Introduction to Corporate Governance

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Questions and Answers

What is corporate governance?

A system of direction, feedback, and control using regulations, performance standards, and ethical guidelines to hold the company's Board and senior management accountable.

What is the approach adopted by the Code of Corporate Governance for Publicly Listed Companies?

Comply and explain (correct)

Non-compliance

Mandatory compliance

Voluntary compliance

Good governance includes criteria such as accountability, ethics in decision-making, transparency, and ______.

responsiveness

The Code of Corporate Governance requires all companies to fully comply with its provisions.

False Signup and view all the answers

What are the three parts included in the Code of Corporate Governance?

Principles, Recommendations, Explanations Signup and view all the answers

Which of the following is NOT one of the eight characteristics of good governance?

Secrecy Signup and view all the answers

Match the following characteristics of good governance with their descriptions:

Participation = All men and women should have a voice in decision-making. Rule of law = Requires fair legal frameworks imposed impartially. Transparency = Information is freely available and accessible. Accountability = Decision-makers must be accountable to the public and stakeholders. Signup and view all the answers

Which characteristic of good governance emphasizes the importance of a representative decision-making process for all individuals?

Participation Signup and view all the answers

What aspect of good governance focuses on the availability and accessibility of information related to decisions and their enforcement?

Transparency Signup and view all the answers

Which characteristic of good governance stresses the need for impartial enforcement of laws and full protection of human rights?

Rule of law Signup and view all the answers

Which characteristic relates to ensuring all groups, especially the vulnerable, have opportunities to improve their well-being?

Equity and inclusiveness Signup and view all the answers

Which of the following characteristics of good governance involves organizations mediating differing interests to reach a broad consensus?

Consensus oriented Signup and view all the answers

Which of the following is a required qualification for a director according to the Securities and Exchange Commission?

Ownership of at least one share of capital stock Signup and view all the answers

What criterion is NOT mentioned as part of the additional qualifications for a director?

Prior management experience Signup and view all the answers

Which crime would disqualify a person from serving as a director?

Fraud related to the sale of securities Signup and view all the answers

What is an example of a non-executive function of a director?

Advising on strategic direction without management powers Signup and view all the answers

Which of the following is NOT a required qualification or disqualification for directors under the guidelines?

Possession of advanced academic degrees Signup and view all the answers

Study Notes

Overview of Corporate Governance

Corporate governance is a system that ensures accountability and ethical behavior among a company's Board and senior management for the benefit of stakeholders and society.
The SEC Memorandum Circular No. 19, released on November 22, 2016, is the Code of Corporate Governance for Publicly Listed Companies (CG Code for PLCs) in the Philippines.
The CG Code follows a "comply and explain" approach, allowing companies to choose compliance while requiring disclosure of compliance status in annual reports.

Components of the Code

Principles: High-level statements advising good practices in corporate governance applicable to all companies.
Recommendations: Specific criteria that highlight features of good corporate governance for companies adhering to the Code.
Explanations: Supplementary information for companies on best practices in corporate governance.

Characteristics of Good Governance

Good governance parallels good government, emphasizing accountability, ethics in decision-making, and more.
Criteria for good corporate governance include:
- Accountability
- Ethical decision-making
- Transparency and predictability
- Rule-bound decision-making
- Responsiveness
- Long-term public interest focus

Key Characteristics of Good Governance

Participation: Encourages inclusive decision-making for all individuals, supported by freedom of association and speech.
Rule of Law: Entails a fair legal framework, impartiality in enforcement, and protection of human rights.
Transparency: Ensures decision-making processes are open, with accessible and understandable information available to affected stakeholders.
Responsiveness: Organizations must address stakeholder needs promptly and efficiently.
Consensus-Oriented: Aims for mediation of differing interests to achieve broad agreement on policies and procedures.
Equity and Inclusiveness: Ensures all members, especially vulnerable groups, feel included and can enhance their well-being.
Effectiveness and Efficiency: Processes should yield results that satisfy needs while optimizing resources.
Accountability: Decision-makers must answer to the public and organizational stakeholders.

Board of Directors

The Board of Directors (BOD) acts as the governing body and is elected by shareholders, tasked with overseeing corporate actions and strategy.

Good Governance Characteristics

Participation: Inclusive decision-making should be facilitated, allowing all individuals to express their opinions either directly or through representative organizations.
Rule of Law: Legal frameworks must be fair and enforced impartially, protecting human rights, particularly for minorities.
Transparency: Decision-making processes should be clear and accessible, ensuring stakeholders receive adequate and understandable information.
Responsiveness: Organizations must address the needs of all stakeholders in a timely manner.
Consensus Oriented: Focus on mediating diverse interests to achieve broad agreement on policies and procedures beneficial to the collective.
Equity and Inclusiveness: All members must feel they have a stake in the organization, specifically providing opportunities for vulnerable groups to improve their well-being.
Effectiveness and Efficiency: Processes should yield successful results while optimizing the use of resources.
Accountability: Decision-makers must answer to the public and stakeholders regarding their actions and decisions.

Director Qualifications (Securities and Exchange Commission)

Ownership Requirement: Every director must own at least one share of the corporation’s stock, with the share registered in their name.
Additional Qualifications: Criteria may include educational background, business competency, age, integrity, and diligence.
Code of Ethics: Boards must establish and enforce a code of business ethics and conduct.

Disqualifications of Directors

Legal Convictions: Exclusion for individuals convicted of financial crimes or violations related to securities and investment conduct.
Administrative Violations: Disqualification for willfully violating relevant laws or rules enforced by the Commission.
Insolvency: Those declared insolvent by a court or regulatory body cannot serve as directors.
Criminal History: Conviction related to offenses punishable by imprisonment exceeding six years within five years before election or appointment.
Absenteeism: Directors missing over 50% of meetings may be disqualified temporarily.

Audit Committee Responsibilities

Financial Review: Oversee financial statements, ensuring compliance with accounting standards and regulations.
Non-Audit Work: Evaluate and disclose non-audit tasks performed by external auditors in the annual report.
Internal Audit Access: Ensure internal auditors have unrestricted access to organizational records and enforce independence in their evaluations.

Board Committees

Nomination Committee: Reviews qualifications for board candidates and assesses the board's effectiveness in memberships and replacements.
Compensation Committee: Establishes transparency in executive remuneration processes, ensuring alignment with corporate culture and strategy.

Commitment and Independence

Active Participation: Directors must consistently attend and participate in board meetings unless justifiably absent.
Limit on Concurrent Directorships: Non-executive directors should limit their positions to five publicly listed companies to maintain adequate oversight and preparation for meetings.

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Description

This quiz covers the fundamental concepts of corporate governance, including regulations, performance standards, and ethical guidelines. It aims to assess your understanding of how corporate governance aims to hold management accountable for ethical behavior. Prepare to explore the significance of these principles for stakeholders and society.