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Governance 5. Transparency
- Refers to a process whereby Means that decisions taken
elements in society wield power, and their enforcement are done in
authority and influence and enact a manner that follows rules and
policies and decisions concerning regulations. Information must be
public life and social upliftment. freely available and directly
accessible to those who will be
- The process of decision-making
affected by such decisions and
and the process by which
their enforcement.
decisions are implemented (or not
implemented) through the exercise
of power or authority by leaders of
6. Effectiveness and Efficiency
the country and/or organizations.
Means that processes and
institutions produce results that
Characteristics of Good Governance: meet the needs of society while
(CREATERP) making the best use of resources
at their disposal.
1. Consensus Oriented
It requires a broad and long-term
perspective on what is needed for 7. Responsiveness
Requires that institutions Corporate governance enables
and processes try to serve the firms to assess their behavior and
needs of all stakeholders within a actions before they are scrutinized
reasonable timeframe. by regulatory agencies to limit
exposure to regulatory risks and
fines.
8. Participation
Participation by both men
4. Transparency and Full
and women is a key cornerstone of
Disclosure
good corporate governance.
Participation needs to be informed Aims at ensuring a higher
and organized. This means degree of transparency in an
freedom of association and organization by encouraging full
expression on one hand and an disclosure of transactions in the
organized civil society on the other company accounts.
hand.
3. Self-Assessment
ILLUSTRATIVE APPLICATIONS OF
THE BASIC PRINCIPLES:
1. A company should lay solid ensure compliance with
foundation for management and IFRS.
oversight.
● Listing Rule disclosure
● Formalize and disclose the requirements and to ensure
functions reserved to the accountability at a senior
board and those delegated management level for
to management. compliance.
2. Structure the board to add 6. Resect the rights of
value. shareholders and facilitate the
effective exercise of those rights
● A board should have
independent directors ● Design and disclose a
communications strategy to
● The roles of chairperson
promote effective
and chief executive officer
communication with
should not be exercise by
shareholders and
the same individual.
encourage effective
3. Promote ethical and responsible participation at general
decision-making meetings.
PARTIES INVOLVED IN
CORPORATE GOVERNANCE: 3. Performance
THEIR RESPECTIVE BROAD • Ensuring the
ROLE AND SPECIFIC organization’s long
RESPONSIBILITIES term viability and
1. Shareholders enhancing the financial
position.
Broad Role:
• Agreeing the key
- Provide effective oversight performance indicators
through election of board (KPIs)
members, approval of major
initiatives such as buying or 3. Non-Executive or Independent
selling stock, annual reports on Directors
management compensation, Broad Role:
from the board.
2. Board of Directors - The same as the broad role of
the entire board of directors.
Broad Role:
Specific Activities:
- The major representative of
stockholders to ensure that the • to understand the
organization is run according to organization, its business,
the organization’s charter and its operating environment
that there is proper and its financial position.
accountability. • to assist management to
Specific Activities: keep performance
objectives at the top of its
1. Overall Operations agenda.
• Establishing the
organization’s vision,
mission, values and
ethical standards.
4. Management - Set accounting and auditing
standards dictating underlying
Broad Role:
financial reporting and auditing
- Operations and accountability. concepts; set the expectations of
Manage the organization audit quality and accounting
effectively; provide accurate and quality.
timely reports to shareholders
Specific Activities:
and other stakeholders.
• Conducting CPA
Specific Activities:
Licensure Board
• recommend the strategic Examinations
direction and translate the
• Approving accounting
strategic plan into the
principles
operations of the business
• Approving auditing
• manage the company’s standards
human, physical and
financial resources to b. Securities and Exchange
achieve the organization’s Commission (SEC)
objectives - run the
Broad Role:
business.
- Ensure the accuracy,
timeliness and fairness of public
5. Audit Committees of the Board reporting of financial and there
of Directors information for public
companies.
Broad Role:
Specific Activities:
- Provide oversight of the
internal and external audit • Reviewing filings with the
function and the process of SEC
preparing the annual financial
statements as well as public • Identify corporate frauds,
investigate causes and
reports on internal control.
suggest remedial actions.
Specific Activities:
7. External Auditors
• Selecting the external
Broad Role:
audit firm
- Perform audits of company
• Approving any non-audit
financial statements to ensure
work performed by the
that the statements are free
audit firm.
of material misstatements
6. Regulators including misstatements
that may be due to fraud.
a. Board of Accountancy (BOA)
Specific Activities:
Broad Role:
• Audit of public company
financial statements
• Audits of nonpublic
company financial
statements.
8. Internal Auditors
Broad Role:
- Perform audits of companies
for compliance with company
policies and laws, audits to
evaluate the efficiency of
operations, and periodic
evaluation and tests of controls.
Specific Activities:
• Evaluating internal
controls.
CHAPTER 3: SEC CODE OF - it adopts the “comply or
CORPORATE GOVERNANCE FOR explain” approach. Companies must
PUBLICLY-LISTED COMPANIES state whether they complied with the
provisions or not, identify areas of
non-compliance and explain the
Introduction reasons why.
Non-Executive Director
Principle 1: ESTABLISHING A
Opposite of the executive
COMPETENT BOARD
director.
Recommendation 1.2
Recommendation 1.5
The board should be composed
of a majority non-executive directors. The board should ensure that it
is assisted in its duties by a
Corporate Secretary.
Explanation
-Right combination of Non-
Explanation
executive directors and Independent
directors. Some of the Corporate
Secretary’s duties and
-A board should be majorly
responsibilities:
composed of NEDs to assure
protection of the company’s interest. - assists the board and the
board committees.
-The company determines the
qualifications of the NEDs. - safekeeps and preserves
the integrity of the minutes of the
meetings.
Recommendation 1.3
- keeps abreast on relevant - Duty of Care and Duty of
laws, regulations, all governance Loyalty are the two key elements of
issuances, and industry the fiduciary duty of board members.
developments and operations.
Recommendation 2.2
Recommendation 1.6
The board should oversee the
The board should ensure that it development of and approve the
is assisted in its duties by a company’s objectives and strategy,
Compliance Officer. and monitor their implementation.
Explanation Explanation
Some of the Compliance officer’s - The board should review and
duties and responsibilities: guide corporate strategy, major
plans of action, risk management
- ensures proper onboarding of
policies and procedures, and annual
new directors.
budgets and business plans.
- monitors, reviews, evaluates
- Sound strategic policies and
and ensures the compliance by the
objectives translates to proper
corporation, its officers and directors
identification and prioritization of its
with the relevant laws, this Code,
goals and guidance.
and other Rules and Regulations.
_____________________________
Recommendation 2.3
The board should be headed by
Principle 2: ESTABLISHING CLEAR
a competent and qualified
ROLES AND
Chairperson.
RESPONSIBILITIES
OF THE BOARD
Explanation
Some of the roles and
responsibilities of the Chairman:
- makes certain that the meeting
Recommendation 2.1
agenda focuses on strategic matters.
The board should act on a fully
- guarantees that the Board
informed basis, in good faith, with
receives accurate, timely, relevant,
due diligence and care, and in the
insightful, concise, and clear
best interest of the company and all
information.
shareholders.
- facilitates discussions on key
issues by fostering an environment
Explanation conducive for constructive debate.
-ensures that the board
sufficiently challenges and inquires
Recommendation 2.6
on reports submitted and
representations by Management. The board should have and
disclose in its Manual on CG a
Recommendation 2.4
formal and transparent board
The board should be responsible for nomination and election policy.
ensuring and adopting an effective
succession planning program for
officers and management. Explanation
-It is the board’s responsibility to
develop a policy on board
Explanation
nomination. It should encourage
- Succession Planning’s main shareholders’ participation and
goal is the transfer of company promote transparency of the whole
leadership to highly competent and process indicated.
qualified individuals.
-Some of the grounds for the
- For any potential candidate, a permanent and temporary
professional development plan is disqualification of a director are
defined. stated (they’re long, check them out
in the book).
-
Recommendation 2.5
Recommendation 2.7
The board should align the
remuneration of key officers and The board should have the
board members. In doing so, a policy overall responsibility in ensuring that
specifying the relationship between there is group-wide policy and
remuneration and performance system governing related party
should be formulated and adopted. transactions and other infrequently
occurring transactions which pass
certain thresholds of materiality.
Explanation
Key considerations in determining
Explanation
proper compensation:
- the director should ensure the
- level of remuneration is
integrity of the related party
commensurate to the responsibilities
transactions.
of the role
-the board should initiate policies
- no director should participate in
that are towards prevention of abuse
deciding on his remuneration
and promotion of transparency. One
- remuneration pay-out such measure is the ratification by
schedules should be sensitive to risk shareholders.
outcomes.
Some suggestions for the content of -results of performance
RPT Policy: evaluation should be linked to other
human resource activities. These
-definition of related parties
should likewise form part of the
-coverage of RPT policy assessment of the continuing fitness
and propriety of management and
-guidelines in ensuring arm’s- personnel in carrying out their
length terms respective duties and
-adoption of materiality responsibilities.
thresholds
Whistle-blowing mechanisms Recommendation 2.10
The board should oversee that
Recommendation 2.8 an appropriate internal control
system is in place. The board should
The board should be primarily also approve the Internal Audit
responsible for approving the Charter.
selection and assessing the
performance of the Management led
by the CEO, and control functions Explanation
led by their respective heads.
-in the performance of the
board’s oversight responsibility, the
Explanation minimum internal control
mechanisms may include overseeing
-it is the responsibility of the the implementation of the key control
board to appoint a competent functions such as risk management
management team at all times, and compliance and internal audit.
monitor and assess performance of
the management team and conduct
a regular review of the company’s Recommendation 2.11
policies with the management team.
The board should oversee that a
sound enterprise risk management
Recommendation 2.9 framework is in place to effectively
identify, monitor, assess and
The board should establish an manage key business risks.
effective performance management
framework that will ensure that the
Management and personnel’s Explanation
performance is at par with the
standards set by the Board and -risk management policy is part
Senior Management. and parcel of a corporation’s
corporate strategy. The board is
responsible for defining the
Explanation company’s level of risk tolerance and
providing oversight over its risk
management policies and
procedures.
Recommendation 2.12
The board should have a Board
Charter that formalizes and
accountabilities in carrying out its
fiduciary duties. This Charter should
serve as a guide for the directors
and should be publicly available and
accessible.
Explanation
-The Board Charter guides the
directors on how to discharge their
functions. It provides standards for
evaluating the performance of the
Board. The Charter also contains the
roles and responsibilities of the
Chairman.