study purposes

1. CORPORATE GOVERNANCE AND
ETHICS
Members:
Kimberly Eblamo
Lara Velle Tacbobo
Roxanne Mae C. Asok
Kenny Madrid

2. OBJECTIVES
:
 Describe the nature and elements of corporate governance
 Evaluate the potential challenges in corporate governance
 Differentiate the two distinct approaches to corporate governance
 Apply agency theory in corporate governance
 Practice stewardship theory in corporate governance
 Employ stakeholder theory in corporate governance

3.  Corporate governance is a system of processes, policies and rules that direct and control an
organization's conduct for the good management of companies.
 Corporate governance is also a process that aims to apportion corporate resources in a way that
enhances value for all stakeholders such as the shareholders, investors, employees, customers,
suppliers environment and the community in general.
 Corporate governance consists of the relationships between the numerous stakeholders involved
and the goals for which the corporation is directed.
Corporate Governance
Objective:
 The main objective of corporate governance is to put an end to the abusive and somehow unlawful and
improper activities of some entrepreneurs and business owners.
 Which is to gain the trust of investors and other stakeholders.
 Basically, corporate governance is about harmonizing profitability and sustainability.

4. ELEMENTS OF CORPORATE
GOVERNANCE

5. Direction -Providing overall direction for the business, its leaders and employees is a major
part of corporate governance. Making strategic decisions and discussing current and future
concerns of the company are tactics of this element.
Oversight -The corporate governance role also provides some level of leadership oversight in
companies.
Stakeholder relations - Corporate governance encompasses a business's accountability to
each of its stakeholder groups.
Corporate citizenship - Philanthropy and other charitable contributions are among common
things noted within corporate citizenship statements. In general, governance includes an
awareness that companies should balance profit-generating activities with responsible policies
and practices.
Elements of Corporate Governance

6. Independence of directors - Having a majority of non-executive independent directors will
help avoid prejudice and conflicts of interest between the board and the management.
Independent judgment is almost always in the best interest of the company.
Effective risk management - Companies cannot avoid risk, so it is vital to implement
effective strategic risk management. For instance, a company's management might decide to
diversify operations so the business can count on revenue from several different markets,
rather than depend on just one.
Solid structure and organisation - A solid structure and organisation within the company is
essential to fluidly implementing and dispersing corporate governance objectives. Companies
will need to be able to monitor all of their dealings, interactions, and transactions effectively.
Elements of Corporate Governance

7. Transparency - Managers sometimes keep their own counsel, limiting the information that
filters down to employees. But corporate transparency helps unify an organisation.
Transparency is also important to the public, who tend not to trust secretive corporations.
Self-Evaluation - Mistakes will be made, no matter how well you manage your company. The
key is to perform regular self-evaluations to identify and mitigate brewing problems.
Elements of Corporate Governance
Elements of Corporate Governance

8. The board of directors
Shareholders play a role, too
From a legal perspective, corporate governance here in
the Philippines is regulated by the Securities and
Exchange Commission (SEC) based on the Securities
Regulation Code and the Corporation Code.
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Who Is Responsible for Corporate Governance?

9. POTENTIAL CHALLENGES IN
CORPORATE GOVERNANCE

10. Conflict of interest - Avoiding conflict of interest is vital.
Oversight issues - Effective corporate governance requires the board of directors to have
substantial oversight of the company's procedures and practices.
Accountability issues - Accountability is necessary for effective corporate governance.
Transparency - In order to be transparent, a corporation must accurately report their profits and
losses and make those figures available to those who invest in their company.
Ethics violations -Members of the executive board have an ethical duty to make decisions based
on the best interests of the stockholders.
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Potential Challenges in Corporate Governance

11. Governance standards - A board should always produce unbiased rules and policies and
disseminate those standards in the business.
Short-termism - In order to implement effectively good corporate governance, it must need boards
that can manage the company on continuing years to produce sustainable value for the company.
This is problematic since there is a definite period for the directors to seat as part of the board.
Diversity - Based on good judgment and practicality, boards should possess a good combination
of skills and perspectives to ensure the success of any organization.
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Potential Challenges in Corporate Governance

12. THE TWO DISTINCT APPROACHES TO
CORPORATE GOVERNANCE
2. Principles-Based Approach
1. Rules-Based Approach

13. In a rules-based, all provisions are legal rules, supported by law which attracts punishment from
the law, if there is failure to comply. Here are the usual characteristics of a rules -based approach,
namely:
a. approved set of requirements
b. fast approach of ensuring conformity
c. implements a checklist method
d. clear difference between conformity and non-conformity
e. easy to observe that entity is conforming
f. lessening of flexibility on the part of management and auditors
g. challenging to set rules entirely for all situations
h. likely to misunderstand rules
i. similar rules apply to all, whatsoever their sizes are
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Rules-Based Approach

14. Advantages
 Companies do not have the choice of ignoring the rules.
 All companies are to meet the same minimum standards of corporate governance.
 Investor confidence in the stock market might be improved if all the stock market companies
are required to comply with recognized corporate governance rules.
Disadvantages
 The same rules might not be suitable for every company, because the circumstances of each
company are different.
 There are some aspects of corporate governance that cannot be regulated easily, such as
negotiating the remuneration of directors, deciding the most suitable range of skills and
experience for the board of directors, and assessing the performance of the board and its
directors.
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Rules-Based Approach

15. Principles-based approach is grounded on the outlook that a distinct
set of rules is unfitting for every company. Circumstances and
situations vary from companies to companies. The circumstances of a
company cab change every now and then.
In a principles-based jurisdiction, legal force applies to the provisions
of company laws but additional listing rules are enforced on a "comply
or explain" basis. If there is a reason why there is non- compliance,
there should be an explanation for the shareholders.
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Principles-based Approach

16. Here are the common characteristics of a principle-based approach, which are:
a. activities of entities must address major principles set out in codes of best practice
b. not merely a box-ticking application
c. more demanding to avoid than a rules-based approach
d. easy to observe that entity is complying
e. directors are necessary to work in the entity's best interests
f. more stretchy, and therefore better able to cope with different situations
g. easier defense for obvious breach of principles
h. but principles may be construed in different ways
Principles are very beneficial in consenting organizations to tailor-fit their interpretations of how
best to apply new practices for the distinctive situations and operational realisms of their
organization and industry. This must therefore result in better, more applicable governance actions
in comparison to minimum obedience with a set of basic rules.
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Principles-based Approach

17. SOME THEORIES IN CORPORATE
GOVERNANCE
2. Stewardship Theory
1. The Agency Theory
3. The Stakeholder Theory

18. The relationship between the agents and principals in the business is being
examined in an agency theory. The agent represents the principal in a particular
business transaction and takes decisions on behalf of the principal in an agency
relationship. Any agent is expected to disregard his self-interest in order to
represent the best interests of the principal.
Agency theory in corporate governance focuses on the relationship between
shareholders (the principals) and top management. Shareholders elect a board of
directors to make decisions on their behalf, aiming to represent their interests.
However, conflicts can arise when executives, whether intentionally or
unintentionally, make decisions that do not align with shareholders' best interests.
This theory has gained attention in the dynamic business environment, as it is
viewed and valued from various perspectives.
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The Agency Theory

19. A steward is defined as someone who protects and takes care of the needs of
others. Under the stewardship theory, company top executives protect the
interests of the owners or shareholders and make decisions on their behalf. Their
sole objective is to create and maintain a successful organization so the
shareholders prosper. Companies that embrace stewardship place the Chief
Executive Officer (CEO) and Chairman responsibilities under one executive, with a
board comprised mostly of in-house members. This allows for intimate knowledge
of organizational operation and a deep commitment to success.
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Stewardship Theory

20. There are several models that a company may use to operate using stewardship
theory, which could be in the form of:
 Operating with as little negative impacts as possible against the environment or
the Earth;
 Supporting human and animal rights;
 Abstaining from using products made in sweatshops (business employing
workers at low wages, for long hours, and under poor conditions);
 Renouncing product testing on living subjects; and
 Honoring the belief of servant leadership
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Stewardship Theory

21. Stewardship Theory in Corporate Governance
Here are some significant applications of stewardship theory in corporate governance:
On Business - A company dedicated to a higher purpose will attract customers who believe in similar
purpose. On the other hand, customers cautiously compare how the company truly operates against
what it talks about stewardship in its corporate governance. Any gap identified between action and
talk will create a big impact on the customers.
On Employees - Company' stewardship attitude can be clearly seen at an instant by employees on
the way they are treated.
On Customers - Likewise, just like employees, when customers sense that they are part of
something greater, they may likely stay connected with businesses that are stewardship-driven.
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Stewardship Theory

22. The stakeholder theory was coined originally by Edward Freeman as he recognized
such as an important element of Corporate Social Responsibility (CSR).
Stakeholder theory states that the purpose of a business is to create value for wider
group stakeholders other than just shareholders. This theory considers the corporate
environment as a network of interconnected groups, all of which are required to be
pleased to sustain the healthy and success of the company in the long-term. A
stakeholder refers to any individual or group of individuals who can affect or be
affected by any actions done by a business. It consists of those who work in its
stores, those who work and live close to its factories, those who do business with it,
and even of competitors, as the company may form the setting in its industry.
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The Stakeholder Theory

23. Here are the categories of stakeholders inside the company, namely:
 Organizational Stakeholders
 Economic Stakeholders
 Societal Stakeholders
According to Freeman there are six principles that must direct the connection
between the stakeholders and the corporation, which are:
1. The principle of entry and exit 4. The principle of contract costs
2. The principle of governance 5. Agency principle
3. The principle of externalities 6.The principle of limited immortality
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The Stakeholder Theory

24. Stakeholder Theory in Corporate Governance
The stakeholder theory in corporate governance centers on the effects of corporate
activities on all recognizable stakeholders of the company. This theory suggests that
corporate officers and directors must consider the interests of every stakeholder in
its governance practice. This consists of taking extra efforts to reduce or lessen any
conflicts that may confront stakeholders' interests. Further, besides the usual
members of the company such as the corporate officers, directors and shareholders,
it also promotes the interests of any third party that may have some degree of
reliance on the company.
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The Stakeholder Theory

25. Thank you