Good Governance Reviewer

Good governance Reviewer
MODULE 3
What is Corporate Governance?
Corporate governance has succeeded in attracting a good deal of public interest because of
its apparent importance for the economic health of corporations and society.
Philippine Securities and Exchange Commission (SEC), a principal player in corporate

governance matters, recently issued Memorandum Circular 2, Series of 2002, otherwise
known as the Code of Corporate Governance, under resolution no. 135, dated April 4, 2002
The Code applies to:

 Corporations whose securities are registered or listed
 Corporations that are grantees of permits/licenses and secondary
franchises from the Commission
 Public companies
 Branches or subsidiaries of foreign corporations operating in the Philippines whose
securities are registered or listed
Elements of Corporate Governance

Corporate governance is the role that company boards or executive teams play in
leadership and oversight. While the specific elements of corporate governance are many,
they generally emphasize creating and maintaining company direction and promoting
goodwill with shareholders and other stakeholders.
 Good board practices

 Appropriate control and processes
 A stable regime of disclosure and transparency
 Protection of (minority) shareowner rights
 Strong commitment to corporate governance reforms
Agency Theory
Agency theory defines the relationship between the principals (shareholders of the company) and agents
(directors of the company). According to this theory, the company's principals hire agents to perform work.
Stewardship Theory
The steward theory states that a steward protects and maximizes shareholders' wealth through firm
performance. Stewards are company executives and managers working for the shareholders, protecting
and making profits.
Stakeholder Theory
Stakeholder theory incorporated the accountability of management to a broad range of
stakeholders. It states that managers in organizations have a network of relationships to
serve – this includes the suppliers, employees, and business partners. The theory focuses on
managerial decision-making and the interests of all stakeholders.
FACTORS INFLUENCING ETHICAL BEHAVIORS
Individual Factors
Many individual factors affect a person's ethical behavior at work, such as knowledge, values,
personal goals, morals, and personality.
 Personal values (desirable behaviors and goals)

 Values (the behaviors and things that we deem necessary in life)
 Integrity (ability to adhere to a consistent set of moral principles or values)
 Background and Experience (exposure to different environments)
Psychological Factors
 Locus of Control: the extent to which a person believes they have control over the
events in their life.
 Moral Imagination: the creativity with which one can reflect on an ethical dilemma
SITUATIONAL INFLUENCES
Organizational Context
 Incentives: The systems of reward and punishment within the organization.
 Authority: The exercise of hierarchical power to compel a subordinate to act in a certain way
Informal Organization Effects

 Peer effects: Direct or indirect influence of others on one's behavior (due to
pressure or mere exposure)
 Routines: Repeated patterns of behavior or interactions. Often mechanically
performed activities or procedures.
Organization Culture
 Work roles: Functional and hierarchical
 Bureaucracy: Suppresses morality by freeing the individual from moral reflection
and decision- making.
MODULE 4
I. Two (2) Distinct Approaches to Corporate Governance

Rules and principles are the two (2) general approaches to regulating corporate governance
practice. The United States and Sarbanes-Oxley is the only significant example of a rules-
based approach, with most countries preferring to regulate governance behavior by
observing general principles (Decker, 2018).
a. RULES-BASED APPROACH
(Adopted in the USA)
b. PRINCIPLE-BASED APPROACH
(Adopted in the UK)
Characteristics of Rules-Based Approach

 a prescribed set of CG requirements
 a quick way of ensuring compliance
 adopts a checklist approach
 a clear distinction between compliance and non-compliance
 easy to see that an entity is complying
 reduction of flexibility on the part of management and auditors
 difficult to set rules to cover all situations
 possible to misinterpret rules
 same restrictions apply to all, whatever their size
Characteristics of the Principles-Based Approach
 activities of entities must address major principles set out in codes of best practice
 not merely a box-ticking exercise
 more difficult to avoid than a rules-based approach
 easy to see that the entity is complying
 directors required to work in the entity's best interests
 more flexible, and therefore better able to deal with new situations
 more straightforward justification for an apparent breach of principles
 principles may be interpreted differently
 circumstances change
Development of Corporate Code of Conduct and Ethics

 It contains information pertinent to the individual and their action on the job
but may collect detailed offshoot information from its ethics code. Many
companies require the employee to sign the code of conduct, which becomes a
legal agreement between the employer and the employee.
Sections of a comprehensive professional code of conduct include:

a. Company mission
b. Purpose of the code of conduct
c. Compliance with laws or laws relevant to employee or member rights
d. Outline of unacceptable behaviors in the workplace and their consequences
e. Outline of internal practices such as dress code, drug use, or sexual harassment
policies
f. Outline of external practices such as confidentiality and conflicts of interest
g. Company and equipment use and protections
h. Outline of code compliance expectations
i. Training requirements and guidelines
j. Job duties and employment benefits
k. Chain of command for disciplinary action
Purpose of a Code of Conduct

A code of conduct aims to develop and maintain a standard acceptable to the company, its
vendors, customers, and other employees. Although they will differ from industry to industry,
the conduct code includes behavior guidelines consistent with company policies and reflects
how the company perceives its image.
Disciplinary or Legal Tool
Since signed codes of conduct can be considered legal documents, they can be used as a disciplinary
or legal action tool for employee infractions.
Blanket or General Clauses

Blanket clauses state that the employee agrees to follow the rules published in an employee handbook
(which should include a dated signature document). You may further detail particular rules, regulations, and policies
in the manual.
Information to Include
Create a code of conduct with language that is as clear as possible

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Good governance Reviewer

Philippine Securities and Exchange Commission (SEC), a principal player in corporate

The Code applies to:

Elements of Corporate Governance

 Good board practices

FACTORS INFLUENCING ETHICAL BEHAVIORS

 Personal values (desirable behaviors and goals)

Informal Organization Effects

I. Two (2) Distinct Approaches to Corporate Governance

Characteristics of Rules-Based Approach

Development of Corporate Code of Conduct and Ethics

Sections of a comprehensive professional code of conduct include:

Purpose of a Code of Conduct

Blanket or General Clauses

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