CORPORATE

GOOD
GOVERNANCE
Subtitle
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. (UNDP, 1997)
Governance: Operation of 3 Key Actors

State:
Creating a favorable
political, legal, &
State economic environment
Civil Society:
Mobilizing peoples’
participation

Civil
Market
Society
Market:
Creating
opportunities for
people
Stakeholders in
Governance
Good Governance entails
✔ sound public sector management (Efficiency, Effectiveness, and Economy),
✔ accountability,
✔ exchange and free flow of information (Transparency),
✔ and a legal framework for development (Justice, Respect for Human Rights,
and Liberties)
 Components of Good Governance

1. Legitimacy

2. Accountability

3. Competence

4. Respect for law and protection of human rights

 Constitutionalism

Transparency,
Security of persons
Accountability,
and property
Ethics and Integrity

Rule of Law Informed citizenry

Good
Governance

Justice Equity

Effective and
A decent standard
efficient delivery of
of living for all
public services

Electoral and Respect for human

participatory rights and basic
democracy freedoms
Signs of Poor Governance

Priorities inconsistent
Excessive regulations
with development

Failure to distinguish
Failure to establish the
between public and
rule of law
private interest
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.
The Need for Corporate Governance

1. Enriches company performance- sustainability

2. Promote the trust of investors

3. Better firm assessment, judgement 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 ≠ Corporate Social Responsibility

Corporate Governance ≠ Business Ethics

Corporate Governance ≠ Corporate Financial Management

 4 Fundamental Pillars of
Corporate Governance

Accountability Fairness Transparency Independence

Accountability

⮚ Ensure that Management is accountable to the Board

⮚ Ensure that the Board is accountable to Shareholders

Fairness

⮚ Protect Shareholders rights

⮚ Treat all Shareholders equitably
Transparency

⮚ Ensure timely, accurate disclosure on all material matters,

including financial situation, performance, ownership, and
corporate governance

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 others
Elements of Corporate Governance

Well-defined
Good Board
Shareholder
Practices
Rights

Control Transparent
Environment Disclosure
Effective corporate governance means that:

Transparency values are present

Investors receive timely and relevant

information

Managers act in the interest of a

company
CORPORATE GOOD
GOVERNACE: SCOPE AND
CORE
SCOPE OF CORPORATE
GOVERNANCE
 ROLE OF SHAREHOLDERS
▪ Pass forward important agenda and plans which shall be approved
through voting
▪ Shareholders’ right to vote their tool to control over corporate governance
of an organization
▪ Shareholders can reshape the corporate governance of the organization
and change the members of the board and management teams
▪ Shareholders can also inspect the financial performance of the company.
▪ In cases where the employees are themselves shareholders, they can
stay motivated with a long-term interest in a company.
ROLE OF BOARD OF DIRECTORS
▪ They can choose and appoint Chief Executive Officer (CEO)
▪ The BOD sets the long-term objectives to include the Vision
and Mission for the company.
▪ The CEO, along with functional and operating departments,
shall set up the details of the structure and job roles which is
the major foundation of corporate governance.
▪ Flexibility is the key in the cjoice of structure coupled with
the management style of the CEO.
 ROLE OF EXTERNAL AUDITORS
▪ They are the ones who check and balance activities against the potential
fraud or errors and ensures that the company is functioning smoothly
▪ The accountants keeps all the financial records which may be verified by
the internal auditors
▪ Shareholders sometimes, choose auditors from their own ranks to do the
job.
▪ Companies gradually hired professional auditors to check and do the
verifications as organizational structure become more complex.
 Various Statutes, Rules, Acts and
Regulations of Regulatory Agencies of the
Government
▪ Tax payments
▪ Auditing of the company
▪ Renewal pf license to operate and other regulations
▪ Companies are also required to comply with code
of conduct of various unions and associations in
their domain.
ORGANIZATIONAL GOVERNANCE

⮚Organizations have set of authority

structures, processes and rules in place
that govern how decisions are made, how
resources are allocated, and how priorities
are determined.
ORGANIZATIONAL GOVERNANCE

▪ Companies must take time to really study and map out what
governance model is appropriate to the organization and how it
will look.

▪ If you are the new CEO in a company that you recently joined,
you sometimes inherit bad governance.

▪ Be wary of ritualized behavior instead of value-producing

activities
POLICY GOVERNANCE

▪ Informally known as the Carver Model

▪ Is a system for organizational governance.

▪ It defines the appropriate relationship between

an organization’s owner, it’s board of directors,
and its chief executive officer (CEO)
ROLE OF POLICIES

▪ It provides decision makers with strategic alignment, decision

parameters, and alternative course of action and business rules

▪ It increases consistency of decisions at all levels

▪ It reduces the risk of bad decisions especially in the field.

IMPORTANCE OF POLICIES IN GOVERNANCE

▪ No matter what kind of organizational structure is chosen for the

organization, the only way it can work is only when the support
policies are in place.
▪ Consistency in having a basis for decision making is a lot easier
if you have a policy direction.
▪ Internal in an organization or place of work is the difficulty of
arguing with a superior or boss.
▪ In the corporate world where the authors have been exposed
extensively, a good example is the policy that “no liquidation, no
additional cash advances”.
Important consideration in choosing who will sit in the board

▪ The board should be comprised of directors who are knowledgeable and

possessed expertise relevant to the company’s business.
▪ Majority of the board therefore, must be qualified and competent and have
strong ethical principles and integrity and with sufficient time to commit to
function effectively as a member of the board.
▪ They must not be a member of the management team and should not have
direct or indirect material relationship (conflict of interest) that can interfere with
judgement as a director
▪ They must not act simple as “rubber stamp” to management recommendations.
▪ They must establish measurable performance targets for executive officers and
the management team and regularly assess and evaluate actual performance.
Compensation must be tied up to performance.
CORPORATE GOVERNANCE IN
PRACTICE
APPROACHES TO CORPORATE
GOVERNANCE
Rule-Based Approach to Corporate
Governance

▪ Recommend clear-cut practices that are

prerequisite or mandatory to guarantee
good corporate governance.

▪ Coupled with enforcement by legislation or

listing rules, with imposition of penalties if
not performing rules
⮚ ADVANTAGES

▪ Offers a set of minimum corporate governance practices that

must be followed by all corporations
▪ Support implementation and make clear potential liability

⮚ DISADVANTAGES

▪ Lowest common denominator approach

▪ Emboldens form over substance
▪ Emphasis on legal liability rather than stakeholder interests
 Principles-Based Approach to Corporate
Governance

▪ Clasifies general principles or goals for the

corporate governance system to accomplish

▪ Responsibility is positioned on the managers to

ponder which among the practices are fitting,
given their situations.
⮚ ADVANTAGES
▪ Places a superior rank of responsibility on executives to regulate which
corporate governance practices are compulsory.
▪ Its elasticity means that practices can be modified for the specific
conditions and environment of the entity.

⮚ DISADVANTAGES
▪ Executives must interpret these principles and determine which corporate
governance practices are crucial and indespensable.
▪ It counts on their trustworthiness, honour and pledge to good governance
Basic Principles of Effective Corporate Governance
RELATIONSHIP BETWEEN
SHAREHOLDERS/OWNERS AND
OTHER STAKEHOLDERS
The relationship between shareholders/owners, management
and other stakeholders in a corporation is shown below:
Parties involved in Corporate Governance

Shareholders
✔ provides effective oversight through election of board members,
approval of major initiatives such as buying or selling stocks,
annual reports on management compensation from the board

Board of Directors
✔ major representative of stockholders to ensure that the
organization is run according to the organization’s charter and
there is proper accountability
Parties involved in Corporate Governance

Management
✔ operations and accountability; manage the organization
effectively; provide accurate and timely reports to shareholders
and other stakeholders

Audit committees 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
Parties involved in Corporate Governance

Regulators:
a. Board of Accountancy
✔ set accounting and auditing standards dictating underlying
financial reporting and auditing concepts; set the expectations of
audit quality and accouting quality
b. Securities and Exchange Commission
✔ ensure the accuracy, timeliness and fairness of public reporting
of financial and other information for public companies
Parties involved in Corporate Governance

External Auditors
✔ performs audits of company financial statements to ensure that
the statements are free of material misstatements including
misstatements that may be due to fraud

Internal Auditors
✔ performs audits of companies for compliance with company
policies and laws, audits to evaluate the efficiency of operations,
and periodic evaluation and tests of controls
THANK YOU