Corporate Governance

Small G Governance or Corporate Governance is defined as a process, initiated by the companys board
of directors, managers, and other personnel to apply a strategy across the company that will achieve
Stakeholders
The corporate governance framework should recognise the rights of stakeholders established by law or
through mutual agreements and encourage active co-operation between corporations and stakeholders
in creating wealth, jobs, and the sustainability of financially sound enterprises.
*May include shareholders, creditors, customers, suppliers, etc.
Executive Directors
A director who is also the head of a department or unit of the corporation or performs any work related
to its operation.
Non-executive Directors
A director who is not the head of a department or unit of the corporation nor performs any work related
to its operation
Independent Directors
A person who, apart from his fees and shareholdings, is independent of management and free from any
business or other relationship which could, or could reasonably be perceived to, materially interfere with
his exercise of independent judgment in carrying out his responsibilities as a director.
Governance (IFAC Definition)
The ultimate objective of governance is to create and optimize sustainable organizational success and
stakeholder value, balancing the interests of the various stakeholders. It comprises arrangements put in
place to ensure that organizations define and achieve intended outcomes.
Corporate Governance (SEC Definition)
Corporate Governance- the framework of rules, systems and processes in the corporation that governs
the performance by the Board of Directors and Management of their respective duties and
responsibilities to the stockholders.
Corporate Governance (Fraud Deterrence Cycle)
Corporate governance is about setting and monitoring objectives, tone, policies, risk appetite,
accountability, and performance. Embodied in this definition is also a set of attitudes, policies,
procedures, delegations of authority, and controls that communicate to all constituencies, including
senior management, that fraud will not be tolerated. It further communicates that compliance with laws,
ethical business practices, accounting principles, and corporate policies is expected, and that any
attempted or actual fraud is expected to be disclosed by those who know or suspect that fraud has
occurred.

The 4 elements of Fraud Deterrence Cycle are the following:

Corporate Governance
Transactional Level Controls
Retrospective Examinations of Processes and Transactions
Investigations and remediation of problems
Ethics
Ethics are a system of moral principles and a branch of philosophy which defines what is good for
individuals and society.
Integrity
Integrity means following your moral or ethical convictions and doing the right thing in all circumstances,
even if no one is watching you.
Corporate Culture
Listed companies in Korea, it is argued, rely on their own internal governance and corporate culture for
risk management, whereas there are externally mandated risk management frameworks in place in the
SOEs.
Governance Journey
The Governance Journey never ends.
Responsibility
The Board of Directors are given authority to act on behalf of the company. They should therefore accept
full responsibility for the powers that it is given and the authority that it exercises. The Board of Directors
are responsible for overseeing the management of the business, affairs of the company, appointing the
chief executive and monitoring the performance of the company. In doing so, it is required to act in the
best interests of the company.

Accountability goes hand in hand with responsibility. The Board of Directors should be made accountable
to the shareholders for the way in which the company has carried out its responsibilities.
Accountability, Transparency, Fairness
All doubts or questions that may arise in the interpretation or application of this Code shall be resolved in
favor of promoting transparency, accountability and fairness to the stockholders and investors of the
corporation.

Accountability
Corporate accountability refers to the obligation and responsibility to give an explanation or reason for
the companys actions and conduct.

In brief:
The board should present a balanced and understandable assessment of the companys position and
prospects;
The board is responsible for determining the nature and extent of the significant risks it is willing to
take;
The board should maintain sound risk management and internal control systems;
The board should establish formal and transparent arrangements for corporate reporting and risk
management and for maintaining an appropriate relationship with the companys auditor, and
The board should communicate with stakeholders at regular intervals, a fair, balanced and
understandable assessment of how the company is achieving its business purpose.

Transparency
A principle of good governance is that stakeholders should be informed about the companys activities,
what it plans to do in the future and any risks involved in its business strategies.

Transparency means openness, a willingness by the company to provide clear information to

shareholders and other stakeholders. For example, transparency refers to the openness and willingness
to disclose financial performance figures which are truthful and accurate.

Disclosure of material matters concerning the organisations performance and activities should be timely
and accurate to ensure that all investors have access to clear, factual information which accurately
reflects the financial, social and environmental position of the organisation. Organisations should clarify
and make publicly known the roles and responsibilities of the board and management to provide
shareholders with a level of accountability. Transparency ensures that stakeholders can have confidence
in the decision-making and management processes of a company.
Fairness
Fairness refers to equal treatment, for example, all shareholders should receive equal consideration for
whatever shareholdings they hold. In addition to shareholders, there should also be fairness in the
treatment of all stakeholders including employees, communities and public officials. The fairer the entity
appears to stakeholders, the more likely it is that it can survive the pressure of interested parties.

The 2015 G20 OECD Principles

The updated G20/OECD Principles of Corporate Governance (the Principles) therefore provide a very
timely and tangible contribution to the G20 priority in 2015 to support investment as a powerful driver of
growth.
4 core principles:
-Responsibility; Accountability; Transparency; and Fairness
Governance Self-Rating System
The Board may create an internal self-rating system that can measure the performance of the Board and
Management in accordance with the criteria provided for in this Code. The creation and implementation
of such self-rating system, including its salient features, may be disclosed in the corporations annual
report.
Strategic Direction
A course of action that leads to the achievement of the goals of an organization's strategy.
Internal control
The system established by the Board of Directors and Management for the accomplishment of the
corporations objectives, the efficient operation of its business, the reliability of its financial reporting,
and faithful compliance with applicable laws, regulations and internal rules.
Audit Committee
The Audit Committee shall consist of at least three (3) directors, who shall preferably have accounting
and finance backgrounds, one of whom shall be an independent director and another with audit
experience.
Risk

The Risk Committee

a) is required to be a stand-alone committee, distinct from the audit committee;
b) has a chair who is an independent director and avoids dual-hatting with the chair of the board, or
any other committee;
c) includes members who are independent;
d) includes members who have experience with regard to risk management issues and practices;
e) discusses all risk strategies on both an aggregated basis and by type of risk;
f) is required to review and approve the firms risk policies at least annually;
g) oversees that management has in place processes to ensure the firms adherence to the approved
risk policies.
The Risk Management function
a) Is independent of business lines (i.e., is not involved in revenue generation) and reports to the CRO;
b) has authority to influence decisions that affect the firms risk exposures;
c) is responsible for establishing and periodically reviewing the enterprise risk governance framework
which incorporates the risk appetite framework (RAF), risk appetite statement (RAS) and risk limits.
I. The RAF incorporates an RAS that is forward-looking as well as information on the types of
risks that the firm is willing or not willing to undertake and under what circumstances. It
 contains an outline of the roles and responsibilities of the parties involved, the risk limits
established to ensure that the framework is adhered to, and the escalation process where
breaches occur.
II. TheRASislinkedtothefirmsstrategic,capital,andfinancialplansandincludesboth qualitative and
quantitative measures that can be aggregated and disaggregated such as measures of loss
or negative events (e.g., earnings, capital, liquidity) that the board and senior management
are willing to accept in normal and stressed scenarios.
III. Risk limits are linked to the firms RAS and allocated by risk types, business units, and
business lines or product level. Risk limits are used by management to control the risk profile
and linked to compensation programmes and assessment.
d) has access to relevant affiliates, subsidiaries, and concise and complete risk information on a
consolidated basis; risk-bearing affiliates and subsidiaries are captured by the firm-wide risk
management system and are a part of the overall risk governance framework;
e) provides risk information to the board and senior management that is accurate and reliable and
periodically reviewed by a third party (internal audit) to ensure completeness and integrity;
f) conducts stress tests (including reverse stress tests) periodically and by demand. Stress test programs
and results (group-wide stress tests, risk categories and stress test metrics) are adequately reviewed
and updated to the board or risk committee. Where stress limits are breached or unexpected losses
are incurred, proposed management actions are discussed at the board or risk committee. Results of
stress tests are incorporated in the review of budgets, RAF and ICAAP processes, and in the
establishment of contingency plans against stressed conditions.
Internal Audit
An independent and objective assurance activity designed to add value to and improve the corporations
operations, and help it accomplish its objectives by providing a systematic and disciplined approach in
the evaluation and improvement of the effectiveness of risk management, control and governance
processes.
Shareholder
A shareholder is a person or entity that owns shares in a corporation. A shareholder is entitled to vote for
the board of directors and a small number of additional issues, as well as receive dividends from the
business and share in any residual cash if the entity is sold or dissolved. The holder of preferred shares
may have additional rights. The shareholders are a subset of the larger group of stakeholders.
Governance practices
Monitoring the effectiveness of the companys governance practices and making changes as needed.
Good Governance
Good corporate governance is a key factor in underpinning the integrity and efficiency of a company.
Poor corporate governance can weaken a companys potential, can lead to financial difficulties and in
some cases can cause long-term damage to a companys reputation. It is a key part of the contract that
underpins economic growth in a market economy and public faith in that system.
Related Party transactions
To ensure that the company is being run with due regard to the interests of all its investors, it is essential
to fully disclose all material related party transactions and the terms of such transactions to the market
individually. In many jurisdictions this is indeed already a legal requirement. In case the jurisdiction does
not define materiality, companies should be required to also disclose the policy/criteria adopted for
determining material related party transactions.
Directors Independence criteria
In defining independence for members of the board, some national principles of corporate governance
have specified quite detailed presumptions for non-independence which are frequently reflected in listing
requirements. While establishing necessary conditions, such negative criteria defining when an
individual is not regarded as independent can usefully be complemented by positive examples of
qualities that will increase the probability of effective independence.
Stewardship
Shareholders and potential investors require access to regular, reliable and comparable information in
sufficient detail for them to assess the stewardship of management, and make informed decisions about
the valuation, ownership and voting of shares. Insufficient
Oversight
The effectiveness and credibility of the entire corporate governance framework and company
oversight depend to a large extent on institutional investors willingness and ability to make
informed use of their shareholder rights and effectively exercise their ownership functions in
companies in which they invest.
The audit committee or an equivalent body should provide oversight of the internal audit activities and
should also be charged with overseeing the overall relationship with the external auditor including the
nature of non-audit services provided by the auditor to the company.
An area of increasing importance for boards and which is closely related to corporate strategy is
oversight of the companys risk management. Such risk management oversight will involve
oversight of the accountabilities and responsibilities for managing risks, specifying the types and
degree of risk that a company is willing to accept in pursuit of its goals, and how it will manage the risks
it creates through its operations and relationships.
The Board should demonstrate a leadership role to ensure that an effective means of risk oversight is
in place.
The board will also need to ensure that there is appropriate oversight by senior management.

Documentation
Proper documentation should be maintained for the assessment of internal controls, addressing
financial, operational and compliance risks.
Risk management
While it is the job of the CEO and senior management to assess and manage the listed company's
exposure to risk, the audit committee must discuss guidelines and policies to govern the process by which
this is handled. The audit committee should discuss the listed company's major financial risk exposures
and the steps management has taken to monitor and control such exposures. The audit committee is not
required to be the sole body responsible for risk assessment and management, but, as stated above, the
committee must discuss guidelines and policies to govern the process by which risk assessment and
management is undertaken. Many companies, particularly financial companies, manage and assess their
risk through mechanisms other than the audit committee. The processes these companies have in place
should be reviewed in a general manner by the audit committee, but they need not be replaced by the
audit committee.
Source: NYSE Listed Company Manual, Corporate Governance Standards, s303.A.07(D
Emerging markets
Emerging markets play an increasingly important role in the global economy, given their high economic
growth prospects and their improving physical and legal infrastructures. Combined, these countries
account for nearly 40 percent of global gross domestic product, according to the International Monetary
Fund. For some investors, emerging markets offer an attractive opportunity, but they also involve
multifaceted risks at the country and company levels. These risks require investors to have a much better
understanding of the firm-level governance factors in different markets.
Country-specific research on emerging markets has delivered mixed results, suggesting that empirical
evidence on the relationship between corporate governance indicators and firm performance in
emerging markets is inconclusive. Governance arrangements that are optimal for investor protection in
one country could be suboptimal for companies in another. For the past three years, approximately
1,0001,200 papers have been published each year on the Social Sciences Research Network with the
term corporate governance appearing as a key word in the abstract. However, fewer than 1 percent of
these papers focus on emerging markets. These numbers indicate a relatively limited scholarly focus on
emerging markets, possibly due to data limitations.

Several factors have proven to be fundamentally important in shaping firms governance choices in
emerging markets:
The quality of public governance affects the level of law enforcement and, in turn, the extent of
bribery and other forms of corruption. These factors influence the quality of corporate
governance and corporate transparency in a country. Compliance with the law and the
avoidance of bribes can be a source of competitive disadvantage in countries where compliance
adds to the operating costs and runs counter to business norms that tolerate bribery. Further,
research suggests that it is a misconception that all companies in countries with weak investor
protection have weak corporate governance systems.
In countries where state ownership is common, the incentives and the quality of government
officials and regulators are key determinants of corporate behavior. For example, state
ownership is associated with better performance in some countries, such as in China; in others,
such as in Turkey, the correlation is negative. This difference, which can be attributed to many
factors, is usually contingent on the incentive structures for public officials.
Product market competition, although frequently considered a positive influence on corporate
governance practices, is generally far from perfect in emerging markets, particularly in protected
sectors.
Financial market development is often hampered by weak legal foundations and enforcement.
As a result, the controlling shareholders invest their free cash in new businesses that they
control. Such diversified investments under common control lead to the formation of business
groups. In some emerging markets, such as India, business group structures that function as
internal financial markets are correlated with better performance. In others, such as Colombia,
group affiliation is negatively associated with performance. Based on our analysis, this variation
likely depends on the primary motivation for the emergence of business groups in the first place,
which varies from tax optimization to lowering transaction costs to diversifying risks. There is
also a question of howand whethergroup structures are regulated. In Taiwan, for example,
connected enterprises are mandated to disclose crossholdings and pyramidal links. In India,
under the new Company Law, a company can hold as many subsidiaries as it likes, but a
subsidiary cannot act as the holding company of another company. These provisions aim to
prevent private control over public companies through pyramidal structures.
Ownership structures determine the nature of the relationship between the board and
performance. In many emerging economies, controlling families occupy managerial positions in
listed firms, and succession planning is often focused on family members and not on professional
managers. Family presence, especially the founders presence on the board, is associated with
better performance in some countries where relationships matter more and the business elite
are tightly connected, such as in Thailand. In other markets, such as the Republic of Korea, the
presence of outsiders has a positive effect on performance.
Laws and Regulatory organizations
International:
-Internal Financial Reporting Standards Board
-Bureau of Internal Revenue
-Committee of Sponsoring Organization of the Treadway-control (COSO)

Philippines:
-SEC
-BOA
-BIR
-PRC
-BOI (Board of Investments)
-PEZA (Philippine Economic Zone Authority)
-PPSAA (Philippine Public Sector Auditing and Assurance)
-COA
-PASPC (Philippine Auditing Standards and Practices Council)
-Philippine Financial Accounting Standards Council
-IFRSB

Market Stability; Political and economic stability; Financial stability (Big G Governance)
Market Stability
Market Stability is driven by investors and those in a position of oversight requiring accurate, complete,
and transparent information.
Political and Economic Stability
Political and economic stability is driven by local governments imposing economic principles and rules on
specific industries.
Financial Stability
Financial Stability is often identified as the measure between stock prices and asset values.

Processes initiated by the Board, managers and personnel

Corporate Governance?
Separation of Chair and CEO
In countries with single tier board systems, the objectivity of the board and its independence from
management may be strengthened by the separation of the role of chief executive and Chair. Separation
of the two posts is generally regarded as good practice, as it can help to achieve an appropriate balance
of power, increase accountability and improve the boards capacity for decision making independent of
management.
Equitable Treatment of Shareholders
The corporate governance framework should protect and facilitate the exercise of shareholders rights
and ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All
shareholders should have the opportunity to obtain effective redress for violation of their rights.
Processes and procedures for general shareholder meetings should allow for equitable treatment of all
shareholders. Company procedures should not make it unduly difficult or expensive to cast votes.
Strategy
Strategy is a high level plan to achieve one or more goals under conditions of uncertainty.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In todays market- oriented
economy, the need for corporate governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance. Corporate Governance is essential to develop added
value to the stakeholders.
Statutory/Contractual Compliance (SEC)
2015 g20/OECD Principles of Corporate Governance

Senior Management
The board will also need to ensure that there is appropriate oversight by senior management.
Normally, this includes the establishment of an internal audit system directly reporting to the
board.
Countries may wish to consider measures such as voluntary targets, disclosure requirements,
boardroom quotas, and private initiatives that enhance gender diversity on boards and in senior
management.
while it is the job of the CEO and senior management to assess and manage the listed companys
exposure to risk, the audit committee must discuss guidelines and policies to govern the process by which
this is handled
Succession planning for senior management positions is of critical importance and helps to lessen the
influence of dominant personalities and behaviours.
The MAS issued additional guidelines on corporate governance for financial institutions in April 2013.
While appointing a CRO is not mandatory, it is required that the CRO should have a reporting line to the
board or board risk committee and have the right to seek information and explanations from senior
management.
Risk management in Swiss companies is primarily seen as a responsibility of line management.
Companies increasingly adopt risk policies that assign members of senior management as risk owners
for particular risks.
provides risk information to the board and senior management that is accurate and reliable and
periodically reviewed by a third party (internal audit) to ensure completeness and integrity

Forensic Accounting
Forensic accounting utilizes accounting, auditing and investigative skills to conduct an examination into a
company's financial statements. Thus, forensic accounting provides an accounting analysis suitable for
court. Forensic accountants are trained to look beyond the numbers and deal with the business reality of
a situation. They are frequently used in fraud cases. Forensic Accounting encompasses both Litigation
Support and Investigative Accounting.
Internal Auditor
The highest position in the corporation responsible for internal audit activities. If internal audit activities
are performed by outside service providers, he is the person responsible for overseeing the service
contract, the overall quality of these activities, and follow-up of engagement results.
The Corporate Secretary
The Corporate Secretary, who should be a Filipino citizen and a resident of the Philippines, is an officer of
the corporation. He should -
Be responsible for the safekeeping and preservation of the integrity of the minutes of the
meetings of the Board and its committees, as well as the other official records of the
corporation;
Be loyal to the mission, vision and objectives of the corporation;
Work fairly and objectively with the Board, Management and stockholders;
Have appropriate administrative and interpersonal skills;
 If he is not at the same time the corporations legal counsel, be aware of the laws, rules and
regulations necessary in the performance of his duties and responsibilities;
Have a working knowledge of the operations of the corporation;
Inform the members of the Board, in accordance with the bylaws, of the agenda of their
meetings and ensure that the members have before them accurate information that will enable
them to arrive at intelligent decisions on matters that require their approval;
Attend all Board meetings, except when justifiable causes, such as, illness, death in the
immediate family and serious accidents, prevent him from doing so;
Ensure that all Board procedures, rules and regulations are strictly followed by the members
If he is also the Compliance Officer, perform all the duties and responsibilities of the said officer
as provided for in this Code.
The Compliance Officer
The Board shall appoint a Compliance Officer who shall report directly to the Chair of the Board. He shall
perform the following duties:
Monitor compliance by the corporation with this Code and the rules and regulations of
regulatory agencies and, if any violations are found, report the matter to the Board and
recommend the imposition of appropriate disciplinary action on the responsible parties and the
adoption of measures to prevent a repetition of the violation;
Appear before the Commission when summoned in relation to compliance with this Code; and
Issue a certification every January 30th of the year on the extent of the corporations compliance
with this Code for the completed year and, if there are any deviations, explain the reason for
such deviation.
*at least a Vice President; In the absence of such appointment, the Corporate Secretary, preferably
a lawyer, shall act as Compliance Officer.
Policies and Procedures
The Board should formulate the corporations vision, mission, strategic objectives, policies and
procedures that shall guide its activities, including the means to effectively monitor Managements
performance.
Financial Reporting
Management should formulate, under the supervision of the Audit Committee, the rules and procedures
on financial reporting and internal control. The corporation should consistently comply with the financial
reporting requirements of the Commission.
Internal Control System
The framework under which internal controls are developed and implemented (alone or in concert with
other policies or procedures) to manage and control a particular risk or business activity, or combination
of risks or business activities, to which the corporation is exposed.
Fraud Audit
Meticulous review of financial documents, while one searches for the point where the numbers and/or
financial statements do not mesh
Code of Conduct
To make the objectives of the board clear and operational, many companies have found it useful to
develop company codes of conduct based on, inter alia, professional standards and sometimes broader
codes of behaviour, and to communicate them throughout the organisation.
Corporate Governance Charter
It is also good practice to disclose the articles of association, board charters and, where applicable,
committee structures and charters.
Fiduciary Duty of Care
This principle states the two key elements of the fiduciary duty of board members: the duty of care and
the duty of loyalty. The duty of care requires board members to act on a fully informed basis, in good
faith, with due diligence and care. The duty of loyalty is of central importance, since it underpins effective
implementation of other principles in this document relating to, for example, the equitable treatment of
shareholders, monitoring of related party transactions and the establishment of remuneration policy for
key executives and board members.