Corp. Gov. Structure et al

• Corporate Governance Structure

  Framework that defines the roles, responsibilities and relationships between the board, management and shareholders to ensure the company is managed effectively and in the best interests of stakeholders
• Explain and illustrate a standard Corporate Governance Structure

  1. Determine strategic direction

  2. Provide oversight

  3. Manage operations

  4. Monitor and provide assurance
• Two components of Governance

  • Strategic direction
  • Oversight
• Principles of Governance

  • Independent and objective board
  • Understanding of operating structure
  • Organizational strategy to measure performance
  • People, policies, procedures and processes
  • Effectively and efficiently directs activities to meet stakeholder objectives
  • Organizational structure supports strategic objectives
  • Governing policy for key activities
  • Clear lines of responsibility and accountability
  • Effective interaction between board, management and assurance providers
  • Appropriate oversight by management
  • Compensation policies encourage appropriate behavior
  • Reinforcement of ethical culture
  • Effective use of internal and external auditors
  • Clear risk management policies and processes
  • Transparent disclosure of key information
  • Comparison with national codes or best practices
  • Oversight of related party transactions and conflicts of interest
• Practices in Governance reflect unique culture and depend on it for effectiveness
• Organizational Culture

  Sets values, objectives, and strategies<|>Defines roles and behaviors<|>Measures performance<|>Specifies accountability
• Practices in Governance ensure the organization is managed effectively and in the best interests of stakeholders
• Constituents of Corporate Governance

  • Board of Directors
  • Shareholders & Stakeholders
  • Management
• Board of Directors

  • Pivotal role
  • Accountable to stakeholders
  • Directs management
• Shareholders & Stakeholders

  • Participate in appointment of directors
  • Hold the Board of Directors accountable for governance through proper disclosures
• Management

  • Act on the direction of the Board of Directors
  • Provide requisite information to the Board of Directors for decision making
  • Implement and monitor control systems
• Internal Governance Mechanisms

  • Board of Directors (size, independence, chairman/CEO positions, committees)
  • Executive Compensation
  • Ownership Structure (concentrated vs dispersed, identity of owners, other blockholders)
• External Governance Mechanisms

  • External Auditors
  • Debt & Equity Markets (monitoring by debt holders, analysts, mergers & acquisitions)
  • Legal/Regulatory System (common vs civil law, extent of law enforcement, recent regulations)
• Board of Directors

  Responsible for overseeing management and representing shareholders' interests
• Board Structure

  • US and Australia have single-tiered boards, headed by a Chairman
  • Some countries have two-tiered boards with different roles and composition
• Board Size

  Appropriate size, usually 5-15 directors
• Board Independence

  Majority/high proportion of outside/independent directors with no personal interest in the company
• Chairman/CEO Positions

  Positions should be separated to avoid concentration of power and reduce monitoring
• Board Committees

  • Audit Committee
  • Remuneration Committee
  • Nomination Committee
• Executive Compensation

  Variable performance packages to align interests of executives and shareholders
• Ownership Structure

  • Identity of controlling owner can have governance implications
  • Family-controlled, government-owned and widely-held companies have different governance practices
• Blockholders

  Non-management shareholders holding at least 5% of shares, can increase monitoring of the firm
• External Auditors

  Mandatory for listed companies, should be independent of management
• Monitoring by Debt Holders

  Debt holders actively monitor management to ensure debt conditions are met and there is no default
• The board is responsible for determining the company's aims and strategies, monitoring progress, and appointing a CEO
• Boards must agree on the direction, ideas, and information sources to achieve the company's aims
• Principles in Governance

  • Transparent disclosure of key information to stakeholders
  • Comparison of governance processes with national codes or best practices
  • Oversight of related party transactions and conflict of interests
• Practices in Governance

  • Reflects unique culture and largely depend on it for effectiveness
  • Sets values, objectives, and strategies
  • Defines roles and behaviors
  • Measures performance
  • Specifies accountability
• Practices in Governance

  • Ensure that organization complies with society's legal and regulatory rules
  • Satisfy the generally accepted business norms and enhance the interests of stakeholders
  • Report fully and truthfully to its stakeholders
• An Integrated System of Governance

  Includes Legal System, Judiciary System, Regulatory System, and Financial Reporting
• Legal System

  • The Revised Corporation Code, RA 11232
  • Securities Regulation Code (R.A. 8799)
  • General Banking Law
  • Central Bank Act
• Financial Reporting System

  • Philippine Financial Reporting Standards
  • Promulgated by Philippine SEC, Financial Reporting Standards Council, IFRSB
  • Accounting principles and practices with long history of acceptance and usage
  • Revised Code of Corporate Governance
• Regulatory System

  • Rules & regulations issued by agencies that regulate corporate entities (SEC), publicly-listed firms (PSE), financial institutions (BSP)
• Judiciary System

  • Philippine judiciary now vested with original jurisdiction to hear cases that used to be resolved by the SEC
• Sarbanes-Oxley Act of 2002


  Significantly increased governance practices and personal liability of directors in the US in response to the Enron crisis
• Corporate Governance Best Practice Guidelines

  Issued by most nations to assist companies in improving their governance, but are voluntary
• Key Elements of Sarbanes-Oxley

  • Increased personal liability of directors, required CEO/CFO certification of financial reports, prohibited loans to executives, required independent audit committees, etc.
• Compliance with Sarbanes-Oxley Act is seen as too burdensome and costly by many companies
• The quality of public securities enforcement is unrelated to stock market development, but the quality of disclosure is strongly related to stock market development
• Philippines SEC "Revised Code of Corporate Governance"

  Aims to actively promote corporate governance reforms to raise investor confidence, develop the capital market, and help achieve high sustained growth