GOVERNANCE, BUSINESS, ETHICS,

RISK MANAGEMENT AND

INTERNAL CONTROL

Module 2: Corporate Good

Governance
Prime Johnson V. Feliciano, CPA
The Concept of Governance
Effective citizen participation are indeed practices
regarding good governance. In distinguishing
between government activity and governance,
we will first state what governance comprises.
“ The formal and informal institutions that determine how
power is exercised in society, how decisions are taken and
how citizens have their say in the process of governing.
Therefore, governance is not the sole concern of
Government but of all those involved in public decision
making”
The Concept of Governance
Governance is “the exercise of Economic,
Political, and Administrative authority to manage
a country’s affairs at all levels. It comprises the
mechanisms, processes and institutions through
which citizens and groups articulate their
interests, exercise their legal rights, meet their
obligations and mediate their differences.
The Concept of Governance
“The quality and effectiveness of governance enhance
the State’s capacity in strategic areas that are vital to the
process of development.
The JUST EXERCISE OF AUTHORITY is one.
A CAPACITY FOR PROBLEM SOLVING and CONFLICT
RESOLUTIONS is one.
And the PERFORMANCE of its FUNCTIONS based on the
INVOLVEMENT of a SOCIETAL COALITION is another.
MGT VS. GOVERNANCE
Management deals with daily operations, while
Governance is about the underlying ethics of a
corporation.
GOOD GOVERNANCE: DEFINITION
“Good Governance entails to SOUND PUBLIC SETOR
MANAGEMENT (Efficiency, Effectiveness, and Economy),
ACCOUNTABILITY, EXCHANGE and FREE FLOW OF
INFORMATION (Transparency) and a LEGAL
FRAMEWORK FOR DEVELOMENT (Justice, Respect for
Human Rights and Liberties.”
United Nation Public Administration
 Good Governance is a fundamental element of a
democratic society.
GOOD GOVERNANCE: COMPONENTS
1. Legitimacy
2. Accountability
3. Competence
4. Respect to law and protection of human rights
GOOD GOVERNANCE: ELEMENTS
1. Security of persons and property
2. Constitutionalism
3. Transparency, accountability, ethics and integrity
4. Rule of law
5. Informed citizenry
6. Justice Poor management
7. Equity can affect
8. A decent standard of living for all governance.
9. Electoral and participatory democracy
10.Respect of human rights and basic freedoms
11.Effective and efficient delivery of public services
 CORPORATE GOVERNANCE
Corporate governance generally speaks of the
mechanisms, relations, and processes by which a
corporation is controlled and is directed. It also
includes considering the various concerns and
interests of its stakeholders.
If management is about running business,
Corporate governance is about seeing that it is
run properly.
“All companies need managing and governing”
 CORPORATE GOVERNANCE

Governance problems are a sold as human

civilization.
Corporate Governance is another area where
practices may change.
 CORPORATE GOVERNANCE
The need for Corporate Governance
1. Enriches company performance- sustainability.
2. Promote the trust of investors.
3. Better firm assessment, judgment, and share performance.
4. Lessens risk of corporate financial crunch, crisis and scandals.
5. Upholds corporate integrity and manage the risk of corporate
fraud, battling against management misconduct and
corruption.
6. Good corporate governance has a positive link to economic
development.
7. Corporate governance enhances the legal framework.
CORPORATE GOVERNANCE vs. MANAGEMENT

Corporate Governance
Accountability and
Supervision

Strategic Management

Executive Mgt.
Decision & Control
Operational Mgt. Corporate Management
FOUR PILLARS OF CORPORATE GOVERANCE
1. Accountability
- Ensure that management is accountable to the Board
- Ensure that the Board is accountable to Shareholders
2. Fairness
- Protect shareholders right
- Treat all shareholders equitably
3. Transparency
- ensure timely, accurate disclosure on all material matters, including
financial situation, performance, ownership, and corporate
governance
4. Independence
- Procedures and structures are in place so as to minimize or avoid
conflicts of interests
- Independent directors and advisers – to be free from the influence of
other.
Good Board Practices and
Well defined Shareholder Rights
Commitment
Elements of Corporate
Governance

Control Environment Transparent Disclosure

Good Board Practices
1. Well-structured Board with clearly defined roles and
authorities
2. Appropriate composition and mix of skills
3. Evaluation and training in line with best practices
4. Code of corporate governance and ethics is being
practiced
5. Formal policies and procedures have been
implemented accordingly
6. Appropriate resources are committed to carry out
corporate governance
7. Improvement for corporate governance plan
Well-defined Shareholders Rights
1. Formalized shareholder rights including those of
minorities
2. Regularly conduct well-organized shareholder
meetings
3. Discuss policies on related party transactions
4. Discuss policies on extraordinary transactions
5. Clearly defined ad explicit dividend policy
Control Environment
1. Internal control procedures
2. Presence of risk management framework
3. Disaster recovery systems in place
4. Use of media management techniques
5. Establish independent control committee
6. Internal audit function
7. Establish management information system
8. Compliance function
Transparent Disclosure
1. Disclose financial report
2. Disclose non-financial report
3. Prepare financial reports according to International
Financial Reporting Standards (IFRS)
4. Up-to-date corporate registry
5. Publish accurate and quality annual repot
6. Web-based disclosure
Effective corporate governance means that:
Transparency values are present
Investors receive timely and relevant information
Managers act in the interest of a company
Poor corporate governance can lead to:
Corruption and fraud
Conflicts of interest
Tax evasion or money laundering
Poor treatment of employees
Disregard for the environment
Effective corporate governance means that:
Transparency values are present
Investors receive timely and relevant information
Managers act in the interest of a company
Poor corporate governance can lead to:
Corruption and fraud
Conflicts of interest
Tax evasion or money laundering
Poor treatment of employees
Disregard for the environment
 Theories of Good Governance

Stakeholder
Agency Theory
Theory

Resource
Stewardship
Dependency
Theory
Theory
Agency Theory
Also known as the Principal-Agent theory, the focus
which as it affects contemporary corporations is to strike
a balance to harmonize the opposing concern of the
principal and the agent.
The Agency Model
Delegates’ authority to manage asset

Self Interest
Corporate
Self
Wealth Maximization governance Agent
Interest
issues
Principals

Performance
Stakeholder Theory
Dr. Edward Freeman’s stakeholder theory claims that a
firm’s stakeholders embrace just about anyone affected
by the business and its ventures.
Stakeholder Theory vs. Shareholder Theory
Milton Friedman, an Economist, whose work fashioned
much of 20th century corporate America, was a believer
in the free-market system and no government
intervention. This belief helped shape his Shareholder
Theory of capitalism.
Stakeholder Theory
Stakeholder Theory opposes the view of Milton
Friedman’s Shareholder Theory. Dr. Freeman implies that
s company’s stakeholders are “those groups without
whose support the organization would cease to exist.”
This groups would include:
a. Customers f. Local Communities
b. Employees g. Media
c. Suppliers h. Financial Institutions
d. Political action groups i. Governmental groups
e. Environmental groups j. others
Stakeholder Theory
Stakeholder Theory opposes the view of Milton
Friedman’s Shareholder Theory. Dr. Freeman implies that
s company’s stakeholders are “those groups without
whose support the organization would cease to exist.”
This groups would include:
a. Customers f. Local Communities
b. Employees g. Media
c. Suppliers h. Financial Institutions
d. Political action groups i. Governmental groups
e. Environmental groups j. others
The Stakeholder Model
Investors

Creditor Political System

Firm
Government Customers
(Performance)
Labor Union Society

Employees