Governance can be used in several contexts such as 7.

Accountability
corporate governance, international governance,
- Accountability is a key tenet of good governance.
national governance, and local governance.
8. Participation
Characteristics of Good Governance
- Participation by both men and women, either directly
Good governance is responsive to the present and
or through legitimate representatives, is a key
future needs of the organization, exercises prudence in
cornerstone of good governance.
policy-setting and decision-making, and that the best
interests of all stakeholders are considered. Corporate Governance
1. Rule of Law - is seen as one that addresses “the problems
that result from the separation of ownership
- Good governance requires fair legal frameworks that
and control.
are enforced by an impartial regulatory body, for the full
protection of stakeholders.

2. Transparency

- Transparency means that information should be

provided in easily understandable forms and media;
that it should be freely available and directly accessible
to those who will be affected by governance policies
and practices, as well as the outcomes resulting
therefrom; and that any decisions taken and their
enforcement are in compliance with established rules
and regulations.

3. Responsiveness

- Good governance requires that organizations and their

processes are designed to serve the best interests of
stakeholders within a reasonable timeframe.

4. Consensus Oriented

- Good governance requires consultation to understand

the different interests of stakeholders to reach a broad
consensus of what is in the best interest of the entire
stakeholder group and how this can be achieved in a
sustainable and prudent manner.

5. Equity and Inclusiveness

- The organization that provides the opportunity for its

Agency theory - identifies the agency relationship
stakeholders to maintain, enhance, or generally improve
where one party (the principal) delegates work to
their well-being provides the most compelling message
another party (the agent).
regarding its reason for existence and value to society.
Transaction Cost Economics (TCE) - This theory states that
6. Effectiveness and Efficiency
the company is a relatively efficient hierarchical structure that
- Good governance means that the processes serves as framework to run the contractual relationships. The
implemented by the organization to produce favorable main concern in transaction cost theory is to explain the
results meet the needs of its stakeholders, while making transactions conducted in terms of efficiency of governance
structures.
the best use of resources – human, technological,
financial, natural and environmental – at its disposal.
Stakeholder theory - takes account of a wider group of Customers
constituents rather than focusing on shareholders.
- A company’s customers will want to try to make
Stewardship Theory - of corporate governance sure that they can buy the same product time
discounts the possible conflicts between corporate and again from the company.
management and owners and shows a preference for a
Local Communities
board of directors made up primarily of corporate
insiders. - Local communities have several interests in the
companies that operate in their region.
Shareholders and Stakeholders
Environmental Groups
- The term ‘stakeholder’ can encompass a wide
range of interests: it refers to any individual or - These stakeholder groups will seek to ensure
group on which the activities of the company that companies operate to both national and
have an impact. Shareholders can be viewed as international environmental standards such as
a stakeholder group but, for the purposes of this the Ceres Principles and the Global Reporting
discussion, we will view shareholders as being Initiative Sustainability Guidelines.
distinct from other stakeholder groups.
Government

- The government has an interest in companies

Stakeholder Group for several diverse reasons. First, as with the
local and environmental groups—although not
- There are various stakeholder groups: some
always with such commitment—it will try to
directly related to the company, such as
make sure that companies act in a socially
employees, providers of credit, suppliers and
responsible way, taking account of social,
customers; others more indirectly related to the
ethical, and environmental considerations.
company, such as the local communities of the
towns or cities in which it operates; Unitary Board
environmental groups; and the government.
- A unitary board of directors is the form of board
Employees structure in the UK and in the USA and is
characterized by one single board comprising
- The employees of a company have an interest in
both executive and non-executive directors.
the company because it provides their
livelihood in the present day and, at some Dual Board
future point, employees will often also be in
- A dual board system consists of a supervisory
receipt of a pension provided by the company’s
board and an executive board of management.
pension scheme.
However, in a dual board system, there is a clear
Providers of Credit separation between the functions of supervision
(monitoring) and that of management.
- These include banks and other financial
institutions. Providers of credit want to be The Board of Directors (OECD Principles of Corporate
confident that the companies to which they Governance, 2015) -The board is chiefly responsible for
lend are going to be able to repay their debts. monitoring managerial performance and achieving an
adequate return for shareholders, while preventing
Suppliers
conflicts of interest and balancing competing demands
- These stakeholders have an interest in the on the corporation.
companies that they supply on two grounds.
Chief Executive Officer (SEC Code of Corporate
Governance) - To avoid conflict or a split board and to -
foster an appropriate balance of power, increased
accountability, and better capacity for independent
decision-making, it is recommended that the positions Recommendation 1.3
of Chairman and Chief Executive Officer (CEO) be held
The Company should provide in its Board Charter and
by different individuals.
Manual on Corporate Governance
Audit Committee (SEC Code of Corporate Governance)
a policy on the training of directors, including an
- The Audit Committee is responsible for overseeing the orientation program for first-time
senior management in establishing and maintaining an
directors and relevant annual continuing training for all
adequate, effective and efficient internal control
directors.
framework.
(KAYO NA MAGBASA NG PRICIPLE AT
Internal Audit (SEC Code of Corporate Governance)
RECOMMENDATION AT SUPER HABA HAHAHAHAHA)
- A separate internal audit function is essential to
monitor and guide the implementation of company
policies.

External Audit (Wallstreet E-Journal)

- This is the audit of the financial records of the

company in which independent auditors perform the
task of examining validity of financial records of the
company carefully in order to find out if there is any
misstatement in the records due to fraud, error or
embezzlement and then reporting the same to the
stakeholders of the company.

CODE OF CORPORATE GOVERNANCE FOR PUBLICLY

LISTED COMPANIES

THE BOARD’S GOVERNANCE RESPONSIBILITIES

1. ESTABLISHING A COMPETENT BOARD

Principle 1: The company should be headed by a

competent, working board to foster the long-term
success of the corporation, and to 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.

Recommendation 1.1

The Board should be composed of directors with a

collective working knowledge, experience or expertise
that is relevant to the company’s industry/sector.

Recommendation 1.2

The Board should be composed of a majority of non-

executive directors who possess the necessary
qualifications to effectively participate and help secure
objective, independent judgment on corporate affairs
and to substantiate proper checks and balances.
 contributing to the advancement of the society where it
operates.

7. _____________________________The Board should

ensure that basic shareholder rights are disclosed in the
NASA MODULE POSSIBLE QUESTION SA EXAM Manual on Corporate Governance and on the
company’s website.
Module Test 1
8. _____________________________The Board should
Identify as to which principle does the following establish policies, programs and procedures that
recommendation belongs. encourage employees to actively participate in the
1. _____________________________The Board should realization of the company’s goals and in its governance.
fully disclose all relevant and material information on 9. _____________________________Subject to its size,
individual board members and key executives to risk profile and complexity of operations, the company
evaluate their experience and qualifications, and assess should have a separate risk management function to
any potential conflicts of interest that might affect their identify, assess and monitor key risk exposures.
judgment.
10. _____________________________The Board
2. _____________________________The company should encourage active shareholder participation by
should include media and analysts’ briefings as channels sending the Notice of Annual and Special Shareholders’
of communication to ensure the timely and accurate Meeting with sufficient and relevant information at least
dissemination of public, material and relevant 28 days before the meeting.
information to its shareholders and other investors.
11. _____________________________The Board
3. _____________________________In managing the should have a clear and focused policy on the disclosure
company’s Risk Management System, the company of non-financial information, with emphasis on the
should have a Chief Risk Officer (CRO), who is the management of economic, environmental, social and
ultimate champion of Enterprise Risk Management governance (EESG) issues of its business, which
(ERM) and has adequate authority, stature, resources underpin sustainability. Companies should adopt a
and support to fulfill his/her responsibilities, subject to globally recognized standard/framework in reporting
a company’s size, risk profile and complexity of sustainability and non-financial issues.
operations.
12. _____________________________In managing the
4. _____________________________The Company company’s Risk Management System, the company
should have in place an independent internal audit should have a Chief Risk Officer (CRO), who is the
function that provides an independent and objective ultimate champion of Enterprise Risk Management
assurance, and consulting services designed to add (ERM) and has adequate authority, stature, resources
value and improve the company's operations. and support to fulfill his/her responsibilities, subject to
5. _____________________________The Board should a company’s size, risk profile and complexity of
encourage active shareholder participation by making operations.
the result of the votes taken during the most recent 13. _____________________________The Board
Annual or Special Shareholders’ Meeting publicly should adopt a transparent framework and process that
available the next working day. In addition, the Minutes allow stakeholders to communicate with the company
of the Annual and Special Shareholders’ Meeting should and to obtain redress for the violation of their rights.
be available on the company website within five
business days from the end of the meeting. 14. _____________________________The Board
should establish clear policies and programs to provide
6. _____________________________The business and a mechanism on the fair treatment and protection of
society, and promote a mutually beneficial relationship stakeholders.
that allows the company to grow its business, while
15. _____________________________The Board 4. To show full commitment to the company, the
should establish an Investor Relations Office (IRO) to directors should devote the time and attention
ensure constant engagement with its shareholders. The necessary to perform their duties and responsibilities
IRO should be present at every shareholders’ meeting. properly and effectively, including sufficient time to be
familiar with the corporation’s business.

a. cultivating a synergic relationship with shareholders

Module Test 2
under the code
Encircle the letter that corresponds which general item
b. disclosure and transparency
the principle presented belongs.
c. board governance and responsibility
1. To ensure the integrity, transparency, and proper
governance in the conduct of its affairs, the company d. internal control system and risk management
should have a strong and effective internal control
5. A mechanism for employee participation should be
system and enterprise risk management framework.
developed to create a symbiotic environment, realize
a. disclosure and transparency the company’s goals and participate in its corporate
governance processes.
b. internal control system and risk management
a. board governance and responsibility
c. cultivating a synergic relationship with shareholders
under the code b. internal control system and risk management

d. board governance and responsibility c. disclosure and transparency

2. The company should be socially responsible in all its d. cultivating a synergic relationship with shareholders
dealings with the communities where it operates. It under the code
should ensure that its interactions serve its environment
6. The company should ensure that material and
and stakeholders in a positive and progressive manner
reportable non-financial and sustainability issues are
that is fully supportive of its comprehensive and
disclosed.
balanced development.
a. board governance and responsibility
a. disclosure and transparency
b. internal control system and risk management
b. internal control system and risk management
c. disclosure and transparency
c. cultivating a synergic relationship with shareholders
under the code d. cultivating a synergic relationship with shareholders
under the code
d. board governance and responsibility
7. The company should maintain a comprehensive and
3. The company should be headed by a competent,
cost-efficient communication channel for disseminating
working board to foster the long-term success of the
relevant information. This channel is crucial for
corporation, and to sustain its competitiveness and
informed decision-making by investors, stakeholders
profitability in a manner consistent with its corporate
and other interested users.
objectives and the long term best interests of its
shareholders and other stakeholders. a. disclosure and transparency
a. cultivating a synergic relationship with shareholders b. internal control system and risk management
under the code
c. cultivating a synergic relationship with shareholders
b. disclosure and transparency under the code
c. board governance and responsibility d. board governance and responsibility
d. internal control system and risk management
8. Board committees should be set up to the extent CHARACTERISTICS AND VALUES ASSOCIATED WITH
possible to support the effective performance of the ETHICAL BEHAVIOR
Board’s functions, particularly with respect to audit, risk
The following list of ethical principles incorporates the
management, related party transactions, and other key
characteristics and values that most people associate
corporate governance concerns, such as nomination and
with ethical behavior.
remuneration. The composition, functions and
responsibilities of all committees established should be Integrity
contained in a publicly available Committee Charter.
- Be principled, honorable, upright, courageous
a. board governance and responsibility and act on convictions; do not be twofaced or
unscrupulous, or adopt an end-justifies-the
b. internal control system and risk management
means philosophy that ignores principle.
c. disclosure and transparency
Honesty
d. cultivating a synergic relationship with shareholders
- Be truthful, sincere, forthright, straightforward,
under the code
frank, candid; do not cheat, steal, lie, deceive or
9. The best measure of the Board’s effectiveness is act deviously.
through an assessment process. The Board should
Trustworthiness and Promise Keeping
regularly carry out evaluations to appraise its
performance as a body and assess whether it possesses - Be worthy of trust, keep promises, full
the right mix of backgrounds and competencies. commitments, abide by the spirit as well as the
letter of an agreement; do not interpret
a. cultivating a synergic relationship with shareholders
agreements in an unreasonably technical or
under the code
legalistic manner in order to rationalize
b. disclosure and transparency noncompliance or create excuses and
justification for breaking commitments.
c. board governance and responsibility
Loyalty (Fidelity) and Confidentiality
d. internal control system and risk management
- Be faithful and loyal to family, friends,
10. The rights of stakeholders established by law, by
employers, client and country;
contractual relations and through voluntary
commitments must be respected. Where stakeholders’ Fairness and Openness
rights and/or interests are at stake, stakeholders should
- Be fair and open-minded, be willing to admit
have the opportunity to obtain prompt effective redress
error and, where appropriate, change positions
for the violation of their rights.
and beliefs, demonstrate a commitment to
a. cultivating a synergic relationship with shareholders justice, the equal treatment of individuals, and
under the code tolerance for acceptance of diversity; do not
overreach or take advantage of another’s
b. disclosure and transparency
mistakes or diversities.
c. board governance and responsibility
Caring for Others
d. internal control system and risk management
- Be caring FOR OTHERS, Kind, and
CHAPTER 5 compassionate; share, be giving, be of service
to others
Ethics - can be defined broadly as a set of moral
principles or values that govern the actions and Respect for Others
decisions of an individual or group. - Demonstrate respect for human dignity, privacy,
and the right to self. determination of all
people; be courteous, prompt, and decent;
 provide others with the information they need 1. Person’s Ethical Standards
to make informed decisions about their own - differ from General Society Extreme examples
lives; do not patronize, embarrass, or demean. of people whose behavior violates almost
everyone's ethical standards are drug dealers,
Responsible Citizenship
bank robbers, and larcenists. Most people who
- Obey just laws; if all law unjust, openly protest commit such acts feel no remorse when they
it; exercise all democratic rights and privileged are apprehended, because their ethical
responsibly by participation (voting and standards differ from those of society as a
expressing informed views), social whole.
consciousness, and public service; when in a 2. The Person Chooses to Act Selfishly
position of leadership or authority, openly - A considerable portion of unethical behavior
respect and honor democratic processes of results from selfish behavior. The Pork Barrel
decision making, avoid unnecessary secrecy or Scam and the other political scandals resulted
concealment of information, and assure that from the desire for political power and wealth;
others have all the information they need to cheating on tax returns and expense reports is
make intelligent choices and exercise their motivated by financial greed; performing below
rights. one's competence and cheating on tests are
typically due to laziness.
Pursuit of Excellence
CATEGORIES OF ETHICAL PRINCIPLES
- Pursue excellence in all matters; in meeting your
personal and professional responsibilities, be Principles of Personal Ethics - include among others
diligent, reliable, industrious and committed; Basic justice, fairness Respect for the right of others
perform all tasks to the best of your ability, Concern for the right of others . Concern for the well-
develop and maintain a high degree of being on welfare of others Benevolence,
competence, be well informed and well trustworthiness, honesty Compliance with the law
prepared; do not be content with mediocrity, do
Professional Ethics - include among others • Integrity,
not “win at any cost”
impartiality, objectivity • Professional competence •
Accountability Confidentiality • Professional behavior • Avoidance of
potential or apparent conflict of interest Business Ethics
- Be accountable, accept responsibility for include among others • Fair competition • Global as
decisions, for the foreseeable consequences of well as domestic justice • Social responsibility • Concern
actions and inactions, and for setting an for environment
example of others.
CHAPTER 6 BUSINESS ETHICS
WHY IS ETHICAL BEHAVIOR NECESSARY?
BASIC CONCEPT OF BUSINESS ETHICS
- Ethical behavior is necessary for a society to
function in an orderly manner. It can be argued - Business ethics refers to standards of moral
that ethics is the glue that holds a society conduct, behavior and judgment in business. It
together. involves making the moral and right decisions
while engaging in such business activities as
WHY DO PEOPLE ACT UNETHICALLY?
manufacturing and selling a product and
- Most people define unethical behavior as providing a service to customers.
conduct that differs from the way they believe - Business ethics is an area of corporate
would have been appropriate given the responsibility where businesses are legally
circumstances. bound and socially obligated to conduct
business in an ethical manner. Business ethics is
based on the personal values and standards of
each person engaged in business.
PURPOSES OF BUSINESS ETHICS of goods for consumers or the quality of the
product or service compromised. Environmental
Main Purpose
Impact Environmental protection is a key area of
- The main purpose of business ethics is to help business influence on society. Businesses that
business and would-be business to determine implement good environmental policies to use
what business practices are right and what are energy more efficiently, reduce waste and in
wrong. general lighten their environmental footprint
can reduce their internal costs and promote a
Special Purpose positive image of their company.
There are other purposes which are corollary to the Impact on Business Managers
main purpose. These purposes include the following:
- The concepts and principles for the ethical
1. To make businessmen realize that they cannot conduct in business are relegated to the
employ double standards to the actions of other people managers of the business enterprise.
and to their own actions.

2. To show businessmen that common practices which

they have thought to be right because they see other
businessmen doing it, are really wrong. To serve as a
standard or ideal upon which business conduct should
be based.

SCOPE AND IMPACT OF BUSINESS ETHICS

- Business ethics covers all conduct, behavior and

judgment in business. This includes the slightest
deviation from what is right to illegal and
dishonest acts that are punishable by law.

Economic impact

- A business has an economic impact on society

through the wages it pays to its employees, the
materials that it buys from their suppliers and
the prices it charges its customers. It would
have a positive social impact on its employees if
they are paid fair living wages and benefits. It
will have a positive effect on its suppliers that
they paid fairly and on time for their supplies.
The effect on its customers is positive if the
business gives them good value for the price
they pay for the produets and services.

Social Impaçt

- The social impact of corporate governance

contributes to the ethical climate of society. If
businesses offer bribes to secure work or other
benefits, engage in accounting fraud or breach
regulatory and legal limitations on their
operations, the ethies of society suffer. In
addition to a deteriorating ethical environment,
such as corruption may unfairly raise the price