Introduction To Governance, Business Ethics, Risk Management, And Internal Control PDF

Governance and Business Ethics, Risk Management, and Internal Control: A Critical View 1  Governance Governance- comprises all of the processes of governing - whether undertaken by the government of a state, by a market or by...

Governance and Business Ethics, Risk Management, and Internal Control: A Critical View 1  Governance Governance- comprises all of the processes of governing - whether undertaken by the government of a state, by a market or by a network - over a social system (family, tribe, formal or informal organization, a territory or across territories) and whether through the laws, norms, power or language of an organized society. 2 3  Forms of Government Anarchy Kleptocracy Aristocracy Meritocracy Bureaucracy Monarchy Oligarchy Capitalism Plutocracy Colonialism Republicanism Communism Socialism Democracy Theocracy Totalitarianism Federalism Tribalism Feudalism Liberalism Marxism 4  Governance is a social responsibility Social responsibility is an ethical theory, in which individuals are accountable for fulfilling their civic duty; the actions of an individual must benefit the whole of society. In this way, there must be a balance between economic growth and the welfare of society and the environment. 5  Some CSR activities Top Commitment. CSR Charter. CSR Management. Social Activities. Responsibility to Customers. Responsibility to Suppliers. Responsibility to Employees. Responsibility to Investors. Responsibility to Communities. Environmental Activities. CSR Reports. External Assessment Results. ISO Certification Status. 6  Ethics It moral principles that govern a person's behaviour or the conducting of an activity ‘’It is about assessing what is right and wrong’’ Right things vs wrong doings 7 “Ethics can hardly be taught by a set of classroom courses. Rather, they need to be built-in through training and live examples.” QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. 8  Risk management Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. Threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters 9  Common Types of Risk Financial Risk Market Risk Liquidity Risk Operational Risk 10  Internal Control Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. 11 Internal control is an interlocking set of activities that are layered onto the normal operating procedures of an organization, with the intent of safeguarding assets, minimizing errors, and ensuring that operations are conducted in an approved manner. 12 Internal Control interrelated components Control (Operating) Environment Risk Assessment Control Activities Information and communication Monitoring 13  CORPORATE GOVERNANCE -it defined as the system of rules, practices and process which business corporations are directed and controlled. 14 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. 15 Objectives of Corporate Governance Fair and Equitable Treatment of Shareholders – It ensures equitable and fair treatment of all shareholders of the company. Self-Assessment – it enables firms to assess their behavior and actions before they are scrutinized by regulatory agencies. 16  Objectives of Corporate Governance Increase Shareholders’ Wealth – Its main objective is to protect the long term interests of the shareholders. Transparency and Full Disclosure – It aims at ensuring higher degree of transparency in an organization by encouraging full disclosure of transactions in the company. 17  Principles of Effective Corporate Governance Corporate governance is transparent, it protects the rights of shareholders and includes both strategic and operational risk management. 18  Positive answers to the following questions indicate a firm’s conformance and compliance with basic principles of good governance: 19  Transparency and Full Disclosure Does the board meet the information needs of investment Does it safeguard communities? integrity financial Does the board have reporting? sound disclosure policies and practices ?  Does it make timely and balanced disclosure?  Can an outsider meaningfully analyze the organization’s actions and performance? 20  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 21 proper behavior?  Corporate Control Has the board built long-term sustainable growth in shareholders’ value for the corporation? Does it create an environment to the 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 best interests prevail at all times? 22  Illustrative Application of the Basic Principles of Corporate Governance and Best Practice Recommendations 23 24 25