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CORPORATE GOVERNANCE
The cornerstone of the
modern market oriented
economy
GOVERNANCE
Establishment of policies, and continuous
monitoring of their proper implementation, by the
members of the governing body of an organization.
It includes the mechanisms required to balance the
powers of the members (with the associated
accountability) and their primary duty of
enhancing the prosperity and viability of the
organization
CORPORATE GOVERNANCE
It refers to the processes and structures by
which the business and affairs of an
institution are directed and managed.
It is about building credibility, ensuring
transparency and accountability as well as
maintaining an effective channel of
information disclosure that would foster
good corporate performance.
CORPORATE GOVERNANCE
Doing the right things and doing things
right
Doing the right things for the organization
and doing things the right way independent
of personal interests
It is the processes and systems by which a
company is governed which ensure
appropriate checks and balances.
Corporate Governance
Why is it important?
Proliferation of financial scandals and crisis
Loss of trust of investors
Globalization lead to increasing cross-border
investment opportunities but investors may not
have knowledge about the regulatory
framework of overseas investees
Corporate Governance
Why is it important?
Investors are not willing to invest in
countries/companies that are corrupt, prone to
fraud, poorly managed and lacking sufficient
protection for investors rights
Securities and company law protection may help,
but not enough
Corporate Governance supplements the legal
framework
Corporate Governance
Why is it important?
Corporate Governance also plays an important
role in maintaining corporate integrity and
managing the risk of corporate fraud,
combating against management misconduct
and corruption
Major elements of
Corporate Governance
Board Commitment
Good board practices
Functional and effective control
environment
Transparent disclosure
Well defined shareholder rights
Board of Directors
Assume responsibility of leadership and
control of the corporate
Direct and supervise the corporates affairs
Make decisions in the interests of the
corporate
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Board of Directors
Regular meetings
Active participation
Freedom to include items in agenda
Sufficient notice for board meetings
Access to advice and services of company
secretary and independent professional advice
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Board of Directors
Full record of board/committee minutes, and
available for inspection
Independent non-executive directors should be
present at board meetings to discuss matter involving
conflict of interest
Abstain from voting if conflict of interest exists
Insurance coverage in respect of legal action against
directors
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Chairman
Provide leadership for the board
Ensure the board works effectively and discharges its
responsibilities
Ensure good corporate governance practices and
procedures are in place
Ensure all directors are properly briefed on issues
arising at board meeting
Responsible for ensuring appropriate information
received by directors
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Chairman
Encourage full and active contribution to the boards
affair
Ensure effective communication between board and
the shareholders
Hold annual meetings with non-executive directors
Ensure constructive relationships between executive
and non-executive directors
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Board Composition
Balance of skills and experiences
Balanced composition of executive and nonexecutive directors
Non-executive directors should be of sufficient
calibre
Independent non-executive directors should be
expressly identified
List of directors updated and their respective role and
function identified
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Responsibilities of directors
Keep abreast of the responsibilities as a director
Exercise duties of care, skill, integrity and diligence
expected
Ensure proper understanding of the operation,
business and the regulatory requirement
Contribute sufficient time and resources to serve the
corporate
Attend AGMs to share the views of shareholders
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Non-executive directors
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Information access by
directors
Directors should be provided with accurate
and appropriate information in order to make
informed decision and to discharge their
responsibilities
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Information access by
directors
Agenda and board papers should be sent in full
in a timely manner to directors
Information supplied must be complete and
reliable
Directors should have access to the senior
management for information
Information supplied should be of form and
quality to facilitate informed decision
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Remuneration Committee
Remuneration committee to be formed, mainly from
non-executive directors
Consult Chairman/CEO if needed
Access to professional advice, market comparable
information
Make recommendation on policy and structure of
remuneration
Determine specific remuneration packages of all
executive directors and senior management
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Remuneration Committee
Review and approve performance-based
remuneration
Review and approve compensation
arrangement in connection with loss or
termination of office, dismissal or removal of
directors for misconduct
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Audit Committee
Have clear terms of reference
A formal and transparent arrangement to apply
the financial reporting and internal control
principles and maintain appropriate
relationship with external auditors
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Audit Committee
Full minutes of audit committee to be kept
Provided with sufficient resources to discharge
its duties
Independent from external auditors
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Audit Committee
Make recommendation for appointment and
removal of external auditors
Monitor the effectiveness of the audit process,
ensuring auditors independence and
objectivity
Monitor the integrity of the financial
disclosures
Oversight of the financial reporting and
internal control procedures
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Corporate Governance
Corporate Governance is a dynamic process and is
continually evolving
AND
It has no boundaries or limits!
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RISK MANAGEMENT
Identification, assessment, and
prioritization of risks
It is defined in ISO 31000 as the effect of
uncertainty on objectives (whether positive
or negative) followed by coordinated and
economical application of resources to
minimize, monitor, and control the
probability and/or impact of infortune
events or to maximize the realization of
opportunities.
RISK MANAGEMENT
Key Issues
Probability (likelihood) of event occurring
Severity (impact) of the event on set objectives
The strategies
Typically include transferring the risk to another
party, avoiding the risk, reducing the negative
effect or probability of the risk, or even accepting
some or all of the potential or actual
consequences of a particular risk
Common risks in
Financial Institutions
Credit Risks most simply defined as the
potential that a bank borrower or counterparty
will fail to meet its obligations in accordance with
agreed terms
Market Risks refers to the risk of loss to an
institution resulting from movements in market
prices, changes in interest rates, FX rates, and
equity and commodity prices.
Operational Risks the risk of loss resulting
from inadequate or failed internal processes,
people and systems, or from external events
HOW DO THEY
INTERSECT?
Company must focus on achieving growth and
profitability within appropriate risk control
boundaries
Group Risk Function to probe, analyze, mitigate
and accept risk within agreed appetite and
bounds
Customer needs and financial objectives
Corporate Governance: Monitoring and effective
controls, using a macro view of the institution
built around a shared cultural approach.
Corporate Governance
Tess R. Dimayacyac
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