BAHR 213 Good Governance and Social Responsibility PDF

BAHR 213 – Good Governance Click icon to add picture≈≈ and Social Responsibility VIRNEX R. GIAMALON,PhD  Introduction Lesson 2: Lesson 1: Corporate In...

BAHR 213 – Good Governance Click icon to add picture≈≈ and Social Responsibility VIRNEX R. GIAMALON,PhD  Introduction Lesson 2: Lesson 1: Corporate Introductio governance n to responsibilities and Corporate accountabilitie Governance Week 1-3 s Summary Presentation Title BAHR 213 2 Introduction 1. What is a corporation for you? 2. What, for you are the values and mores that make up a good organization? 3. Do you believe that corporations should behave ethically and morally accountable to the society? BAHR 213 3 Lesson 1: Introduction to Corporate Governance  WHAT IS GOVERNANCE? A process whereby elements in society wield power, authority and influence and enact policies and decisions concerning public life and social upliftment. It comprises all the processes of governing - whether undertaken by the government of a country, by a market or by a network - over a social system and whether through the laws, norms, power or language of an organized society. Governance therefore means the process of decision-making and the process by which decisions are implemented (or not implemented) through the exercise of power or authority by leaders of the country and / or organizations. Governance can be used in several contexts such as corporate governance, international governance, national governance and local governance. BAHR 213 5  CHARACTERISTICS OF GOOD GOVERNANCE Whatever context good governance is used, the following major characteristics should be present: Presentation title 6  PARTICIPATION Participation by both men and women is a key cornerstone of good governance. Participation could be either direct or through legitimate institutions or representatives. It is important to point out that representative democracy does not necessarily mean that the concern of the most vulnerable in society would not be taken into consideration in decision making. Participation needs to be informed and organized. This means freedom of Presentation title association and expression on one 7 hand and an organized civil  Rule of Law Good governance requires fair legal frameworks that are enforced impartially. It also requires full protection of human rights, particularly those of minorities. Impartial enforcement of laws requires an independent judiciary and an impartial and incorruptible police force. Presentation title 8  Transparency Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media. Presentation title 9  Responsiveness Good governance requires that institutions and processes try to serve the needs all stakeholders within a reasonable timeframe. Presentation title 10  Consensus Oriented Good governance requires mediation of the different interests in society to reach a broad consensus on what is in the best interest of the whole community and how this can be achieved. It also requires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of Presentation title the historical, cultural and social 11 contexts of a given society or  Equity & Inclusiveness Ensures that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have opportunities to Presentation title improve or maintain 12 their well being  Effectiveness & Efficiency Good governance means that processes and institutions produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the Presentation title protection of the 13 environment.  Accountability Accountability is a key requirement of good governance. Not only governmental institutions but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. Who is accountable to whom varies depending on whether decisions or actions taken are internal or external to an organization or institution. In general, an organization or an institution is accountable to those who will be affected by its decisions or Presentation title 14 actions. Accountability cannot be CORPORATE GOVERNANCE: AN OVERVIEW Corporate governance is defined as the system of rules, practices and processes by which business corporations are directed and controlled. It basically involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. Corporate governance is a topic that has received growing attention in the public in recent years as policy makers and others become more aware of the contribution good corporate governance makes to financial market stability and economic growth. Good corporate governance is all about controlling one's business and so is relevant, and indeed vital, for all organizations, whatever size or structure. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the objectives are set and the BAHR 213 15 means of attaining those objectives and monitoring performance.  PURPOSE OF CORPORATE GOVERNANCE The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver long-term success of the company. In simple terms, the fundamental aim of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability. It is also about what the board of directors of a company does, how it sets the values of the business firm. BAHR 213 16  OBJECTIVES OF CORPORATE GOVERNANCE The following are the basic objectives of corporate governance: 1. Fair and Equitable Treatment of Shareholders A corporate governance structure ensures equitable and fair treatment of all shareholders of the company. In some organizations, a group of high-net- worth individual and institutions who have a substantial proportion of their portfolios invested in the company, remain active through occupation of top- level positions that enable them to guard their interest. However, all shareholders deserve equitable treatment and this equity is safeguarded by a good governance structure in any organization. 2. Self-Assessment Corporate governance enables firms to assess their behavior and actions before they are scrutinized by regulatory agencies. Business establishments with a strong corporate governance system are better able to limit exposure to regulatory risks and fines. An active and independent board can successfully point out deficiencies or loopholes in the company operations BAHR 213 17 and help solve issues internally on a timely basis.  OBJECTIVES OF CORPORATE GOVERNANCE The following are the basic objectives of corporate governance: 3. Increase Shareholders' Wealth Another corporate term interests of governance's main objective is to protect the long- the shareholders. Firms with strong corporate governance structure are seen to have higher valuation attached to their shares by businessmen. This only reflects the positive perception that good corporate governance induces potential investors to decide to invest in a company. 4. Transparency and Full Disclosure Good corporate governance aims at ensuring a higher degree of transparency in an organization by encouraging full disclosure of transactions in the company accounts. BAHR 213 18  BASIC PRINCIPLES OF EFFECTIVE CORPORATE GOVERNANCE The basic principles of effective corporate governance are threefold as presented below: A. Transparency and Full Disclosure Does the board meet the information needs of investment communities? Does it safeguard integrity in financial reporting? Does the board have sound disclosure policies and practices? Does it make timely and balanced disclosure? Can an outsider meaningfully analyze the organization's actions and performance? BAHR 213 19  BASIC PRINCIPLES OF EFFECTIVE CORPORATE GOVERNANCE The basic principles of effective corporate governance are threefold as presented below: B. Accountability Does the board clarify its role and that of management? Does it promote objective, ethical and responsible decision making? Does it lay solid foundations for management oversight? Does the composition mix of board membership ensure an appropriate range and mix of expertise, diversity, knowledge and added value? Is the organization's senior official committed to widely accepted standards of correct and proper behavior? BAHR 213 20  BASIC PRINCIPLES OF EFFECTIVE CORPORATE GOVERNANCE The basic principles of effective corporate governance are threefold as presented below: C. Corporate Control Has the board built long-term sustainable growth in shareholders' value for the corporation? Does it create an environment to take risk? Does it encourage enhanced performance? Does it recognize and manage risk? Does it remunerate fairly and responsibly? Does it recognize the legitimate interests of stakeholders? Are conflicts of interest avoided such that the organization's bes interests prevail at all times? BAHR 213 21  ILLUSTRATIVE APPLICATION OF THE BASIC PRINCIPLES OF CORPORATE GOVERNANC E BAHR 213 22  ILLUSTRATIVE APPLICATION OF THE BASIC PRINCIPLES OF CORPORATE GOVERNANC E BAHR 213 23  ILLUSTRATIVE APPLICATION OF THE BASIC PRINCIPLES OF CORPORATE GOVERNANC E BAHR 213 24  ILLUSTRATIVE APPLICATION OF THE BASIC PRINCIPLES OF CORPORATE GOVERNANC E BAHR 213 25  ILLUSTRATIVE APPLICATION OF THE BASIC PRINCIPLES OF CORPORATE GOVERNANC E BAHR 213 26 Thank you!  Introduction Lesson 1: Lesson 2: Corporate Introductio governance n to responsibilities Corporate & Governance Week 1-3 accountabilities Summary Presentation Title BAHR 213 28  CORPORATE GOVERNANCE RESPONSIBILITIES AND ACCOUNTABILITIES As an organization grows in size and influence, these issues become increasingly important. However, it is also important to recognize that good corporate governance is based on principles underpinned by consensus and continually developing notions of good practice. There are no absolute rules which must be adopted by all organizations. "There is no simple universal formula for good governance". It establishes a framework for accountability to stakeholders, including shareholders, employees, customers, suppliers, financiers, the government, and the community. Key responsibilities and accountabilities include setting strategic direction, overseeing management, ensuring compliance with laws and regulations, managing risk, overseeing financial reporting, and promoting ethical behavior. Effective corporate governance fosters transparency, accountability, and long-term sustainability, enhancing a company's reputation and building trust with investors. BAHR 213 29 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS Governance starts with the shareholders/owners delegating responsibilities through an elected board of directors to management and, in turn, to operating units with oversight and assistance from internal auditors. The board of directors and its audit committee oversee management and, in that role, are expected to protect the shareholders' rights. However, it is important to recognize that management is part of the governance framework; management can influence who sits on the board and the audit committee as well as other governance controls that might be put into place. In return for the responsibilities (and power) given to management and the board, governance demands accountability back through the system to the shareholders. However, the accountabilities do not extend only to the shareholders. Companies also have responsibilities to other stakeholders. Stakeholders can be anyone who is influenced, whether directly or indirectly, by the actions of a company. Management and the board have responsibilities to act within the laws of society and to meet various requirements of creditors, BAHR 213 employees and the stakeholders 30 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS A broad group of stakeholders has an interest in the quality of corporate governance because it has a relationship to economic performance and the quality of financial reporting. For example, employees and creditors have a vested interest in the organization and how it is governed. Regulators are a response to society's wishes to ensure that organizations, in their pursuit of returns for their owners, act responsibly and operate in compliance with relevant laws. While shareholders / owners delegate responsibilities to various parties within the corporation, they also require accountability as to how well the resources that have been entrusted to management and the board have been used. For example, the owners want accountability on such things as: Financial performance Financial transparency - financial statements that are clear with full disclosure and that reflect the underlying economics of the company. Stewardship, including how well the company protects and manages the resources entrusted to it. Quality of internal control Composition of the board of directors and the nature of its activities, including BAHR 213information on how well management incentive systems are aligned with the 31 shareholders' best interests.  RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS The owners want disclosures from management that are accurate and objectively verifiable. For instance, management has a responsibility to provide financial reports, and in some cases, reports on internal control effectiveness. Management has always had the primary responsibility for the accuracy and completeness of an organization's financial statements. From a financial reporting perspective, it is management's responsibility to: Choose which accounting principles best portray the economic substance of company transactions. Implement a system of internal control that assures completeness and accuracy in financial reporting. Ensure that the financial statements contain accurate and complete disclosure. BAHR 213 32 Get ¼ Sheet of paper  RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 34 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 35 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 36 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 37 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 38 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 39 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 40 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 41 RELATIONSHIP BETWEEN SHAREHOLDERS/OWNERS AND OTHER STAKEHODLERS BAHR 213 42 Thank you!