. ESTABLISHING BOARD
COMMITTEES
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.
4. FOSTERING COMMITMENT
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.
5. REINFORCING BOARD
INDEPENDENCE
Principle 5: The Board should endeavor
to exercise objective and independent
judgment on all corporate affairs.
6. ASSESSING BOARD
PERFORMANCE
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.
7. STRENGTHENING BOARD ETHICS
Principle 7: Members of the Board are
duty-bound to apply high ethical
standards, taking into account the
interests of all stakeholders.
DISCLOSURE AND TRANSPARENCY
8. ENHANCING COMPANY
DISCLOSURE POLICIES AND
PROCEDURES
Principle 8: The company should
establish corporate disclosure policies and
procedures that are practical and in
accordance with best practices and
regulatory expectations.
9. STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND
IMPROVING AUDIT QUALITY
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.
10. INCREASING FOCUS ON
NON-FINANCIAL AND
SUSTAINABILITY REPORTING
Principle10: The company should ensure
that material and reportable non-financial
and sustainability issues are disclosed.
11. PROMOTING A COMPREHENSIVE
AND COST-EFFICIENT ACCESS TO
RELEVANT INFORMATION
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
12. STRENGTHENING THE INTERNAL
CONTROL SYSTEM AND ENTERPRISE
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
13. PROMOTING SHAREHOLDER
RIGHTS
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

14. RESPECTING RIGHTS OF

STAKEHOLDERS AND EFFECTIVE
REDRESS FOR VIOLATION OF
STAKEHOLDER’S RIGHTS

Principle 14: 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 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.

16. ENCOURAGING SUSTAINABILITY

AND SOCIAL RESPONSIBILITY

Principle 16: 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.