CORPORATE

GOVERNANCE,
BUSINESS ETHICS,
RISK MANAGEMENT,
AND
INTERNAL CONTROL
 GOVERNANCE

 theprocess:
 whereby elements in society wield power, authority and
influence and enact policies and decisions concerning public
life and social uplift
 of decision-making
 by which decisions are implemented (or not implemented)
through the exercise of power or authority by leaders of the
country and/or organization
 CORPORATE GOVERNANCE

 system of rules, practices and processes by which business corporations are

directed and controlled
 of paramount importance to a company and is almost as important as its primary
business plan.
 enhances a company’s image in the public eye as self-policing company that is
responsible and worthy of shareholder and debt holder capital.
 dictates the shared philosophy, practices and culture of an organization and its
employees.
 A corporation without a system of corporate governance is often regarded as a
body without a soul or conscience.
 CHARACTERISTIC OF
GOOD CORPORATE
GOVERNANCE
 Effective
and Efficient Accountabl
Consensus
e
Oriented
Follows the CHARACTERISTIC
Rule of Law OF
GOOD
CORPORATE Responsive
Transparent GOVERNANCE

Equitable
Participatory and
Inclusive
 PARTICIPATORY
Participation:
could be either direct or through legitimate institutions
or representatives
needs to be informed and organized
means freedom of association and expression on one
hand and an organization civil society on the other hand
 FOLLOWS THE RULE OF LAW

Rule of Law
Good governance requires fair legal
frameworks that are enforced impartially and
requires full protection of human rights.
 TRANSPARENT

Transparency
Decisions taken and their enforcement are done
in a manner that follows rules and regulations.
Information is freely available and directly
accessible to those who will be affected by such
decisions and their enforcement.
 RESPONSIVE
Responsiveness
Good governance requires that institutions and
processes try to serve needs of all stakeholders
within the reasonable timeframe.
 CONSENSUS ORIENTED
Meditation of the different interest in society is
required.
It also requires broad and long-term
perspective on what is needed for sustainable
human development and on how to achieve the
goals of such development.
 EQUITABLE AND INCLUSIVE

Equity & Inclusiveness

Ensures that all its members feel that they have
stake in it and have opportunities to improve or
maintain their well-being.
 EFFECTIVE AND EFFICIENT

Effectiveness & Efficiency

The processes and institutions produce results
that meets the need of the society while making
the best use of resources at its disposal.
 ACCOUNTABLE
Accountability
The key requirement of a good governance.
Organization or institution is accountable to
those who will be affected by its decisions or
actions.
Accountability cannot be enforced without
transparency and rule of law.
 FAQs
Did you know:
1. that corporate governance has 4Ps?
 People - founders, the board, the stakeholder and consumer and impartial observer.
 Purpose – mission of existence.
 Process – analyzing performance to achieve its purpose.
 Performance- ability to look at the results of a process and determine whether it was
successful (or successful enough), and then apply those findings to the rest of your
organization.
2. what pursuit Dr. Jesus P. Estanislao, founder of Institute of Corporate Directors, advocate
CG in the Philippines?
 When he attended the East Asian financial crisis in the late 1990s, he noticed that a big
part of the reform program associated with the rescue packages was corporate governance.
As he looked closer, he found that particular reform made sense, including for the
Philippines, since we had the same bad CG practices as Indonesia and Thailand.
 RELEVANCE OF GOOD GOVERNANCE TO SMES AND PUBLICLY
LISTED COMPANIES
Small Medium Enterprises Publicly-Listed Companies
• are businesses that maintain A company that has held an initial
revenues, assets or a number of public offering and whose shares
employees below certain are traded on a stock exchange in
threshold. the over-the-counter market.
• Each country has its own
definition of what constitutes an Example, ABS CBN, PHINMA
SME. Businesses with not more Corp, Ayala Corp, etc.
than 100M assets and not more
than 199 employees.
• Example: Marikina shoemakers
 RELEVANCE OF GOOD GOVERNANCE TO SMES AND
PUBLICLY LISTED COMPANIES
 Regardless of the size and type, the issue on good governance has
become increasingly important.
 Note that there is no single universal formula for a good corporate
governance.
 All organization are encouraged to give appropriate attention to the
principles and adopt approaches which are tailored to the specific needs
of the organization at a given point in time.
The essence of any good corporate governance system is to allow the
board and management the freedom to drive their organization forward
and exercise it within the framework of effective accountability.
 RELATIONSHIP OF SHAREHOLDERS AND OTHER STAKEHOLDERS

FRAMEWORK OF CORPORATE GOVERNANCE

Public Corporation

Stakeholders
Shareholders/Owners
Board of Directors
External Auditors
Delegate Exceutive Management

Shareholders/Owners Have
Regulators
Operational
Responsibilities
Management
Society and Others
Accountabiliyies

Internal Auditors
 RELATIONSHIP OF SHAREHOLDERS AND OTHER STAKEHOLDERS

• There is a clear-cut distinction between ownership and professional

management of the company. All stakeholders are informed about the
day to day operations through various reports and data.
• Shareholders delegate responsibilities through an elected board of
directors to management to operating units with oversight and
assistance from internal auditors.
• Board of Directors and its audit committee oversee management to
protect shareholders rights.
• Management and the board are accountable to the shareholders.
• Management and the board are also responsible to act within the laws
of society and to meet various requirements of creditors, employees and
the stakeholders.
 Responsibilities of Members of the Corporate Governance

Party Overview of Responsibilities

a.Provide effective oversight through election of

Shareholders board members

b. Approval of major initiatives such as buying and

selling stocks, annual report on management
compensation
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
1. Overall Operations
Board  Establishing organization mission, vision and ethical standards.
of  Delegating an appropriate level of authority to management
 Demonstrating leadership
Directors
 Assuming responsibility for the business relationship with COE
including his or her appointment, succession, performance,
remuneration and dismissal.
 Overseeing aspects of the employment of the management team.
 Recommending auditors and new directors to shareholders
 Ensuring effective communication with shareholders and other
stakeholders.
 Crisis Management
 Appointment of the CEO and corporate secretary
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
2. Performance
Board  Ensuring long term viability and enhancing financial position
 Formulate and oversee implementation of corporate strategy
of  Approving the plan, budget and corporate policies
Directors  Agreeing Key performance Indicators (KPI)
 Monitoring/ assessing assessment, performance of the organization, the
board itself, management and major projects.
 Overseeing the risk management framework and monitoring business
risk
 Monitoring development in the industry and the operating environment
 Oversight of and the organization, including its control and
accountability systems.
 Approving and monitoring the progress of major capital expenditure,
capital management and acquisition and divestitures.
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
3. Compliance
Board  Understanding and protecting the organization’s financial position
of  Requiring and monitoring legal and regulatory compliance
Directors  Approving annual financial reports, annual reports and other public
documents/sensitive reports.
 Ensuring effective system of internal controls.
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
 To understand that his role is not to act as auditor, nor as a
Independent member of management team.
Directors  To understand the organizations, its business, its operating
environment and financial position
 To apply expertise and skills in organization’s best interest
 To assist management to keep performance objectives at the top
of agenda
 To respect the collective, cabinet nature of the board’s decision
 To prepare for and attend board meeting
 To seek information on a timely basis to ensure that he is in
position to contribute to the discussion when a matter comes
before the board or alert the chairman in advance to the need of
further information
 To ask appropriate question relative to operations.
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: Manage the organization effectively, provide accurate and
Management timely reports to the shareholders and other stakeholders
 Recommend the strategic direction and translate the strategic plan into
the operation of the business
 To run the business
 Assume day to day responsibility for the organization conformance with
relevant laws and regulations and its compliance framework.
 Develop, implement and manage the organization risk management and
internal control framework
 Develop, implement and update policies and procedures
 Be alert to relevant trend in the industry
 Provide information to the board
 Act as conduit between board and organization
 Develop financial and other reports to meet public, stakeholders and
regulatory requirement.
 Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: provide oversight of the internal and external
Audit Committee audit function and the process of preparing annual financial
of Board of statement a well as public reports on internal control.
Directors  Selecting the external audit firm
 Approving any non-audit work performed by the audit firm
 Selecting or approving of Chief Audit Executive
 Reviewing and approving the scope and budget of internal
audit function
 Discussing audit findings with internal auditor and external
auditor and advising the board
 Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: Set accounting and auditing standards dictating
REGULATORS underlying financial reporting and auditing concepts; set of
expectation of audit quality and accounting quality.
A. BOARD OF
ACCOUNTANCY  Conducting CPA Licensure Board Examinations
 Approving accounting principles
 Approving auditing standards
 Interpreting previously issued standards implementing quality
control processes to ensure audit quality.
 Educating members on audit and accounting requirements
 Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: Ensure the accuracy, timeliness and fairness of
REGULATORS public reporting of financial and other information for public
companies.
B. SECURITIES
AND EXCHANGE  Reviewing filing with the SEC
COMMISSION  Interacting with FRSC in setting accounting standards
 Specifying independence standards required of auditors that
report on public financial statements
 Identify corporate frauds, investigative causes, and suggest
remedial actions.
 Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: Performs audit of company financial statements
EXTERNAL AUDITORS to ensure that the statements are free of material
misstatements including misstatements that maybe due to
fraud.

 Audit of public company financial statements

 Audit of non-public company financial statements
 Other services such as tax or consulting
Responsibilities of Member of the Corporate Governance
Party Overview of Responsibilities
Board Role: Perform audit of companies for
INTERNAL compliance with company policies and laws, audit to
AUDITORS evaluate efficiency of operations, and periodic
evaluation and test of controls.

 Reporting results and analysis to management and

audit committee
 Evaluating internal control
 FAQs
Did you know:
1. What is the difference between shareholders and stakeholders?
• Shareholders are always stakeholders in a corporation, but stakeholders are not always
shareholders.
• Shareholders owns a part of a public company through shares of stock, while stakeholders
has an interest in the performance of a company for a reason other than stock performance or
appreciation.
• 2. Are the CEO and the Chairman of the Board the same person?
• No. The CEO and the board chairperson perform different duties.
• CEO is the top senior executive over management while board chairperson is the head if the
board of directors.
• CEO position entails focusing on the strategic plan, which include strategizing about the
competition and which market to enter while chairman of the board is charged with
protecting the investor’s best interest and ensures that the company is stable and profitable.
 Understanding Code of Governance and need for Publicly listed Companies

• What is the name of the code? Code of Corporate Governance

• When it was approved? SEC Code of Governance was released on November 10,
2016 during the 3rd Annual SEC PSE Corporate Governance Forum.
• What is the purpose of its released? To raise the corporate governance standards
of Philippine corporations to a level at par with regional and global counter parts.
• How’s the arrangement of the Code? It is arranged as to:
• 1.) Principle, 2.) Recommendation, 3.) Explanation
 Understanding Code of Governance and need for Publicly listed Companies
• What companies are covered by the Code?
 All registered companies and branches or subsidiaries of foreign corporations
operating in the Philippines that Sell equity and/ or debt securities to the
public that are required to be registered with the commission
 Have assets in excess of 50M and at least 200 stockholders who own at least
100 shares of equity securities
 Whose equity are listed on an Exchange
 Grantees of secondary license from the commission
• What is Exchange? An organized marketplace or facility that brings together
buyer and seller, and execute trade of securities and/or commodities. Example is
Philippine Stock Exchange.
• What are publicly-listed companies? Those companies whose securities are listed
and traded at Exchange. Examples are ABS CBN, PHINMA Corp., Ayala Corp.
 The Code of Corporate Governance is
arranged as follows:

Principles – can be considered to be a high-level statements of corporate

governance good practices and are applicable to all companies.

Recommendations – objective criteria that are intended to identify the specific

features of corporate practice that are recommended for companies operating
according to the Code. Alternatives to the recommendation may be justified in a
particular circumstance if good governance can be achieved by other means.

Explanations - strive to provide companies with additional information on the

recommended best practice
 Understanding the Three Aspects of the Code and its feature, “comply or
complain” approach

Comply or Explain approach combines the voluntary compliance

with mandatory disclosure.

Companies do have to comply with the code, but they must state in their
annual corporate governance reports whether they comply with the Code
Provisions, identify any areas of non-compliance, and explain the
reasons for non-compliance.
 16 Principles of Code of Corporate Governance
The Code of Corporate Governance have 16 principles that
are distributed among 5 main sections:

Board’s Governance Responsibilities Principle 1-7

Disclosure and Transparency Principle 8 -11

Internal Control and Risk Principle 12
Management Framework
Cultivating a Synergic Relationship Principle 13
with Shareholders
Duties to Stakeholders Principle 14 – 16
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

Principle 1 – Establishing 1.1 1.1

a competent board Competence
A company should be headed by Board should enables company to
Board’s a competent, working board to always ensure properly perform
Governance foster the long-term success of that it has its task of
Responsibilities the corporation, and to sustain
its competitiveness and appropriate overseeing
(Principle profitability in a manner management and
consistent with its corporate mix of governance of the
1 -7) objectives and the long-term expertise corporation,
best interest of its shareholders
and other stockholders. relevant to formulating vision,
mission, strategic
company’s objectives, policies
industry/sector and procedures.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 1 – 1.2 1.2
Establishing a Should composed of Right
Board’s competent board majority of non- combination
Governance A company should be executive directors ensures that no
Responsibilities headed by a competent, who possess the director or small
working board to foster necessary group of directors
(Principle the long-term success of qualifications to can dominate the
1 -7) the corporation, and to effectively participate decision-making
sustain its and help secure process.
competitiveness and objective, independent
profitability in a manner judgment
consistent with its on corporate affairs and
corporate objectives and to substantiate proper
the long-term best checks and
interest of its balances.
shareholders and other
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 1 – 1.3 1.3
Establishing a competent Should have a policy Orientation
Board’s board on the training of its program for the
Governance A company should be directors, including first-time directors
Responsibili headed by a competent, an orientation aim to promote
ties working board to foster program for first- effective board
the long-term success of time directors and performance and
(Principle the corporation, and to relevant annual continuing
1 -7) sustain its competitiveness continuing training qualification of the
and profitability in a for all directors. directors in
manner consistent with its carrying out their
corporate objectives and duties and
the long-term best interest responsibilities.
of its shareholders and
other stockholders.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 1 –
Establishing a 1.4 1.4
Board’s competent board should have a policy This is a move to
Governance A company should be on board diversity. avoid groupthink
Responsibili headed by a competent, and ensure that
ties working board to foster optimal decision-
the long-term success of making is achieved.
(Principle the corporation, and to
1 -7) sustain its
competitiveness and
profitability in a manner
consistent with its
corporate objectives and
the long-term best
interest of its
shareholders and other
SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 1 – Establishing 1.5 1.5
a competent board should have a Assist the board and board
Board’s A company should be Corporate Secretary, committees in the conduct of
Governanc headed by a competent, who is: their meetings, safekeeps and
e working board to foster the a.) separate individual preserves integrity of minutes
Responsib long-term success of the from compliance of meeting, keeps abreast of
ilities corporation, and to sustain officer; relevant laws and regulations,
its competitiveness and b.) not member of works fairly and objectively
(Principle profitability in a manner BOD; with the board, advises on the
1 -7) consistent with its corporate c.) annually attend establishment of board
objectives and the long-term training on corporate committee, informs members
best interest of its governance of the board of meeting agenda
shareholders and other 5 days in advance, attends all
stockholders. board meeting except for a
justifiable cause, oversees
drafting of by-laws, perform
other duties provided by the
SEC.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 1 – 1.6 1.6
Establishing a Ensures proper
should have a onboarding of new
competent board Compliance Officer directors, monitors,
Board’s A company should be who review ,evaluate
Governanc headed by a competent, a.) Should have the
compliance with this
e working board to foster Code and other
Responsibilities the long-term success of rank of Senior Vice regulations, reports
the corporation, and to President or an violation and
recommend
(Principle sustain its equivalent position appropriate
competitiveness and with adequate
1 -7) profitability in a manner disciplinary actions,
ensures integrity of all
stature and
consistent with its documents, appears
corporate objectives and authority; before SEC when
the long-term best b.) not member of summoned in relation
BOD; to compliance of the
interest of its Code, ensures
shareholders and other c.) annually attend attendance of bard and
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 –
Establishing Clear
Roles and
2.1 2.1
Board’s Responsibilities of the The Board
Governanc Board members should Fiduciary
e The fiduciary roles, act on a fully duty of
Responsibilities responsibilities and
accountabilities of the informed basis, board
(Principle Board as provided under in good faith, members
the law, the company’s
1 -7) articles and by-laws, and with due
diligence and
are duty of
other legal
pronouncements care, and in the care and
and guidelines should be best interest of duty of
clearly made known to the company and
all directors as well as to loyalty.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 –
Establishing Clear 2.2
Roles and 2.2
should oversee the Sound strategic
Board’s Responsibilities of the development of and
Governanc Board policies and
e The fiduciary roles, approve the objectives
Responsibilities responsibilities and company’s translate to
accountabilities of the business objectives company’s
(Principle Board as provided under and strategy, and proper
the law, the company’s
1 -7) articles and by-laws, and monitor their identification
other legal implementation, in and prioritization
pronouncements order to sustain the of its goals and
and guidelines should be company’s long- guidance on how
clearly made known to term viability and best to achieve
all directors as well as to strength.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 – 2.3
Establishing Clear Chairman makes
Roles and certain that the
Board’s Responsibilities of the 2.3 meeting agenda
Governanc Board should be focuses on strategic
e The fiduciary roles, matters, guarantees
Responsibilities responsibilities and headed by a accurate, timely,
accountabilities of the relevant., insightful
(Principle Board as provided under competent information.,
the law, the company’s
1 -7) articles and by-laws, and and qualified facilitate discussion
on key issues, make
other legal Chairperson. sure that board
pronouncements performance are
and guidelines should be evaluated at least
clearly made known to once a year.
all directors as well as to
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 –
Establishing Clear 2.4
Roles and 2.4 The goal of
Board’s Responsibilities of the should be
succession plan is
Governanc Board he transfer of
e The fiduciary roles, responsible for company leadership
Responsibilities responsibilities and ensuring and to highly competent
accountabilities of the and qualified
adopting an
(Principle Board as provided under effective
individuals and a
the law, the company’s good succession
1 -7) articles and by-laws, and succession plan is linked to
other legal planning documented roles
pronouncements and responsibilities
and guidelines should be program for for each position.
clearly made known to directors, key .
all directors as well as to officers and
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 –
Establishing Clear
Roles and 2.5 2.5
Board’s Responsibilities of the should align To attract
Governanc Board the and retain
e The fiduciary roles,
Responsibilities responsibilities and remuneration the services
accountabilities of the of key officers of qualified
(Principle Board as provided under and board
the law, the company’s
1 -7) articles and by-laws, and and
members with
other legal competent
pronouncements the long-term
and guidelines should be interests of the individuals.
clearly made known to
all directors as well as to
company. .
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
Principle 2 –
Establishing Clear
Roles and 2.6 2.6
Board’s Responsibilities of the should have a
Governanc Board It should
e The fiduciary roles, formal and
Responsibilities responsibilities and
transparent encourage
accountabilities of the
(Principle Board as provided under board shareholders
the law, the company’s
1 -7) articles and by-laws, and nomination participatio
other legal and election n
pronouncements .
and guidelines should be policy.
clearly made known to
all directors as well as to
 SECTION PRINCIPLE RECOMMENDATION

Principle 2 – 2.7
Establishing Clear should have the overall
Roles and
Board’s Responsibilities of the responsibility in ensuring that
Governance Board there is a group-wide policy and
Responsibilities
The fiduciary roles, system governing related party
(Principle responsibilities and transactions (RPTs) and other
accountabilities of the unusual or infrequently occurring
1 -7) Board as provided under
the law, the company’s transactions.
articles and by-laws, and 2.8
other legal
pronouncements should be primarily
and guidelines should be responsible for approving the
clearly made known to
all directors as well as to selection and assessing the
 SECTION PRINCIPLE RECOMMENDATION

Principle 2 – 2.9
Establishing Clear should establish an effective
Roles and performance management
Board’s Responsibilities of the framework that will ensure that the
Governanc Board Management, including the Chief
e The fiduciary roles,
Responsibilities responsibilities and Executive Officer, and personnel’s
accountabilities of the performance is at par with the
(Principle Board as provided under standards set by the Board and
the law, the company’s Senior Management.
1 -7) articles and by-laws, and
other legal 2.10
pronouncements should oversee that an appropriate
and guidelines should be internal control
clearly made known to system is in place.
all directors as well as to
 SECTION PRINCIPLE RECOMMENDATION
Principle 2 – 2.11
Establishing Clear
Roles and should oversee that a sound
Board’s Responsibilities of the enterprise risk management
Governanc Board (ERM) framework is in
e The fiduciary roles,
Responsibilities responsibilities and place.
accountabilities of the
(Principle Board as provided under 2.12
the law, the company’s
1 -7) articles and by-laws, and should have a Board Charter
other legal that formalizes and clearly
pronouncements states its roles,
and guidelines should be responsibilities and
clearly made known to
all directors as well as to accountabilities in carrying
 SECTION PRINCIPLE RECOMMENDATION

Principle 3 – Establishing
Board Committees 3.1
Board committees should be
set up to the extent possible
The Board should establish
Board’s to support the effective board committees that
Governanc performance of the
e Board’s functions, focus on specific board
Responsibilities particularly with respect to
audit, risk management, functions to aid in the
related party transactions,
(Principle and other key corporate optimal performance of its
1 -7) governance concerns, such
as nomination and roles and responsibilities.
remuneration. The
composition, functions and 3.2 The Board should
responsibilities of all
committees established establish an Audit
should be
contained in a publicly Committee.
 SECTION PRINCIPLE RECOMMENDATION

Principle 3 – Establishing
Board Committees
3.3
Board committees should be should establish a Corporate
set up to the extent possible
Board’s to support the effective Governance Committee.
Governanc performance of the
e Board’s functions,
Responsibilities particularly with respect to
3.4
audit, risk management,
related party transactions, Subject to a corporation’s size,
(Principle and other key corporate
1 -7) governance concerns, such risk profile and complexity of
as nomination and
remuneration. The operations, the Board should
composition, functions and
responsibilities of all establish a separate Board
committees established
should be
Risk Oversight Committee
contained in a publicly
 SECTION PRINCIPLE RECOMMENDATION

Principle 3 – Establishing
Board Committees
3.5
Board committees should be Subject to a corporation’s size,
set up to the extent possible
Board’s to support the effective risk profile and complexity of
Governanc performance of the operations, the Board should
e Board’s functions,
Responsibilities particularly with respect to establish a Related Party
audit, risk management,
related party transactions, Transaction (RPT) Committee
(Principle and other key corporate
.
1 -7) governance concerns, such
as nomination and
remuneration. The 3.6
composition, functions and
responsibilities of all
All established committees
committees established
should be
should have Committee
contained in a publicly
 SECTION PRINCIPLE RECOMMENDATION

Principle 4 – 4.1
Fostering The directors should attend and
Board’s Commitment actively participate in all
Governance To show full meetings of the Board,
Responsibilities commitment to the

company, the Committees, and Shareholders

(Principle in person or through
directors
1 -7) should devote the tele/videoconferencing conducted
time and attention in accordance with the rules and
necessary to properly regulations of the Commission.
and effectively 4.2
perform their duties non-executive directors of the Board
and should concurrently serve as
responsibilities,
 SECTION PRINCIPLE RECOMMENDATION

Principle 4 –
Fostering
Board’s Commitment 4.3
Governance To show full
Responsibilities commitment to the A director should notify the
(Principle company, the Board where he/she is an
directors incumbent director before
1 -7) should devote the
time and attention accepting a directorship in
necessary to properly another company.
and effectively
perform their duties
and
responsibilities,
 SECTION PRINCIPLE RECOMMENDATION

Principle 5 – 5.1
Reinforcing Board The Board should have at least
Board’ Independence three independent directors, or
such number as to constitute at
s The board should least one-third of the members
Governan
endeavor to of the Board, whichever is
ce
Responsibiliti exercise an higher.
es objective and 5.2
independent should ensure that its independent
(Principl judgment on all directors possess the necessary
e corporate affairs. qualifications and none of the
disqualifications for an independent
1 -7) director to hold the position.
 SECTION PRINCIPLE RECOMMENDATION

Principle 5 – 5.3
Reinforcing Board The Board’s independent
Board’ Independence directors should serve for a
s maximum cumulative term
The board should
Governan
endeavor to
of nine years.
ce
exercise an
Responsibiliti
es objective and 5.4
independent The positions of Chairman of
(Principl judgment on all the Board and Chief Executive
e corporate affairs. Officer
should be held by separate
1 -7) individuals and each should
 SECTION PRINCIPLE RECOMMENDATION

Principle 5 – 5.5
Reinforcing The Board should designate a
Board’s Board lead director among the
Governance
Responsibilities Independence
independent
directors if the Chairman of the
(Principle Board is not independent.
1 -7) The board should
endeavor to 5.6
exercise an A director with a material
objective and interest in any transaction
independent affecting the
judgment on all corporation should abstain from
 SECTION PRINCIPLE RECOMMENDATION

Principle 5 – 5.7
Reinforcing The non-executive directors
Board’s Board (NEDs) should have separate
Governance
Responsibilities Independence periodic meetings with the
(Principle external auditor and heads of
1 -7) The board should the internal audit,
endeavor to compliance and risk
exercise an functions, without any
objective and executive directors’ present
independent to ensure that proper checks
judgment on all and balances are in place
 SECTION PRINCIPLE RECOMMENDATION

6.1
Principle 6 – Assessing The Board should conduct an annual self-
Board Performance assessment of its
Board’s performance, including the performance
Governanc The best measure of the of the Chairman,
e Board’s effectiveness is individual members and committees.
Responsibilities through an assessment Every three years, the assessment should
process. The Board be supported by an external facilitator.
(Principle should regularly carry 6.2
out evaluations to The Board should have in place a system that
1 -7) appraise its performance provides, at the
minimum, criteria and process to determine the
as a body, and assess performance of
whether it possesses the the Board, the individual directors, committees
right mix of and such system
backgrounds and should allow for a feedback mechanism from the
competencies shareholders.
 SECTION PRINCIPLE RECOMMENDATION

Principle 7 – 7.1
Strengthening The Board should adopt a
Board’s Board Ethics Code of Business Conduct
Governance
Responsibilities and Ethics.
(Principle Members of the 7.2
1 -7) Board are duty- The Board should ensure the
bound to apply proper and efficient
high ethical implementation and
standards, taking monitoring of compliance
into account the with the Code of Business
interests of all Conduct and Ethics and
 SECTION PRINCIPLE RECOMMENDATION

8.1
The Board should establish
Principle 8 - corporate disclosures and
Enhancing policies.
DISCLO
SURE Company 8.2
AND Disclosure The Company should have
TRANSPAR
ENCY
Policies and policy requiring all directors
(Principle Procedures and officers to
8-11) disclose/report any dealings
in the company’s shares
within 3 business days.
 SECTION PRINCIPLE RECOMMENDATION

8.3
The board should fully disclose
all relevant and material
Principle 8 - information on individual board
DISCLOS
URE AND Enhancing members and key executives.
TRANSPAREN Company 8.4
CY
(Principle
Disclosure Company should provide clear
8-11) Policies and disclosure of its policies and
Procedures procedures for setting board and
executive remuneration as well
as the level and mix of the same
in the Annual Corporate
 SECTION PRINCIPLE RECOMMENDATION

8.5
The company should disclose its
policies governing Related Party
Principle 8 - Transaction and other unusual or
DISCLOS
URE AND Enhancing infrequently occurring
TRANSPAREN Company transactions in their manual on
CY
Disclosure corporate governance.
(Principle
8-11) Policies and 8.6
Procedures The company should make full,
fair, accurate and timely
disclosure to the public of every
material fact or event that
 SECTION PRINCIPLE RECOMMENDATION

8.7
The company’s
Principle 8 - corporate governance
DISCLO
SURE Enhancing policies, programs
Company
AND
TRANSPAR
Disclosure
and procedures
ENCY
(Principle Policies and
should be contained
8-11) Procedures in its Manual on
Corporate
 SECTION PRINCIPLE RECOMMENDATION

9.1
The Audit Committee should have
robust process for approving and
Principle 9 – recommending the appointment,
DISCLOS Strengthening reappointment, removal, and the
URE AND fees of external auditor.
TRANSPAREN the External 9.2
CY
(Principle
Auditor’s The Charter should include Audit
Independence Committee’s responsibility on assessing
8-11)
the integrity and independence of external
and Improving auditors and exercising effective
Audit Quality oversight to review and monitor their
independence and objectivity taking in
consideration the Philippine professional
and regulatory requirements.
SECTION PRINCIPLE RECOMMENDATION

Principle 9 – 9.3
Strengthening the The company should
External Auditor’s
DISCLO disclose the nature of
SURE Independence and
AND Improving Audit non-audit services
TRANSPAR Quality
ENCY
performed by its
(Principle external auditor in the
8-11) Annual Report to deal
with the potential
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

10.1 10.1
The board should Disclosure is
have clear and
DISCLOS Principle 10 – focused policy on required to
URE Increasing the disclosure of respond to
AND Focus on Non- non-financial sustainability
TRANSPAR
Financial and information, with
ENCY
emphasis on the challenges to
(Principl Sustainability management of determine
e 8-11) Reporting economic, their long-
environmental, term viability
social and
and
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

11.1 11.1
The company Communication
should include channels can
DISCLOS Principle 11 – media and analyst’
URE
Promoting provide timely
briefings as
AND and up-to-date
TRANSPARE Comprehensive
channels of
communication to information
NCY and Cost- relevant to
ensure the timely
(Principle Efficient access and accurate investor’s
8-11) to relevant dissemination of decision-making,
information public, material as well as to
and relevant
other interested
information to its
shareholders and stakeholders
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

12.1
Principle 12 The company 12.1
should have
Strengthening adequate and Help sustain
Internal the Internal effective internal safe and
Control Control System control system and sound
System and Enterprise enterprise risk operation as
and Risk management
Management
Risk framework in the well as
Framewor Management conduct of its implement
k management
Framework business taking into
account its size, policies to
risk profile and
complexity of attain
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

12.2 12.2
Company should Essential to
have in place an monitor and
Principle 12 independent guide the
Internal internal audit implementation
Strengthening
Control function that of company’s
System the Internal provides policies.
and Risk Control System independent and Systematic and
Management and Enterprise objective disciplined
Framewor assurance, and evaluation
k Risk approach
consulting services
Management designed to add improves
Framework value and improve effectiveness of
the company’s the company’s
SECTION PRINCIPLE RECOMMENDATION EXPLANATION

12.3
Subject to 12.3
company’s size, CAE
Principle 12 risk profile and directly
Internal Strengthening
Control complexity of reports
the Internal operations, it functionality
System Control System should have a to the Audit
and and Enterprise qualified Committee
Risk Risk
Manageme Certified Audit and
nt Management Executive
Framewo Framework administrative
appointed by
rk ly to CEO.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION
12.4
12.4 Risk management
Principle 12 function define risk
Subject to
Internal Strengthening the company’s size,
management
strategy, identify
Control Internal Control risk profile and and analyze risk,
System and complexity of evaluate and
System Enterprise Risk
operations, the categorize, establish
and Management company should risk register,
Risk Framework have separate risk develop risk
Manageme mitigation,
management communicate and
nt function to identify, report significant
Framewo assess and monitor risk monitor and
rk key risk evaluate the
exposure. effectiveness of
SECTION PRINCIPLE RECOMMENDATION EXPLANATION
12.5
12.5 CRO supervises the
The entire ERM process
and spearheads the
Internal Principle 12 Company development,
implementation,
Control Strengthening the should have maintenance and
System Internal Control continuous
and System and
Risk improvement,
communicate top risk
Risk Enterprise Risk Management to Board Risk
Manageme Management System who Oversight
Committee,
nt
Framewo
Framework is the collaborates with
CEO in updating and
rk ultimate making
recommendation,
SECTION PRINCIPLE RECOMMENDATION EXPLANATION

13.1
The board 13.1
should ensure It is the
Principle 13
CULTIVA that basic board
TING Promoting shareholder responsibilit
SYNER Shareholder rights are
GIC Rights y to adopt a
disclosed in the
RELATIO
NSHIP Manual of policy
WITH Corporate informing
SHAREHOL
DERS
Governance the
and on shareholder
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

13.2
Board should 13.2
encourage active
CULTIVATIN
Principle 13 shareholder IT allows
G Promoting participation by shareholder
SYNERG
Shareholder sending Notice of
IC
RELATIONSHI Rights Annual and
s to plan
P WITH
SHAREHOLDER
Special their
S Shareholders’ participatio
Meeting at least n in
28 days before
the meeting. meeting.
SECTION PRINCIPLE RECOMMENDATION EXPLANATION
13.3
Board should 13.3
encourage active Substantial
Principle 13 shareholder number of
CULTIVATI participation by votes against
NG Promoting
making results of proposal made
SYNER Shareholder
the votes taken by management
GIC Rights during the most may make
RELATIONS
HIP recent Annual or analysis of
WITH Special reasons and
SHAREHOLD
ERS
Shareholder’s consider having
meeting publicly dialogue with
available in the its
SECTION PRINCIPLE RECOMMENDATION EXPLANATION
13.4
The board should 13.4
make available, Ensures
Principle 13 at the option of a suitable
CULTIVATI
NG Promoting shareholder, an remedies for
SYNER Shareholder alternative the
GIC Rights dispute infringement
RELATIONS mechanism to of
HIP
WITH resolve intra- shareholder’s
corporate
SHAREHOLD
rights and
ERS
disputes in
amicable and prevents
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

13.5 13.5
Board should Ensures that all
CULTIVATI establish an information
NG Principle 13 Investor
SYNERG Promoting regarding the
Relations Officer activities of a
IC
RELATIONS Shareholder to ensure company are
HIP Rights constant properly and
WITH engagement with
SHAREHOLD timely
ERS its shareholders. communicated
IRO should be to shareholders.
present at every
stockholder’s
SECTION PRINCIPLE RECOMMENDATION EXPLANATION

Principle 14 – 14.1
14.1
Respecting The Board
Due
Rights of should identify
the various consideration
DUTIES Stakeholders is given to
TO stakeholders and
STAKEHOL
and effective promote those who
DERS redress for cooperation have interest
(Principl between them in the
e 14-16)
Violation of
and the company company and
Stakeholder’s in creating
Rights are directly
wealth, growth affected by its
and
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

14.2 14.2
Principle 14 – The Board The company’s
Respecting Rights should code of
DUTIES of Stakeholders establish clear conduct ideally
TO and effective include
STAKEHOLDE redress for policies and
RS
program to provision on
(Principle Violation of the company’s
14-16) Stakeholder’s provide
policies and
Rights mechanism on
procedures on
the fair dealing with
treatment and various
protection of stockholders.
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

14.3
The Board 14.3
should adopt a Company’s
Principle 14 – stakeholders
DUTIES Respecting Rights transparent plays important
TO framework and role in its growth
STAKEHOLDE of Stakeholders process that and long-term
RS
and effective allow
(Principle viability hence it
14-16)
redress for stakeholders to is crucial to
Violation of communicate maintain open
Stakeholder’s with the and easy
Rights company and to communication
with its
obtain redress for stakeholders.
SECTION PRINCIPLE RECOMMENDATION EXPLANATION

15.1
15.1 Policies and
The Board programs on

DUTIES
Principle 15 – should establish 1.) health, safety
policies, and welfare;
TO Encouraging programs and 2.) training and
STAKEHOL
DERS Employee procedures that
development;
3.) rewards/
(Principl participation. encourage compensation
e 14-16) employee to encourages
actively employees to
participate in the perform better and
motivates them to
realization of take a more
SECTION PRINCIPLE RECOMMENDATION EXPLANATION

15.2
The Board
15.2
should set the endeavors to
Principle 15 – tone and make mitigate
DUTIES
TO Encouraging stand against corrupt
STAKEHOL Employee corrupt practices
DERS
(Principl participation. practices by such as but
e 14-16) adopting anti- not limited
corruption to bribery,
policy and fraud,
program in its
 SECTION PRINCIPLE RECOMMENDATION EXPLANATION

15.3
15.3
Sets up the
The Board should
procedures and
Principle 15 – establish a suitable
safe-harbors for
DUTIES framework for
TO Encouraging complaints of
STAKEHOLDE Employee
whistleblowing that
employees, either
RS allows employees
personally or
(Principle participation. to freely
through their
14-16) communicate their
representative
concerns illegal
bodies,
practices, without
concerning
fear of retaliation.
illegal and
unethical
SECTION PRINCIPLE RECOMMENDATION EXPLANATION
16.1 16.1
The company should Sustainable
Principle 16 – recognize and place developments
DUTIES Encouraging an importance on the mean that the
TO Sustainability and interdependence company not only
STAKEH Social Responsibility between business complies with
OLDERS and society, and existing
(Principle promote mutually regulations, but
14-16) beneficial also voluntarily
relationship that employs value
allows the company chain processes
to grow its business, that takes into
while contributing to consideration
the advancement of economic,
the society where it environmental,
 FAQs
1. What is the difference between executive directors and non-executive directors?
• Non-executive directors are not employees of the company and are not involved in its day-
to-day running while executive directors are full-time employees of the company therefore
have set of duties.
• Non-executive directors usually receive a flat fee for their services and are engage under a
contract for service while executive directors are the highest earners in the company, with
remuneration packages made up of partly of basic pay and fringe benefits and partly
performance-related pay.
2. Is corporate governance costly?
• Reform involve the use of time and resources however this cost should be considered as
investment in the future of company. Attracting respected, credible, independent directors may
involve considerable effort to identify the right people and cost in terms of their fees but the cist
is incredibly worthwhile since boards presence offer credibility in the market and help company
obtain credit approval from the banks.
• cost can be controlled and assessed against benefits.
 Other Matters

Interlocking Directorate - when a member of a

company's board of directors also serves on another
company's board or within the company's
management.
 Other Matters
OECD Principle - Organization for Economic Cooperation and
Development
• The six OECD Principles are:
1. Ensuring the basis of an effective corporate governance framework
2. The rights and equitable treatment of shareholders and key ownership
functions
3. Institutional investors, stock markets, and other intermediaries
4. The role of stakeholders in corporate governance
5. Disclosure and transparency
6. The responsibilities of the board
 Other Matters
The main principles relevant to corporate governance in public sector.
Suggested Answer:
 Selflessness - holders of public office should take decisions in the public interest, not for
personal benefit.
 Integrity - holders of public office should not place themselves under any obligation to another
person, who might use this obligation to exert influence.
 Objectivity - decisions should be made for rational reasons, and selections/choices made on
merit.
 Accountability - holders of public office should be accountable to the public for their actions.
 Openness - holders of public office should be as open as possible about the decisions they
make.
 Honesty - they should also act honestly.
 Leadership - they should promote the other principles through leadership and by setting an
example
Explain the meaning of the term “insider trading.”
• Suggested Answer:
•  Insider dealing is the use of inside information by an insider to deal in
shares of a company to make a profit.
•  Inside information is price-sensitive information that has not been released
to the public, but when released could have an effect on the share price of
the company. For example, it could be information about takeover discussions
between two companies that are nearing agreement, but are still
“confidential‟
• An insider is any person with access to inside information. They include
directors and senior executives of a company, their professional advisers, and
any other person who is given the inside information by an insider. Receiving
inside information makes a person an insider