Notes

CHAPTER 1: INTRODUCTION TO CORPORATE GOVERNANCE

Safeguard integrity in State in writing that the reports are true
GOVERNANCE
financial reporting. and fair.
●​ Process where elements in society wield power, authority, and Establish and structure an audit
influence, enact policies and decisions. committee.
●​ Process of decision-making in which these are implemented -Independent directors.
through exercise of power or authority. -Independent chairperson.
●​ Types: -At least 3 members
1. Corporate​ ​ 3. National
Make timely and balanced Establish written policies and procedures.
2. International​ ​ 4. Local
disclosure. Listing Rule disclosure requirements.

Characteristics of Good Governance Respect rights of Design and disclose communication

1.​ Participation: Key cornerstone. Freedom of association and shareholders and effective strategy.
expression and organized civil society. exercise of those rights. External auditor attends annual general
2.​ Accountability: Key requirement. They should be accountable to meeting.
those affected by its decisions. Cannot be enforced without 4-5.
3.​ Responsiveness: They try to serve the needs within a reasonable Recognize and manage risk. Establish policies on risk oversight.
CEO and CFO state in writing:
timeframe.
-Statement is founded on a sound system
4.​ Transparency: Decisions are done with rules and regulations.
of risk management.
Information is freely available and accessible. -Risk management is operating efficiently
5.​ Rule of Law: Requires fair legal frameworks enforced impartially. in all material aspects.
6.​ Equity and Inclusiveness: Ensures that members are included
particularly the most vulnerable. Enhanced performance Disclose the process for performance
7.​ Effectiveness and Efficiency: Produce results that meet the needs evaluation.
while making the best use of resources.
Remunerate fairly and Provide disclosure in relation to the
8.​ Consensus Oriented: Requires mediation of different interests and
responsibly. company’s remuneration policies
Decisions are in the best interest of the whole community.
Board should establish a remuneration
committee
CORPORATE GOVERNANCE Clearly distinguish structure of
●​ System of rules, practices, and processes where corporations are non-executive director’s remuneration
directed and controlled. Ensure that payment is made with plan
●​ Purpose: To facilitate effective, entrepreneurial, prudent
management that can deliver long-term success. Recognize the legitimate Establish and disclose a code of conduct to
interests of stakeholders. guide compliance.
●​ Fundamental Aim: To enhance shareholders’ value and protect the
interests of other stakeholders. ──── ୨୧ ────

Objectives of Corporate Governance CHAPTER 2: CORPORATE GOVERNANCE RESPONSIBILITIES AND

1.​ Fair and Equitable Treatment of Shareholders: Safeguarded by a ACCOUNTABILITIES
good governance structure. ●​ Characteristics of good governance are relevant to both SMEs and
2.​ Increase Shareholders’ Wealth: Main objective is to protect the large listed public companies.
long-term interests of the shareholders. ●​ Essence of any system of good corporate governance: Allow board
3.​ Transparency and Full Disclosure: Aims at ensuring a higher and management the freedom to drive their organization forward.
degree of transparency by encouraging full disclosure.
4.​ Self-Assessment: Enables assessment of behavior, can point out Relationship between Shareholders / Owners and Other Stakeholders
deficiencies, and help solve issues internally on a timely basis. Shareholders -Responsibilities-> Managers -Accountable to-> Stakeholders
●​ Management is part of the governance framework, it can influence
Basic Principles of Effective Corporate Governance who sits on the board and audit committee.
1.​ Transparency and Full Disclosure ●​ Regulators are a response to society’s wishes to ensure that
a.​ Information needs of investment communities. organizations act responsibly and operate in compliance with laws.
b.​ Safeguard integrity in financial reporting. Accountable on:
c.​ Sound disclosure policies. -Financial Performance​ ​ -Financial Transparency
i.​ Timely and balanced disclosure. -Stewardship​ ​ ​ -Quality of Internal Control
ii.​ Outsiders can analyze company actions and -Composition of the BOD and the Nature of its Activities
performance.
2.​ Accountability Parties Involved in Corporate Governance
a.​ Clarify board and managements’ roles. 1.​ Shareholders: Provides effective oversight through election,
i.​ Promote objective, ethical, and responsible approval of major initiatives, annual reports on compensation.
decision-making 2.​ Board of Directors: Ensures that the organization is run according
ii.​ Lay solid foundations for management to charter. Specifically:
oversight. a.​ Overall Operations
iii.​ Board ensures an appropriate mix of expertise, ■​ Vision, mission, values, and ethical standards
diversity, knowledge, and added value. ■​ Delegate appropriate level of authority
iv.​ Senior officials are committed to widely ■​ Leadership
accepted standards of behavior. ■​ Assuming responsibility for the business
3.​ Corporate Control ■​ Overseeing aspects of employment
a.​ Build long-term sustainable growth in shareholders’ value ■​ Recommends auditor and directors
b.​ Create an environment to take risks. ■​ Ensures effective communication
i.​ Encourage enhanced performance. ■​ Crisis management
ii.​ Recognize and manage risk. ■​ Appointment of CFO and secretary
iii.​ Remunerate fairly and responsibly. b.​ Performance
iv.​ Recognize legitimate interests of stakeholders. ■​ Long-term viability and financial position
v.​ Conflicts of interest avoided. ■​ Formulating and overseeing strategy
■​ Approves plan, budget, and corporate policies
■​ Agreeing key performance indicators (KPIs)
Principles of GCG Best Practice Recommendations
■​ Monitoring and assessing performance
■​ Oversee risk management
Lay a solid foundation for Formalize and disclose the functions.
management and oversight. ■​ Monitor developments
■​ Oversight of organization
Structure the board to add Should have independent directors ■​ Approve and monitor major operations
value. Chairperson and CEO should not be c.​ Compliance / Legal Compensation
exercised by the same person. ■​ Protect financial position
Should establish a nomination committee. ■​ Monitor legal compliance
■​ Approve annual financial reports
Promote ethical, responsible Establish code of conduct.
■​ Ensure effective system of internal control exists
decision-making. Disclose the policy concerning trading in
company securities. 3.​ Non-executive or Independent Directors: Specifically:
a.​ Understand organization and financial position
b.​ Apply expertise and skills
 c.​ Assist management to keep performance objectives Principle 9: Should establish standards for appropriate selection of auditor.
d.​ Not to act as auditor nor member of management Principle 10: Should ensure that material and reportable non-financial and
e.​ Respect collective, cabinet nature of board’s decisions sustainability issues.
f.​ Prepare and attend board meetings Principle 11: Should maintain a comprehensive and cost-efficient
g.​ Seek information on a timely basis communication channel for disseminating relevant information.
h.​ Ask appropriate questions
4.​ Management: Operations and accountability. Manage the INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT FRAMEWORK
organization effectively, provide accurate and timely reports. Principle 12: To ensure integrity, transparency, and proper governance in
a.​ Recommend strategic direction and translate the plan into conduct of affairs.
the operations
b.​ Manage human, physical, and financial resources CULTIVATING A SYNERGIC RELATIONSHIP WITH SHAREHOLDERS
c.​ Assume day to day responsibility with relevant laws Principle 13: Should treat all shareholders fairly and equitably, and also
d.​ Develop, implement, and manage risk management and recognize, protect, and facilitate their rights.
internal control
e.​ Develop, implement, and update policies and procedures DUTIES TO STAKEHOLDERS
f.​ Provide information Principle 14: Their rights must be respected.
g.​ Act as conduit between board and organization Principle 15: Mechanism for employee participation should be developed to
h.​ Develop reports that meet public and stakeholders’ create a symbiotic environment.
requirements Principle 16: Should be socially responsible in all its dealings with the
5.​ Audit Committee of BOD: Provide oversight of internal and communities where it operates.
external audit function, process of preparing annual FS and public
reports on internal control. INTRODUCTION
6.​ Regulators
a.​ BOA: Set accounting and auditing standards, expectations
of audit and accounting quality. Specifically:
■​ Conduct CPALE
■​ Approve accounting and auditing principles
■​ Interpret previously issued standards
■​ Educate members on audit and accounting
requirements
b.​ SEC: Ensure accuracy, timeliness, and fairness of public
reports and information. Specifically:
■​ Review filings with SEC
■​ Interact with FRSC in setting accounting
standards
■​ Specify independence standards required of
auditors that report on public FS
■​ Identify corporate frauds, investigate, and
suggest remedial actions
7.​ External Auditor: Perform audits of FS to ensure it is free of
material misstatements. Specifically:
a.​ Audit of public and non-public company FS
b.​ Other services such as tax and consultations
8.​ Internal Auditor: Perform audits of companies for compliance with
company policies and laws, to evaluate efficiency of operations, and
period evaluation. Specifically:
a.​ Reporting results and analyses to management and audit
committees
b.​ Evaluate internal controls

Key Principles of Effective Governance

●​ BOD’s fundamental objective should be to build long-term
sustainable growth in shareholder value.
●​ Management has primary responsibility for creating a culture of
performance with integrity and ethical behavior.

Corporate Governance and External Audit

●​ Companies with effective corporate governance are less likely to
experience fraud and less risky to audit.
●​ Fraud raises important concerns for external auditors.
──── ୨୧ ────

CHAPTER 3: SEC CODE OF CORPORATE GOVERNANCE

●​ SEC No. 19, Series of 2016
●​ Approval: November 10, 2016.
●​ Goal: Help companies develop and sustain ethical corporate culture.
●​ Salient Provisions: To establish a code of business conduct and
submit a new manual on CG that would provide standards for
professional and ethical behavior.

CG CODE FOR PLC

THE BOARD’S GOVERNANCE RESPONSIBILITIES
Principle 1: Should be headed by a competent, working board to foster
long-term success, to sustain competitiveness and profitability.
Principle 2: Fiduciary roles, responsibilities, accountabilities, and legal
guidelines should be clearly made known to all directors and stakeholders.
Principle 3: Should be set up to the extent to support the effective
performance of the Board’s functions (contained in Committee Charter).
Principle 4: Show full commitment, devote time and attention, and
effectively perform duties and responsibilities.
Principle 5: Should exercise objective and independent judgment on all
corporate affairs.
Principle 6: Best measure of effectiveness is through the assessment process.
Should regularly carry out evaluations to appraise performance.
Principle 7: Members of the board are bound to apply high ethical standards.
Principle 8: Should establish corporate disclosure policies and procedures.