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WHAT IS

CORPORATE
GOVERNANCE?
INTRODUCTION
THE FUTURE BSP issued Circular 283
OF MAY
CORPORATE 2001
SEC Came out with its Code of Corporate
GOVERNANCE
APRIL Governance.
BY MR.
2001
BENJAMIN IC promulgated The Code of Corporate
ESPIRITU Governance for Insurance Companies and
JULY
Intermediaries
2001
ERC launched its Program to promote
JUNE Corporate Governance.
2004
FORECASTS AS THE 2. Corporate governance will be encouraged
RESULT OF THE REFORMS and may even be mandated for small and
medium sized enterprises.

1. The focus on corporate 3. Corporate Governance will be encouraged


governance, the measures taken to and may even be mandated for small and
have good corporate governance medium sized enterprises.
practices in companies covered by
corporate governance regulations
will continue. 4. There will be increased independence in
the relationship between the board of
directors and management.
WHY SHOULD CORPORATE GOVERNANCE BE
INSTITUTIONALIZED?
1. Best global practices dictate it

2. It is necessary in a globalized and competitive economy

3. It truly contributes to the enhancement of shareholder


value and contributes to the nation’s economic practices.
SET OF PROCESS, CUSTOMS,
7.1 DEFINITION POLICIES LAWS AND
OF CORPORATE INSTITUTIONS AFFECTING THE
GOVERNANCE WAY CORPORATION IS
DIRECTED ADMINISTERED OR
CONTROLLED.
CORPORATE
GOVERNANCE
INCLUDES THE RELATIONSHIPS
AMONG MANY STAKEHOLDERS
AND THE GOALS FOR WHICH
THE CORPORATION IS
GOVERNED.
EMPLOYEES SUPPLIERS
Shareholders

PRINCIPAL Management OTHERS CUSTOMERS


STAKEHOLDERS

BOARD OF
BANKS AND REGULATOR,
DIRECTORS OTHER ENVIRONMENT
LENDERS , COMMUNITY
7.2 WHAT IS
Sec OECD Professor Kenneth
CORPORATE
Scott
System whereby System by
Corporate GOVERNANCE?
shareholders, which business
creditors and other corporations governance
Corporate governance can
stakeholders of a are directed includes every
simply be defined as a set of
corporation are and controlled. force that bears
rules that govern the internal
assured that on the decision
relations of various
management J. Wolfenshon making of the
stakeholders within the
enhances the value firm.
Promoting corporate organization and in
of the corporation corporate Financial times the community where it
as it competes in fairness, operates in order to provide
an increasingly The relationship of a
transparency company to its for integrity and honesty and
global market and shareholders or more decision making and to
place. accountability broadly as its ensure transparency and
relationship to accountability in the system.
society.
7.3 HOW IS Purpose of US Securities Reform
CORPORATE 1. Make management more accountable;
GOVERNANCE 2. Increase required disclosure;
AFFECTING 3. Strengthen the authority and obligations
THE RULES of corporate gatekeepers and outside
AND advisors;
ENVIRONMENT 4. Remove conflicts of interests of
OF DOING management, auditors, gatekeepers and
BUSINESS advisors
5. Regulate auditors strongly; and
6. Improve guidance about accounting
standards
Corporate governance The actual power-
7.4 THE RELATIONSHIP is an expansive topic sharing
BETWEEN that refers to the arrangement of a
SHAREHOLDERS, power-sharing corporate entity
arrangement between depends upon its
BONDHOLDERS a company’s rules of
BANKERS AND shareholders, its governance and
DIRECTORS; THE board of directors, the rules that
POTENTIAL FOR and its senior define and
CONFLICTS OF management. protect the rights,
responsibilities,
INTEREST; THE EFFECT Three relevant and claims of the
OF THE AGENCY parties three relevant
THEORY ON CONCEPTS 1. shareholders parties.
OF GOVERNANCE
2. directors
3. Management
The essence of a corporate governance
failure is where the managers of a firm,
Corporate governance acting as agents for the shareholder, seek
rules are established by to improve themselves at the expense of
firm- specific charters the shareholders.
and by-laws, as well as
by statutes and
These mixed results serve to emphasize
regulations promulgated
that “ good governance practices may not
by state and national
governments. be universal – one practice does not
necessarily fit all enterprise- and thereby
the task of identifying best governance
rules requires considerable expertise and
idiosyncratic analysis.