CORPORATE GOVERNANCE
Definition.
A system by which corporations are directed, controlled, and
held to account. The manner in which the power of a
corporation is exercised in the stewardship of its
assets/resources to increase shareholders' value and satisfy
the needs of all stakeholders.
Principles of Good Corporate Governance.
(1) Authorities and Duties of Shareholder
Protect, preserve, and actively exercise the supreme authority
of
the
organization
in
general
meetings.
(2) Leadership of the Corporation
Every corporation shall be headed by an effective board which
shall exercise leadership, enterprise, integrity, and wise
judgement in directing the corporation.
(3) Appointment of the Board of Director/Managers
Appointment to the board of director should go through a
managed and effective process to ensure that a balanced mix
of efficient individuals are appointed.
(4) Strategy and Values
The board of director should determine have the values of the
corporation, determine its strategy to achieve it purpose with
its values in order.
(5) Structure and Organization
The board should ensure that a proper management structure
is in place, and such structure maintains corporate integrity,
reputation, and responsibility.
(6) Corporate Performance, Viability and Financial
Sustainability
The Board should monitor and evaluate the implementation of
strategies, policies, and management performance criteria and
plans.
(7) Corporate Compliance
Ensure that the corporation complies with all relevant laws,
regulations, governance, practices, accounting and audit
standards.
(8) Remuneration
The Board should set up an independent Remuneration
Committee to determine consultation with the Government.
(9) Responsibility to Stakeholders
The board should identify the corporation’s internal and
external stakeholder, agree on a policy for determining how the
corporation should relate to, and with them, while ensuring
their rights are respected, recognized, and protected.
Internal Stakeholders
 Members
 Board
 Management
 Employees
External Stakeholders
 Providers of Funds
 Suppliers and Providers of Services
 Beneficiaries
 Regulatory Authorities
 Government and Community
Board of Director
(1) Executive Directors
- actively involved in the day–to–day management of
the company
- the directors and shareholders may be the same
people, but the roles are very distinct.
- Most executive directors are employees of the
company.
(2) Non-Executive Directors
- Not involved in the day–to–day management of the
company
- on boards to provide oversight, sectoral expertise,
knowledge and new insights, and to constructively
challenge management when the need arises.
- Their role is to challenge and develop strategy,
scrutinise the board’s performance, manage financial
controls and risk, determine remuneration, and
appoint or remove executive directors if and when
there is a need to do so.
- If a non-executive director doesn’t challenge bad
corporate governance or ethical breaches, they can
fall foul of the law.
(3) Independent Directors
- does not have a material relationship with the
company,
- A material relationship is a relationship that
can interfere with the exercise of a director’s
independent judgment.
- is not part of the company’s executive team
- not involved with the day-to-day operations of the
company.
- A board that is majority independent would be better
suited to oversee the CEO as opposed to a board
comprised of dependent directors.
- Additionally, appointing more independent directors
generally results in greater third-party advice and
expertise (due to the executives coming from different
backgrounds)
Process of Finding a Member of the BOD.
Nomination by the shareholders and election during the Annual
Stockholders Meeting.
Characteristics of an Effective Board.
(1) Heterogenous - Composed of directors of different skills,
backgrounds, and experiences.
(2) Flexible - Composed of directors who are independent, not
bound by allegiances inside the organization.
(3) Task Oriented - Discussion are centered on achieving
specific and common objectives.
(4) Led Democratically - Each Director’s opinion is freely
presented, analyzed, and explained.
(5) Work Plan - uses work plan to guide activities
(6) Assessment - Carries out an annual assessment of its
activities
Board of Directors VS Board of Advisors
and
(1) Must be properly organized with adequate preparation
(2) Decision to be made pre-determined
(3) Should be effectively chaired
(4) Should have effective participation by members
(5) Time should be observed
(6) Should have all information made available
Board Tenure.
A reasonable tenure is at least three years, However Members
may be granted the right to be re-elected for one more term
before retiring.
Board tenure could change for two reasons.
 Any changes in board composition could change the
average tenure (Compositional effect) or
 Holding board composition constant, the passage of
time will change board tenure (Time effect).
(7) Meetings - handles meetings professionally
(1) Legal Authority
- (BOD) holds legal authority
responsibilities for the company
- (BOA) lacks legal power of duties
Traits of an Effective Board Meeting.
fiduciary
(2) Decision-Making
- (BOD) Can make binding decisions for the company
- (BOA) offers non-binding recommendations that the
company’s leadership can choose to follow or
disregard
(3) Control
- (BOD) exercises control over major company
decisions, including executive appointments and
financial matters
- (BOA) purely advisory
(4) Formality
- (BOD) highly formal, structured, and regulated entities,
subject to legal requirements
- (BOA) less formal and offer more flexibility
Board Meeting Minutes.
Record the board of directors’ actions and decisions. They’re
an official and legal record of board meetings. That means they
should include more than a simple overview of discussions.
The core purpose of board meeting minutes is to show that the
board members did the following: Followed relevant
procedures. Complied with state laws pertaining to your type
of organization. Obeyed the organization’s own bylaws and
aligned decisions with its mission.
Why is it important?
 Once approved, board minutes become a legal record
of what occurred in the meeting.
 Effective board meeting minutes serve as a reference
point for future decision-making.
 Prospective sponsors, donors, and other funders can
access board meeting minutes
Board Responsibilities.
 Provide Oversight
 Establish an Appropriate Corporate Culture
 Comply With Fiduciary Duties and the Law
 Select, Retain, and Oversee Management
 Oversee Compensation and Benefits Arrangements
 Maintain Appropriate Affiliate and Holding Company
Relationships
 Establish and Maintain an Appropriate Board Structure
 Perform Board Self-Assessments
 Oversee Financial Performance and Risk-Reporting
 Support Efforts to Serve Community Credit Needs
Role and Functions of the Board.
(1) Performance Function
- Exercising leadership, enterprise, integrity, judgement in
directing the corporation.
(2) Conformance Function
- Ensure the procedures and practices are in place to protect
the corporation assets and reputation.
Key Underpinning Concepts of Corp. Governance.
1. FAIRNESS
This involves treating all stakeholders with impartiality and
equity, ensuring that decisions and actions are just and free
from bias.
2. OPENNESS/TRANSPARENCY
This require clear communication and disclosure of information
to stakeholders, fostering trust and providing a comprehensive
view of the organization's activities. In simplest terms,
transparency means having nothing to hide.
3. INNOVATION
Innovations in Corporate Governance offers an essential
global perspective on corporate governance that will be of
interest to students and academics in the field, as well as
professionals, policy makers and those working in regulatory
agencies around the world.
4. SKEPTICISM
This involves a healthy questioning of information and
proposals, promoting a critical evaluation of decisions and
reducing the risk of complacency or undue reliance on
information.
5. INDEPENDENCE
This involves maintaining an objective and impartial
perspective, especially for board members and key decision
makers, to avoid conflicts of interest and ensure unbiased
decision-making
6. PROBITY/HONESTY
The adherence to ethical and moral values like honesty and
integrity. It refers to procedural integrity with a high level of
ethical standards which is very important in the governance
system Emphasize the importance of ethical behavior, integrity,
and adherence to moral principles in all business dealings and
decision-making processes.
7. RESPONSIBILITY
The ability to respond. Not paralyzed by fear, plagued by
anxiety, or procrastinating, pretending the problem doesn't
exist. Entails being accountable for one's actions and
decisions, acknowledging the impact on stakeholders, and
fulfilling duties to achieve the organization's objectives.
8. ACCOUNTABILITY
corporate accountability means that a company takes
responsibility for any and all of its actions. This can be for its
financial success (or lack thereof) and, more importantly, in
areas like social responsibility and sustainability. This means
that companies are accountable not only to their financial
stakeholders but also to others, such as their employees, those
in the community, and the general public.
9. REPUTATION
is the perception of the organization by external stakeholders,
built on trust, credibility, and consistent ethical behavior, which
can significantly impact its success and sustainability
10. JUDGMENT
involves the ability to make sound and informed decisions,
considering various perspectives, risks, and long-term
consequences for the benefit of the organization.
11. INTEGRITY
Integrity emphasizes adherence to strong ethical principles
and values, promoting honesty, fairness, and consistency in all
aspects of corporate conduct. It asserts how the company’s
economic success is intertwined with aligning its practices with
societal development and complying with relevant laws and
regulations.