Introduction to Good Governance Flashcards
Prelim
When did the Securities and Exchange Commission (SEC) approve and release SEC Memorandum Circular No. 19?
November 22, 2016
It is a system of direction, feedback, and control using regulations, performance standards, and ethical guidelines, to hold the company’s Board and senior management accountable for ensuring ethical behavior to the benefit of all stakeholders and society.
Corporate Governance
What is the SEC Memorandum Circular No. 19?
The Code of Corporate Governance for Publicly Listed Companies (CG Code for PLCs)
Why is there SEC Memorandum Circular No. 19?
To raise the corporate governance standards of Philippine corporations to a level at par with its regional and global counterparts.
What approach does the Code adopt?
“Comply and Explain” approach
This combines voluntary compliance with mandatory disclosure, and it means that companies do not have to comply with the Code.
“Comply and Explain” approach
What must companies state in their annual corporate governance reports?
- Whether they comply with the Code provisions
- Identify any areas of non-compliance
- Explain the reasons for non-compliance.
What are the parts of the Code?
- Principles
- Recommendations
- Explanations
The part where there are high-level statements of corporate governance good practices that apply to all companies.
Principles
These are objective criteria that are intended to identify the specific features of corporate governance good practice that are recommended for companies operating according to the Code.
Recommendations
It supplements the recommendations, which aim to provide companies with information about best practices in corporate governance.
Explanations
Similarities of Bad Government and Bad Governance
Disregard for the concern of the many in the decisions
Shortsightedness
Whimsical and expedient decision-making
Corruption
Criteria for Good Governance (ARATER)
- Accountability;
- Responsiveness;
- A long-term view of the public interest;
- Transparency and predictability;
- Ethics in decision-making and implementation; and
- Rule-bound decision-making and action
Eight (8) Characteristics of Good Governance
Accountability
Rule of law
Transparency
Consensus oriented
Responsiveness
Equity and inclusiveness
Participation
Effectiveness and efficiency
A characteristic where all men and women should have a voice in decision-making, either directly or through a legitimate intermediate organization that represents their interests.
Participation
Good governance requires fair legal frameworks that are imposed impartially.
Rule of law
It means that decisions are taken, and their enforcement are done in a manner that follows the rules and regulations.
Transparency
It requires that the organization and processes try to serve all stakeholders within a reasonable timeframe.
Responsiveness
It means organizations mediate differing interests to reach a broad consensus on what is in the best interests of the group and, where possible, on policies and procedures.
Consensus Oriented
The organization must ensure that all its members feel they have a stake in it and do not feel excluded.
Equity and inclusiveness
It means that processes and organizations must produce results that meet needs while making the best use of resources.
Effectiveness and efficiency
Decision-makers must be accountable to the public, as well as to organizational stakeholders.
Accountability
It is the governing body elected by the stockholders that exercises the corporate powers of a corporation, conducts all its business and controls its properties.
Board of Directors
Why must companies establish a competent working board?
To foster the long-term success of the corporation and sustain its competitiveness and profitability in a manner consistent with its corporate objectives and the long-term best interests of its shareholders and other stakeholders
What does the Code suggest to the company’s BOD to be competent?
- To have directors with a collective knowledge relevant to the company’s industry/sector;
- To have a majority of non-executive directors (NEDs);
- To create policy training of directors;
- To have a policy on board diversity; and
- To be assisted by the corporate secretary and compliance officer
He assumes certain responsibilities to different constituencies or stakeholders, who have the right to expect that the organization is being run prudently and soundly.
Director
What is the team that manages the day-to-day affairs of the organization?
The Management Team
Who is responsible for monitoring and overseeing management action?
the Board of Directors
It refers to a director who is at the same time appointed to head a department/unit within the corporate organization.
Executive director
It refers to a Board member with non-executive functions.
Non-executive director
