Chapter 1: Intro to Corp Gov What is Governance? • Refers to a process whereby elements in society wield power, authority and influence and enact policies and decisions concerning public life and social upliftment. • Process of decision-making and the process by which decisions are implemented (or not implemented) through the exercise of power or authority by leaders. CHARACTERISTICS OF GOOD GOVERNANCE (PRACTERE) • Participation - Informed and organized civil society • Rule of Law - Fair legal framework enforced impartially (protection of human rights) • Accountability - accountable to those who will be affected by its decisions or actions (cannot be enforced w/o transparency and rule of law) • Consensus Oriented - best interest of the whole community and how it is achieved • Transparency - info is freely available and directly accessible (easily understandable) • Effectiveness and Efficiency - results that meet the needs of society • Responsiveness - serve the needs within a reasonable timeframe • Equity and Inclusiveness - all members have opportunities to improve or maintain their well-being CORPORATE GOVERNANCE System of rules, practices and process by which business corps are directed and controlled. Purpose of CorpGov • Facilitate management that can deliver long-term success to the company Objectives: (FIST) • • • • Fair and Equitable Treatment of Shareholders Increase Shareholders’ Wealth Self-assessment Transparency and full disclosure Basic Principles of Effective Corporate Governance (CAT) • • • Corporate Control - Is the board doing the right thing? Accountability - Is the board taking responsibility? Transparency and Full Disclosure - Is the board telling us what is going on? Chapter 2: Corp Gov Responsibilities and Accountabilities “There is no universal formula for good governance” Relationship between shareholders/owners and other stakeholders: Parties Involved and their role and responsibilities: 1. Shareholders - Elects BOD, approval of major initiatives and annual reports on management compensation 2. Board of Directors - ensure that the org is run according to to org’s charter and that there is proper accountability 3. Non-executive or Independent Directors - Same role as the BOD 4. Management - Provide accurate and timely reports to shareholders and other stakeholders 5. Audit Committees of the BOD - provide oversight of the internal and external audit function and the process of making FS and public reports 6. Regulators : a. Board of Accountancy - Set accounting and auditing standards for financial reporting and auditing concepts b. Securities and Exchange Commission - ensure timeliness, accuracy, fairness of public reporting 7. External Auditors - perform audits of company FS to avoid misstatements and fraud 8. Internal Auditors - perform audits of company for compliance with company policies and laws Chapter 3: SEC Code of Corporate Governance for Publicly-listed Companies (“CG Code for PLCs”) Securities and Exchange Commission SEC MC No. 19, Series of 2016 November 10, 2016 - Approval of the code Goal: Help companies develop and sustain an ethical corporate culture and keep abreast with recent developments in CorpGov PRINCIPLES NOTE: The elaborated portion on this part is in the book (AKA kapoy summarize ato hehe) please refer to pages 34-90 of the CorpGov book The Board’s Governance Responsibilities: 1. 2. 3. 4. 5. 6. 7. Establishing a Competent Board - to foster the long-term success of the company Establishing Clear Roles and Responsibilities of the Board Establishing Board Committees Fostering Commitment Reinforcing Board Independence Assessing Board Performance Strengthening Board Ethics Disclosure and Transparency: 8. 9. 10. 11. Enhancing Company Disclosure Policies and Procedures Strengthening the External Auditor’s Independence and Improving Audit Quality Increasing Focus on Non-Financial and Sustainability Reporting Promoting a Comprehensive and Cost-efficient Access to Relevant Information Internal Control System and Risk Management Framework: 12. Strengthening the Internal Control System and Enterprises Risk Management Framework Cultivating a Synergic Relationship with Shareholders: 13. Promoting Shareholder Rights Duties to Stakeholders: 14. Respecting Rights of Stakeholders and Effective Redress for Violation of Stakeholder’s Rights 15. Encouraging Employees’ Participation 16. Encouraging Sustainability and Social Responsibility Definition of Terms: • Conglomerate - a group of corporations that has diversified business activities in varied industries, whereby the operations of such businesses are controlled and managed by a parent corporate entity. • Enterprise Risk Management - designed to identify potential events that may affect the entity, manage risks to be within its risk appetite, and provide reasonable assurance regarding the achievement of entity objectives • Related Party Transactions - a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged Chapters 5-9: Ethics Ethics can be defined broadly as a set of moral principles or values that govern the actions and decisions of an individual or group Examples: Laws and Regulations, church doctrine, code of business ethics Characteristics and Values Associated with Ethical Behavior: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Integrity Honesty Trustworthiness and Promise Keeping Loyalty (fidelity) and Confidentiality Fairness and Openness Caring for Others Respect for Others Responsible Citizenship Pursuit of Excellence Accountability Why do people act unethically? • • The person’s ethical standards are different from those of society as a whole, or The person chooses to act selfishly Code of Good Governance for the Profession in the Philippines (E.O. No. 220, June 23, 2003) Specific Principles of Professional Conduct: 1. 2. 3. 4. 5. 6. 7. Service to Others Integrity and Objectivity Professional Competence Solidarity and Teamwork Social and Civic Responsibility Global Competitiveness Equality for All Professions Business Ethics refers to standards of moral conduct, behavior and judgement in business Main purpose of Business Ethics: Help businesses to determine what business practices are right and what are wrong Scope and Impact of Business Ethics: Business ethics covers all conduct, behavior and judgement in business • • • • Economic Impact - fair living wages and benefits Social Impact - contributes to the ethical climate of society Environmental Impact - use energy efficiently, reduce waste and lighten their environmental footprint Impact on Business Managers - act in the best interest of the business, but not contrary to law or his conscience ETHICAL CHALLENGES IN TODAY’S WORLD Written by Mercedes B. Suleik and published on February 13, 2018. She cited: • • Pope Francis in his Ecumenical, Evangelical Gaudium - “We have today and economy of exclusion and inequality. A rejection of ethics” Pope Benedict XVI’s Encyclical Caritas in Veritate - “The economy needs ethics in order to function correctly - not an ethics which is people-oriented COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS 1. Misrepresentation 2. Over-persuasion Direct Misrepresentation - actively misrepresenting about the product or customers • • • • • • • Deceptive Packaging Misbranding or Mislabeling False or Misleading Advertising Adulteration Weight understatement or Short weighing Measurement understatement or Short measurement Quantity understatement or Short numbering Indirect Misrepresentation - omitting adverse or unfavorable information about the product or service • • • Caveat Emptor Deliberate Withholding of Information Passive Deception Over-Persuasion - process of appealing to the emotions of a prospective customer and urging him to buy an item of merchandise he needs. UNETHICAL PRACTICES OF CORPORATE MANAGEMENT Board of Directors: • • • • Plain Graft Interlocking Directorship Negligence of Duty Insider Trading Executive Officers and Lower Level Managers • • • • • • • Claiming a vacation trip to be a business trip Having employees do work unrelated to the business Loose or ineffective controls Unfair Labor Practices Making false claims about losses to avoid tax Making employees sign documents showing full compensation when they only got a fraction Sexual Harassment Employees: • • Conflicts of Interest Dishonesty ETHICAL DILEMMA 6-step approach to resolving ethical dilemmas: 1. 2. 3. 4. 5. 6. Obtain the relevant facts Identify the ethical issues from the facts Determine who is affected by the outcome of the dilemma and how each person or group is affected Identify the alternatives available to the person who must resolve the dilemma Identify the likely consequences of each alternative Decide the appropriate action CORRUPTION - The abuse of private and public office for personal gain. The misuse of entrusted power. Characteristics of Corruption: • • • • • • • Recipients and payers Extortion Lubricant of Society An ethical dilemma Poverty alleviation Culture ‘Kindness among friends’ Prevention of Corruption: • • • • Clear business processes Policy on gifts and entertainment Declaration of conflict of interest Convenient corruption reporting system
