SC-3 Corporate Governance and Social Responsibility

BPA 2 – 2nd Sem 2023-2024

Basic Concepts of Corporate Governance

Corporate governance refers to the system of rules, practices, and processes by which a company is
directed and controlled. It encompasses various aspects such as the relationship between shareholders and
stakeholders, the roles and responsibilities of the board of directors, executive compensation, and transparency
and disclosure.
A. Shareholders and Stakeholders: Shareholders are the owners of a company, holding shares that represent
ownership. They have the right to vote on important matters such as the election of directors and major
corporate decisions. Stakeholders, on the other hand, include individuals or groups who have an interest
or stake in the company, such as employees, customers, suppliers, and the community. While
shareholders focus on maximizing profits, stakeholders consider the broader impact of corporate
actions.
Questions:
1. Who are shareholders in a corporation?
2. What distinguishes stakeholders from shareholders?
3. What rights do shareholders typically have?
4. How can a company balance the interests of shareholders and stakeholders?
5. Give an example of a stakeholder other than shareholders.

B. Board of Directors: The board of directors is responsible for overseeing the management of the company on
behalf of shareholders. It typically consists of a group of individuals elected by shareholders to represent
their interests and provide strategic guidance to the management team.
Composition: The composition of the board varies but often includes a mix of independent directors,
executive directors, and sometimes representatives of major shareholders.
Roles and Responsibilities: The board's primary responsibilities include setting the company's strategic
direction, appointing and supervising senior management, ensuring compliance with laws
and regulations, and representing shareholders' interests.
Questions:
1. What is the role of the board of directors in a company?
2. What is the composition of a typical board of directors?
3. What are some of the key responsibilities of the board?
4. Why is it important for the board to have independent directors?
5. How does the board represent shareholders' interests?

C. Executive Compensation: Executive compensation refers to the financial compensation and benefits awarded
to senior executives of a company. It is designed to attract, retain, and motivate top talent while aligning
their interests with those of shareholders.
Questions:
1. What is executive compensation?
2. Why is executive compensation an important aspect of corporate governance?
3. What are some common components of executive compensation packages?
4. How can excessive executive compensation be a governance issue?
5. What measures can companies take to ensure that executive compensation is aligned with
shareholder interests?

D. Transparency and Disclosure: Transparency and disclosure involve providing shareholders and stakeholders
with accurate and timely information about the company's financial performance, operations, and
governance practices. It builds trust, enhances accountability, and enables informed decision-making.
Questions:
1. What is transparency and disclosure in corporate governance?
2. Why is transparency important in corporate governance?
3. What types of information should companies disclose to stakeholders?
4. How does transparency benefit shareholders?
5. What are some best practices for improving transparency and disclosure?
Principles of Corporate Governance
Principles of corporate governance provide guidelines for the ethical and effective management of
companies, ensuring accountability, fairness, responsibility, and transparency.
A. Accountability: Accountability entails the obligation of a company's management to report and justify its
actions to stakeholders, particularly shareholders.
1. Financial Reporting: Transparent and accurate financial reporting is essential for stakeholders to
assess a company's financial health and performance.
2. Internal Controls: Effective internal controls help ensure the accuracy and reliability of financial
reporting and safeguard company assets against misuse or fraud.
Questions:
1. What is accountability in corporate governance?
2. Why is financial reporting important for accountability?
3. What are internal controls, and why are they important?
4. How do effective internal controls contribute to corporate governance?
5. What role do auditors play in ensuring accountability?

B. Fairness: Fairness in corporate governance refers to treating all stakeholders impartially and ensuring equitable
treatment in decision-making processes.
C. Responsibility: Responsibility entails adhering to legal requirements and ethical standards, as well as
considering the broader impact of corporate actions on society and the environment.
1. Legal Compliance: Compliance with laws and regulations is essential to avoid legal risks and
maintain the trust of stakeholders.
2. Ethical Behavior: Ethical behavior involves making decisions and conducting business activities in a
manner consistent with moral principles and values.
Questions:
1. Q: What does fairness mean in corporate governance?
2. Q: Why is legal compliance important in corporate governance?
3. Q: What is ethical behavior, and why is it important in corporate governance?
4. Q: How can companies promote ethical behavior among employees?
5. Q: Why is it important for companies to consider the broader impact of their actions?

D. Transparency: Transparency involves providing stakeholders with clear and accessible information about the
company's performance, operations, and governance practices.
1. Information Disclosure: Timely and comprehensive disclosure of relevant information enables
stakeholders to make informed decisions and hold management accountable.
2. Communication Channels: Open and effective communication channels facilitate dialogue between
the company and its stakeholders, enhancing transparency and trust.
Questions:
1. What is transparency in corporate governance?
2. Why is information disclosure important for transparency?
3. How can companies improve their communication channels with stakeholders?
4. What are the benefits of transparency for companies?
5. What role does corporate culture play in promoting transparency?
Discussion on Frameworks for Corporate Governance
Frameworks for corporate governance provide guidelines and standards that companies can follow to
ensure effective oversight, accountability, and transparency. Here, we'll explore four prominent frameworks: the
OECD Principles of Corporate Governance, the Sarbanes-Oxley Act (SOX), the King IV Report on Corporate
Governance, and the Global Reporting Initiative (GRI) Standards.
A. OECD Principles of Corporate Governance: The OECD Principles provide a comprehensive framework for
corporate governance, covering areas such as shareholder rights, equitable treatment of shareholders,
transparency, and the responsibilities of the board of directors.
Questions:
1. What does the OECD stand for in the context of corporate governance?
2. What are some key areas covered by the OECD Principles of Corporate Governance?
3. How do the OECD Principles contribute to global corporate governance standards?
4. What is the significance of the OECD Principles for multinational corporations?
5. How often are the OECD Principles reviewed and updated?

B. Sarbanes-Oxley Act (SOX): Enacted in response to corporate accounting scandals, SOX aims to protect investors
by improving the accuracy and reliability of corporate disclosures. It mandates strict financial reporting
requirements and strengthens internal controls.
Questions:
1. What led to the enactment of the Sarbanes-Oxley Act (SOX)?
2. What are some key provisions of the Sarbanes-Oxley Act?
3. How does SOX aim to improve corporate governance?
4. What are the potential benefits of SOX compliance for companies?
5. What are some challenges companies may face in complying with SOX?

C. King IV Report on Corporate Governance: The King IV Report, developed in South Africa, provides principles
and guidelines for effective corporate governance, emphasizing ethical leadership, sustainability, and
stakeholder inclusivity.
Questions:
1. Who developed the King IV Report on Corporate Governance?
2. What are some key principles emphasized in the King IV Report?
3. How does the King IV Report address sustainability in corporate governance?
4. What is the role of the "apply and explain" approach in the King IV Report?
5. How does the King IV Report promote transparency and accountability?

D. Global Reporting Initiative (GRI) Standards: The GRI Standards provide a framework for companies to report
on their economic, environmental, and social performance, promoting transparency and accountability.
Questions:
1. What is the Global Reporting Initiative (GRI) and what are its objectives?
2. What topics are covered by the GRI Standards?
3. How do the GRI Standards benefit companies?
4. How can companies use the GRI Standards to communicate with stakeholders?
5. What is the relationship between the GRI Standards and other corporate governance
frameworks?