Arceo, Jessie Louis C.
440
Liwanag, Vonn Percival Y.
Pineda, Erickson Mark
A-
Internal and External Institutions and Influences of
Corporate Governance
INTERNAL ENVIRONMENT
Board of Directors – a body of elected or appointed by shareholders who jointly
oversee the activities and the overall managerial and operational aspects of the
corporation.
Authority, Responsibility and Purpose of the BOD – The most important
responsibility of the BOD is to protect the resources entrusted to them by the
shareholder’s and make sure the latter receive a decent return on their investment.
Structure and Makeup of the BOD – it is made up of individual men and women
who are elected by the Shareholders.
Committees on the BOD – their responsibilities include the institution of the audit
and compensation committee in which the audit committee is responsible in making
sure that the company’s FS and reports are reasonably accurate and use fair
estimates in accordance with the applicable FRS, while the compensation committee
places the base compensation.
CEO – is usually the singular organization position that is principally accountable in
carrying out the strategic policies and procedures as established by the BODs. One of
the responsibilities on the CEO is to support operations and administration of the
board by giving information and advice to the BOD. Recommends yearly budget for
the board’s approval and cautiously manages organization’s resources within the
bounds of budget guidelines. The CEO also efficiently manages the human capital of
the organization based on sanctioned personnel policies and procedures that fully
conform to current laws, regulations and standard, both local and international. It is
also the job of the CEO to package and build a positive image of the company to its
relevant stakeholders.
CFO – More than just a glorified accountant or someone whose long service to the
organization has been rewarded with a fancy title, Chief Financial Officer. Has a
number of responsibilities within the corporation that are essential in providing a
strong financial foundation for a growing and expanding business. A CFO should
implement Internal controls that provide supervision against fraudulent activities. An
effective CFO will also handle and supervise projects that require significant
quantitative and qualitative interpretations and analysis in order to reach an
understanding of the options that are available. One of the most important
responsibilities of an effective CFO is to institute good working relationships with
banks and other financial institutions that may impact on the company’s ability to
finance its operations. An effective CFO is also an important member of the
management team of some emergent companies. A good CFO can also be expected
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to take part in important role of attending some major strategic issues that will have
an impact on the company’s long-term future. The CFO is on the best position to
foresee risk considering that they have this rare perspective on how the company
operates. Their views are not “Treetop”, their views are real and they’re in proximity
of hard figures that could back their decisions. The CFO can and should be a trusted
adviser in these matters of financial compliance reporting.
Shareholders – share ownership carries with it important right and responsibilities,
gives the owner the right to a share of the income of the company called dividends
and has right to a share of net proceeds on the sale during the liquidation of the
company. Shareholders who are dissatisfied with how the directors are running the
corporation may remove the directors or refuse to re-elect them.
EXTERNAL ENVIRONMENT
Auditors – One of the most important external institutions in governance is the
independent auditor. Their job is to help ensure the that the firms are running
efficiently by keeping the public records accurate, adhering standards of reporting,
and taxes paid properly on time.
Legal Environment – derived partly from the general political climate in a country.
It also has three (3) distinct dimensions:
-
Domestic laws of the home country
Domestic laws of each of foreign markets
International law in general
Markets – Are considered the most important institution of corporate governance.
There are three (3) central and important points of the term markets:
-
Firm’s product
Capital market
Managerial labor market
Political Environment – Also the important pool from which the human resource of
an organization is selected from and hence it is likely to shape an organization both
internally and externally.
Technological Environment – To move forward it is essential to keep updating an
organization on a reiterative basis.
Social Environment – The ecosystem within the which organization thrive, then
enabling atmosphere in which business in situated into.
CORPORATE PROTECTION WITHIN LEGAL BOUNDARIES
Anti-takeover Defenses – are designed to make a company unattractive to
predators.
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LIABILITY ISSUES AND INDEMNIFICATION OF OFFICERS
Liability can accrue for officers and directors when they cause financial and nonfinancial harm to the corporation, or when they act solely on their own behalf which
is detrimental to the corporation.
Indemnification of Officers and Directors – refers to the act of the reimbursing
officers and directors for expenses incurred, liabilities incurred, and amounts paid in
defending claims brought to them for actions taken on behalf of the corporation.
Directors’ and officers’ insurance – Corporations are allowed to purchase
insurance to cover matters resulting from acts taken by officers and directors.
Insurance of this type hurts corporate pockets considering that it is not cheap.
SHAREHOLDERS’ IMPOSABLE LIMITATIONS
Through classes of stocks – A company may have many different types of shares that
come with different conditions and rights. There are four (4) main types of shares,
namely:
-
Ordinary shares
Preference shares
-Cumulative Preference share
Redeemable shares
Supermajority – refers to the percentage of ownership that is way above the simple
majority which is one half (1/2) plus one (1) share of the total shares outstanding.
One issue about supermajority is that small business owners who often look for
“angel” investor to increase the capitalization of the business.
Shareholding Voting Agreement – a legal contract among shareholders of a
corporation involving voting of shares. The shareholder voting agreement frequently
covers how members of the BOD are to be selected and occasionally covers major
corporate events.
Board Appointment Rights – it is common for the shareholders’ agreement to
establish the relative rights of the representation that the shareholders will have on
the company’s BOD.
Veto rights – refers to the right to overturn decisions reached by the board. This
process involves listing of material things that cannot be done without the investors’
prior consent and ratification.
Adoption and Amendment of Business Plans and Budgets – The agreement
may provide a process for adopting and amending business plans and budgets.
Scope of Business – it is common particularly in a joint venture or a start-up
company, for the shareholders’ agreement to specify the scope of the business that
the company will conduct.
Intellectual Property Rights – where the shareholder parties are contributing
unique and distinct advantage or process such patent, trademark, copyright, etc.
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Right to Information – it is extremely important for the investors to monitor
performance closely, particularly to give them an early warning if things are starting
to go wrong
Warranties from the Management Team – are a series of statements about the
company that the investors would expect to be true and accurate.
Strategic Investors Rights – where a shareholder is looking for more than a return
on its investment, the shareholders’ agreement may provide an opportunity to
negotiate terms covering secondary commercial arrangements.
Restriction on Transfer of Shares – the investor will be keen to make sure that
the management team they are backing, holds on to their shares.
Restrictive Covenants – these will make it clear that, while members of the
management are employed and for a period of time afterwards, they cannot compete
with the company or solicit customers or employees.
Exit Provisions – this is particularly important for minority shareholders who are
unable to control an exit process.
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