AC-MGT102 REVIEWER (CHAPTER 1 to 4)
CHAPTER 1: INTRODUCTION TO CORPORATE
GOVERNANCE
Governance - process of decision-making and
implementation of decisions through the exercise of
power or authority by leaders of a country or
organizations.
CHARACTERISTICS OF A GOOD GOVERNANCE
1. Participation: Involving all stakeholders in the
decision-making process.
2. Rule of Law: Ensuring that decisions are made in
accordance with established laws and
regulations.
3. Responsiveness: Addressing the needs of all
stakeholders within a reasonable timeframe.
4. Transparency and Full Disclosure: Providing
accessible and understandable information
about decisions and their enforcement.
5. Consensus-oriented: Mediating different
interests in society to reach a broad consensus
on what is in the best interest of the whole
community.
6. Equity and Inclusiveness: Ensuring that all
members of society have a stake and
opportunities for improvement.
7. Effectiveness and Efficiency: Producing results
that meet the needs of society while using
resources wisely.
8. Accountability: Holding institutions and
individuals accountable for their decisions and
actions, enforced through 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.
Good corporate governance is all about controlling
one’s business and so is relevant, and indeed vital for
all organizations, whatever size, or structure.
Corporate governance structure specifies the
distribution of rights and responsibilities among
different participants in the corporation.
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PURPOSE OF CORPORATE GOVERNANCE BASIC PRINCIPLE OF EFFECTIVE CORPORATE GOVERNANCE

• To facilitate effective, entrepreneurial and • Effective corporate governance is transparent,

prudent management that can deliver long- protects the rights of shareholders and includes
term success of the company. both strategic and operational risk
management.
OBJECTIVES OF CORPORATE GOVERNANCE
The basic principles of effective corporate
1. Fair and Equitable Treatment of Shareholders: governance are:
ensuring that all shareholders are treated fairly
and equally, without any discrimination or 1. Transparency and Full Disclosure: Is the board
preferential treatment. telling us what is going on?
2. Self-Assessment: enable firms to assess their 2. Accountability: Is the board taking
behavior and actions before they are responsibility?
scrutinized/examined by regulatory agencies. 3. Corporate Control: Is the board doing the right
3. Increase Shareholders’ Wealth: firms with thing?
strong corporate governance structure are seen
to have higher valuation attached to their shares
by businessmen. It induces potential investors to
decide to invest in a company.
4. Transparency and Full Disclosure: ensuring a
higher degree of transparency in an organization
by encouraging full disclosure of transactions in
the company accounts.

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CHAPTER 2: CORPORATE GOVERNANCE
RESPONSIBILITIES AND ACCOUNTABILITIES
RELATIONSHIP BETWEEN SHAREHOLDERS/OWNER(S) AND
OTHER STAKEHOLDERS
Governance starts with the shareholders/owners
delegating responsibilities through an elective board of
directors to management and, in turn, to operating
units with oversight and assistance from internal
auditors. The board of directors and its audit
committee oversee management and, in that role, are
expected to protect the shareholders' rights. However, it
is important to recognize that management is part of
the governance framework; management can
influence who sits on the board and the audit
committee as well as other governance controls that
might be put into place.
In return for the responsibilities (and power) given to
management and the board, governance demands
accountability back through the system to the
shareholders. However, the accountabilities do not
extend only to the shareholders. Companies also have
responsibilities to other stakeholders. Stakeholders can
be anyone who is influenced, whether directly or
indirectly, by the actions of a company. Management
and the board have responsibilities to act within the
laws of society and to meet various requirements of
creditors, employees, and the stakeholders.
A broad group of stakeholders has an interest in the
quality of corporate governance because it has a
relationship to economic performance and the quality
of financial reporting. For example, it is likely that many
employees have significant funds invested in pension
plans. Those pension plans are designed to protect the
financial interests of those employees in their
retirement. We use the word society in the diagram to
indicate those broad interests. In a similar fashion,
employees and creditors have a vested interest in the
organization and how it is governed. Regulators are a
response to society's wishes to ensure that
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organizations, in their pursuit of returns for their owners, 1. Overall Operations

act responsibly and operate in compliance with
relevant laws. • Establishing organization’s
vision, mission, values, and
ethical standards.
• Delegating an appropriate
PARTIES INVOLVED IN CORPORATE GOVERNANCE: THEIR
level of authority
RESPECTIVE BROAD ROLE AND SPECIFIC
• Demonstrating leadership
RESPONSIBILITIES
2. Performance

• Ensuring organization’s long-

Party Overview of Responsibilities term viability and enhancing
1. Shareholders Broad Role: the financial position
• Formulating and overseeing
Provide effective oversight through implementation of corporate
election of board members, approval strategy.
of major initiatives such as buying or • Approving the plan, budget
selling stock, annual reports on and corporate policies.
management compensation, from
the board 3. Compliance/Legal
2. Board of Directors Broad Role: Conformance

Ensure that the organization is run • Understanding and protecting

according to the organization’s the organization’s financial
charter and that there is proper position.
accountability. • Requiring and monitoring
legal and regulatory
Specific activities include among compliance including
others: compliance with accounting
standards, unfair trading

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 AC-MGT102 REVIEWER (CHAPTER 1 to 4)
legislations, occupational
health and safety and
environmental standards.
• Approving annual financial
reports, annual reports, and
other public
documents/sensitive reports.
3. Non-executive or Broad Role:
Independent
Directors • The same as the broad role of
the entire board of directors.
Specific activities include among
others:
• To understand the
organization, its business, its
operating environment, and
its financial position.
• To apply expertise and skills in
the organization’s best
interests.
• To assist management to
keep performance objectives
at the top of its agenda.
4. Management Broad Role:
Operations and accountability.
Manage the organization effectively;
provide accurate and timely reports
to shareholders and other
stakeholders.
Specific activities include among
others:
• Recommend the strategic
direction and translate the
strategic plan into the
operations of the business.
• Manage the company’s
human, physical and financial
resources to achieve the
organization’s objectives –
run the business.
• Assume day to day
responsibility for the
organization’s conformance
with relevant laws and
regulations and its
compliance framework.
5. Audit Committees Broad Role:
of the Board of
Directors Provide oversight of the internal and
external audit function and the
process of preparing the annual
financial statements as well as
public reports on internal control.
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 AC-MGT102 REVIEWER (CHAPTER 1 to 4)
Specific activities include among
others:
• Selecting the external audit
firm.
• Approving any non-audit
work performed by the audit
firm.
• Selecting and/or approving
the appointment of the Chief
Audit Executive (Internal
Auditor).
6. Regulators Broad Role:
a. Board of Set accounting and auditing
Accountancy standards dictating underlying
financial reporting and auditing
concepts; set the expectations of
audit quality and accounting quality.
7. External Auditors
Specific activities include among
others:
• Conducting CPA Licensure
Board Examinations
• Approving accounting
principles
• Approving auditing standards
b. Securities and Broad Role:
Exchange
Commission Ensure the accuracy, timeliness, and
fairness of public reporting of
financial and other information for
public companies.
Specific activities include among
others:
• Reviewing filings with the SEC.
• Interacting with the Financial
Reporting Standards Council
in setting accounting
standards.
• Specifying independence
standards required of
auditors that report on public
financial statements.
Broad Role:
Perform audits of company financial
statements to ensure that the
statements are free of material
misstatements including
misstatements that may be due to
fraud.
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Specific activities include among
others:
• Audit of public company
financial statements.
• Audits of nonpublic company
financial statements.
• Other services such as tax or
consulting.
8. Internal Auditors Broad Role:
Perform audits of companies for
compliance with company policies
and laws, audits to evaluate the
efficiency of operations, and periodic
evaluation and tests of controls.
Specific activities include among
others:
• Reporting results and
analyses to management
(including operational
management) and audit
committees.
• Evaluating internal controls
CHAPTER 3: SECURITIES AND EXCHANGE
COMMISSION (SEC) CODE OF CORPORATE
GOVERNANCE
- On November 10, 2016, the Securities and Exchange
Commission approved the Code of Corporate
Governance for publicly listed companies. Its goal
is to help companies develop and sustain an
ethical corporate culture and keep abreast with
recent developments in corporate governance.
- One of its salient provisions is 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".
CODE OF CORPORATE GOVERNANCE FOR PUBLICLY
LISTED COMPANIES
THE BOARD’S GOVERNANCE RESPONSIBILITIES
• Principle 1: This principle emphasizes the need
for a competent, working board to lead the
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 AC-MGT102 REVIEWER (CHAPTER 1 to 4)
company. The board should aim to enhance the
corporation’s long-term success and
competitiveness while ensuring profitability
aligns with corporate objectives and
shareholders’ long-term interests.
• Principle 2: It outlines the fiduciary roles,
responsibilities, and accountabilities of the
Board as mandated by law, company’s articles,
and by-laws. These should be clearly
communicated to all directors and stakeholders.
• Principle 3: This principle suggests that board
committees should support effective
performance of the Board’s functions in audit,
risk management, related party transactions,
etc., with their responsibilities outlined in a
publicly available Committee Charter.
• Principle 4: Directors should devote necessary
time and attention to effectively perform their
duties and responsibilities. They need to be
familiar with the corporation’s business.
• Principle 5: The Board should exercise objective
and independent judgment on all corporate
affairs to ensure unbiased decisions.
• Principle 6: The effectiveness of the Board is best
measured through an assessment process
where regular evaluations are carried out to
appraise its performance.
• Principle 7: Members of the Board are required
to uphold high ethical standards considering all
stakeholders’ interests.
DISCLOSURE AND TRANSPARENCY
• 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.
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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
INTRODUCTION (Key Points)
shareholders fairly and equitably, and recognize,
protect, and facilitate the exercise of their rights.
DUTIES TO STAKEHOLDERS
• Principle 14: The rights of stakeholders
established by law, contractual relations, or
voluntary commitments must be respected.
Where stakeholders’ rights and interests are at
stake, stakeholders should have the opportunity
to obtain prompt and effective redress for the
violation of their rights.
• Principle 15: A mechanism for employee
participation should be developed to create a
symbiotic environment to realize the company’s
goals and participate in its corporate
governance processes.
• 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 the environment and
stakeholders in a positive and progressive
manner, fully supportive of comprehensive and
balanced development.
1. The purpose of the Code of Corporate
Governance is to raise the corporate
governance standards of Philippine corporations
to a level comparable with regional and global
counterparts.
2. The Code adopts the “comply or explain”
approach, which combines voluntary
compliance with mandatory disclosure.
Companies must report whether they comply
with the Code provisions and explain any areas
of non-compliance.
3. The Code is arranged into Principles,
Recommendations, and Explanations. The
principles are high-level statements on
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corporate governance good practice, applicable

to all companies.
4. The Recommendations are objective criteria that
identify specific features of corporate
governance good practice. Companies can use
alternatives to a Recommendation if they can
justify how they achieve the overall Principle and
disclose their non-compliance.
5. The Explanations provide additional information
on the recommended best practice and how to
implement it. The Code does not prescribe a
one-size-fits-all framework but allows some
flexibility for boards to establish appropriate
arrangements according to their size and
circumstances.
6. The Code of Corporate Governance for publicly
listed companies is the first of a series of Codes
that is intended to cover all types of
corporations in the Philippines under supervision
of the Securities and Exchange Commission
(SEC).

DEFINITION OF TERMS

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