Jhonalyn I.
Soledad BSA IV Public- The result of responsible or irresponsible conduct
BUSS-ED
CHAPTER1 CORPORATION AND CORPORATE
GOVERNANCE
CORPORATION - is an artificial being created by
operation of law, having the right to succession and the
powers, attributes and properties expressly authorized
by law or incident to its existence (The Corporation Code
of the Philippines, Sec. 2)
Characteristics of Corporation:
-Artificial Being
-created by operation of Law
-Right of succession
-Powers, Attributes and Properties
STAKEHOLDERS OF A CORPORATION
Management - Refers to the party given the authority to
implement the policies as determined by the Board in
directing the course/business activities of the
corporation.
Creditors - This refers to the party who lend to the
corporation goods, services or money.
Shareholders- This refers to people who invest their
capital in the corporation
Employees- These are the people who contribute their
skills, abilities, and ingenuity to the corporation
Client- They are the buyers of the corporation products
and services
Government- It is the duty and responsibility of the
government to provide the people the basic ways and
means to survive and the government gets the biggest
help from the corporation
of corporations can affect public in so many ways
PURPOSES OF CORPORATION:
-Early Stage Survival
-To increase Profit
-To offer Vital Services to the General Public
-To offer Goods and Services to the General Public
-To offer Goods and Services to the Mass Market
Shareholders- Shareholders or Stockholders are artificial
or natural persons that are legally regarded as owners of
the corporation
STOCKHOLDERS OR SHAREHOLDERS RIGHT
-The right to vote on matters such as elections of the
board of directors
-The right to propose the shareholder resolution
-The right to receive dividends
-Pre-emption right which is right to purchase new shares
issued by the company
-The right to liquidating dividends
Bondholders- Person or entity that is the holder of a
currently outstanding bond
Board of Directors- Refers to a collegial body that
exercises the corporate powers of all corporations
formed under the Corporation Code.
DUTIES OF THE BOARD OF DIRECTORS
-Establishing Policies and Objectives
-Selecting, appointing, supporting and receiving the
performance of the chief executive
-Ensuring the availability of adequate financial resources
-Approving annual budget
-Accounting to the stakeholders the organizations
performance
MULTINATIONAL AND TRANSNATIONAL CORPORATIONS
Corporate Governance- Structures or process by which
companies are directed and controlled that will help
them to operate more efficiently, mitigate risk and
safeguard against mismanagement
WHAT GOOD GOVERNANCE PROMOTES?
BENEFITS OF GOOD GOVERNANCE
-Reduced Vulnerability
-Marketability
-Credibility
-Valuation
PRINCIPAL AGENT RELATIONSHIP
ROLES OF NONEXECUTIVE DIRECTORS
-Is a member of the board of directors of a company who
does not take part in the executive functions of the
management team.
-Strategy-offer creative contributions
-Establishing networks
-Monitoring Performance
-Audit- ensure that the company report properly to its
shareholders
ROLES OF Chief Financial Officer
-Implements internal control-convey important financial
control
-Supervises major impact Projects
-Develop relations with financial sources
-Advisor to management
-Drives major strategic issues
-Risk Manager
-Relationship role
-Objective referee
AUDIT COMMITTEE
Examples of issues that the audit committee should
consider:
-Risk identification and response
-Pressure to manage earnings
-Internal controls and company growth
External Auditors- Used extensively by business
organizations to cast away doubts on the information
given by the management which are also generated
under its direct control
CHAPTER2: INTERNAL AND EXTERNAL INSTITUTIONS
AND INFLUENCES OF CORPORATE GOVERNANCE
INTERNAL FOUNDATION OF CORPORATE GOVERNANCE
BOARD OF DIRECTORS is a body of elected or appointed
by shareholders who jointly oversee the activities and
the overall managerial and operational aspects of the
corporation.
Authority, Responsibility and Purpose of BOD:
-Protect the resources entrusted to them by
shareholders' and make sure the latter receive a decent
return on their investment.
-Top governing authority w/in the management
structure at any publicly listed company.
-Their job is to select, evaluate, and approve appropriate
compensation for the company’s CEO, assess
attractiveness dividend payment scheme and its amount,
recommend stock splits, oversee share reacquisition
programs, approve the company’s financial statement
reports and recommend or discourage acquisition and
mergers.
Structure and Makeup of the Board of Directors
The board is made up of individual men and women, the
“directors” who are elected by shareholders.
Directors are either :
1. have a vested interest in the company
2. work in the upper management of the
company, or
3. independent from the company but are
known for their business abilities
Committees on the Board of Directors
Audit Committee – responsible in making sure that the
company’s financial statements and reports are
reasonably accurate and use fair estimates in
accordance with the applicable financial reporting
standards.
Compensation Committee - places the base
compensation, stock option awards, and incentive
bonuses for the company’s executives, including the
CEO.
Ownership Structure and Its Impact on the Board of
Directors
-The particular ownership structure of a corporation has
a huge impact on the efficiency and effectiveness of the
board of directors to govern.
-In a company where a large, single shareholder exists,
that entity or individual can effectively control the
corporation.
CHIEF EXECUTIVE OFFICER (CEO)
-is usually the singular organizational position that is
principally accountable in carrying out the strategic
policies and procedure as established by the BOD’s.
-is directly under the board of directors.
-is responsible to bring into line the company, internally
and externally, with their long tern vision.
-make possible to engage business outside of the
company while directing employees, managers and other
executive towards a central objective.
Responsibilities of a CEO:
1. Support the Board -supports operations and
administration of board by giving information and advice
to board members.
-Delivery of Program, Product and Services (PPS)
Administer design, marketing, promotion, delivery and
quality of programs, products and services
Financial, Risk and Tax Management
-recommends yearly budget for board’s approval and
cautiously manages organization’s resources within the
budget guidelines.
-this utilization of resources may also have other basis
such as laws, regulations, and other directives.
Human Capital Management
-efficiently manages the human capital of the
organization based on personnel policies and
procedures that fully conform to current laws,
regulations and standards both local and international.
Public Relations (PR)
-pledge that the organization and its mission, programs
and initiatives, products and services are consistently
presented in strong and physically visible manner to the
community.
CHIEF FINANCIAL OFFICER (CFO)
Responsibilities of a CFO
Implements Internal Control
-Responsible for conveying the important financial
controls to a company.
Supervises Major Impacts Projects
-handles and supervise projects that require significant
quantitative and qualitative interpretations and analysis
to reach at an understanding options that are available.
Develops Relations with Financing Sources
-institute good working relationships with banks and
other financial institutions that may impact on the
company’s ability to finance its operations.
Advisor to Management
-facilitate and help the business owners, executives and
other top managers make the substantial connection
between a company ‘s operations and its financial
performance that are reflected in financial figures.
Drives major Strategic Issues
-expected to take part in important role of attending
some major strategic issues that will have an impact on
the company’s long-term future.
Risk Manager- best position to foresee risk considering
that they have this rare perspective on how the
company operates.
Relationship Role -is a nucleus in an organization with
many connections.
Objective Referee - needs to demonstrate impartially, Independent Auditors - analyze and communicate
such as when advising the CEO or the board of directors financial information for various entities such as
on accounting matters. companies, potential investors, individual clients,
government both at the local and national level.
SHAREHOLDERS
They may also engage in consultancy services which may
Share Ownership
include, financial and investment planning, information
-gives the owner with the right to a share of the income
technology consulting, and limited legal services.
of the company called dividend and a right to a share of
net proceeds on the sale during liquidation of the LEGAL ENVIRONMENT
company. -Some contend that it is the market that can really press
-includes the right to sell or transfer that share without real governance considering that it is a variable
the need to inform or getting the consent of the other independent from anybody.
stockholder. -There are, however, some limits to this connection.
-an important right and responsibility of the -Markets may be good for some governance tasks, weak
shareholders is to vote. for others.
-Markets may be good at limiting some types of
Responsibilities of the Shareholders
“skirting”, but be less good at limiting “stealing”,
-They must ensure that the obligation to provide
especially if the stealing represents a small part of the
information to shareholders does not detract the
firm's total value.
company’s ability to compete in its marketplace.
-They must ensure that their right to attempt to Three distinct dimensions of legal environment:
influence the company does not translate into behavior -The domestic laws of home countries.
that will paralyze and detrimental to the company. -The domestic laws of each of foreign markets.
-Under the Corporate Code of the Philippines, -International law in general
requirements for approval as a shareholder:
MARKETS - Considered the most important institution of
> Effecting certain merger or reorganizations. corporate governance
Selling all or substantially all of the corporation’s
OTHER EXTERNAL FACTORS
assets.
-Political Environment
>Adding or removing any restrictions on the business
-Social Environment
that the corporation may carry on.
-Technological Environment
>Changing the corporation’s share capital.
>Increasing or decreasing the number of directors or
the minimum or maximum members of directors
Shareholder Ability to Change the Board
-Shareholders who are dissatisfied with how the
directors are running the corporation may remove the
directors or refuse to re-elect them.
-In practice, this may be a difficult course to take,
particularly where the shares of the corporation are
widely held.
EXTERNAL ENVIRONMENT OF CORPORATE GOVERNANCE
AUDITORS
-One of the most important external institutions in
governance.
-Their job is to help to ensure that firms are run
efficiently by keeping public records accurate, adhering
standards of reporting for public purposes, and taxes
paid properly and on time.