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INTERNAL AND EXTERNAL INSTITUTIONS
AND INFLUENCES OF CORPORATE
GOVERNANCE
BY: GRACE FATIMA ABELIDA , MBA
INTERNAL FOUNDATION OF CORPORATE
GOVERNANCE
o BOARD OF DIRECTORS
-is a body of elected or appointed by shareholders who
jointly oversee the activities and the overall managerial and
operational aspects of the corporation.
 Authority, Responsibility and Purpose of BOD:
 Protect the resources entrusted to them by shareholders' and
make sure the latter receive a decent return on their investment.
 Top governing authority w/in the management structure at any
publicly listed company.
 Their job is to select, evaluate, and approve appropriate
compensation for the company’s CEO, assess attractiveness
dividend payment scheme and its amount, recommend stock
splits, oversee share reacquisition programs, approve the
company’s financial statement reports and recommend or
discourage acquisition and mergers.
 Structure and Makeup of the Board of Directors
 The board is made up of individual men and women, the “directors”
who are elected by shareholders.
 Directors either :
1. have a vested interest in the company
2. work in the upper management of the company, or
3. independent from the company but are known for their business
abilities
 Committees on the Board of Directors
 Audit Committee – responsible in making sure that the company’s
financial statements and reports are reasonably accurate and use fair
estimates in accordance with the applicable financial reporting
standards.
 Compensation Committee - places the base compensation, stock
option awards, and incentive bonuses for the company’s executives,
including the CEO.
 Ownership Structure and Its Impact on the
Board of Directors
 The particular ownership structure of a corporation has a
huge impact on the efficiency and effectiveness of the
board of directors to govern.
 In a company where a large, single shareholder exists,
that entity or individual can effectively control the
corporation.
o CHIEF EXECUTIVE OFFICER (CEO)
- is usually the singular organizational position that is
principally accountable in carrying out the strategic policies and
procedure as established by the BOD’s.
-is directly under the board of directors.
-is responsible to bring into line the company, internally and
externally, with their long tern vision.
- make possible to engage business outside of the company
while directing employees, managers and other executive towards a
central objective.
 Responsibilities of a CEO:
 Support the Board
- supports operations and administration of board by giving
information and advice to board members.
Delivery of Program, Product and Services (PPS)
- administer design, marketing, promotion, delivery and
quality of programs, products and services
 Financial, Risk and Tax Management
- recommends yearly budget for board’s approval and
cautiously manages organization’s resources within the budget
guidelines.
- this utilization of resources may also have other basis
such as laws, regulations, and other directives.
Human Capital Management
- efficiently manages the human capital of the organization
based on personnel policies and procedures that fully conform to
current laws, regulations and standards both local and international.
Public Relations (PR)
- pledge that the organization and its mission, programs and
initiatives, products and services are consistently presented in strong
and physically visible manner to the community.
o CHIEF FINANCIAL OFFICER (CFO)
 Responsibilities of a CFO
 Implements Internal Control
- responsible for conveying the important financial
controls to a company.
 Supervises Major Impacts Projects
- handles and supervise projects that require significant
quantitative and qualitative interpretations and analysis to reach at
an understanding options that are available.
 Develops Relations with Financing Sources
- institute good working relationships with banks and
other financial institutions that may impact on the company’s
ability to finance its operations.
 Advisor to Management
- facilitate and help the business owners, executives and
other top managers make the substantial connection between a
company ‘s operations and its financial performance that are
reflected in financial figures.
 Drives major Strategic Issues
-expected to take part in important role of attending some
major strategic issues that will have an impact on the company’s
long-term future.
 Risk Manager
- best position to foresee risk considering that they have
this rare perspective on how the company operates.
 Relationship Role
- is a nucleus in an organization with many connections.
 Objective Referee
- needs to demonstrate impartially, such as when advising
the CEO or the board of directors on accounting matters.
o SHAREHOLDERS
 Share Ownership
- gives the owner with the right to a share of the
income of the company called dividend and a right to a
share of net proceeds on the sale during liquidation of the
company.
- includes the right to sell or transfer that share
without the need to inform or getting the consent of the
other stockholder.
-an important right and responsibility of the
shareholders is to vote.
 Responsibilities of the Shareholders
 They must ensure that the obligation to provide information to
shareholders does not detract the company’s ability to compete
in its marketplace.
 They must ensure that their right to attempt to influence the
company does not translate into behavior that will paralyze and
detrimental to the company.
Fundamentals that Requires the Approval of the
Shareholders, Under the Corporation Code of the
Philippines, includes;
 Effecting certain merger or reorganizations.
 Selling all or substantially all of the corporation’s assets.
 Adding or removing any restrictions on the business that the
corporation may carry on.
 Changing the corporation’s share capital.
 Increasing or decreasing the number of directors or the
minimum or maximum numbers of directors.
 Confirming by-laws.
 Adding or changing restrictions on the issue, transfer or
ownership of shares.
Shareholder Ability to Change the Board
 Shareholders who are dissatisfied with how the directors are
running the corporation may remove the directors or refuse to
re-elect them.
 In practice, this may be a difficult course to take, particularly
where the shares of the corporation are widely held.
EXTERNAL ENVIRONMENT OF CORPORATE
GOVERNANCE
 AUDITORS
 One of the most important external institutions in governance.
 Their job is to help to ensure that firms are run efficiently by
keeping public records accurate, adhering standards of
reporting for public purposes, and taxes paid properly and on
time.
 Independent Auditors
 Independent auditors analyze and communicate financial
information for various entities such as companies, potential
investors, individual clients, government both at the local and
national level.
 They may also engage in consultancy services which may
include, financial and investment planning, information
technology consulting, and limited legal services.
 LEGAL ENVIRONMENT
 Some contend that it is the market that can really press real
governance considering that it is a variable independent from
anybody.
 There are, however, some limits to this connection.
 Markets may be good for some governance tasks, weak for
others.
 Markets may be good at limiting some types of “skirting”, but be
less good at limiting “stealing”, especially if the stealing
represents a small part of the firm's total value.
Three distinct dimensions of legal environment:
 The domestic laws of home countries.
 The domestic laws of each of foreign markets.
 International law in general
 MARKETS
 Considered the most important institution of corporate
governance.
 Other External Factors
Political Environment
Technological Environment
Social Environment
Internal and external institutions and influences of corporate

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Internal and external institutions and influences of corporate

  • 1. INTERNAL AND EXTERNAL INSTITUTIONS AND INFLUENCES OF CORPORATE GOVERNANCE BY: GRACE FATIMA ABELIDA , MBA
  • 2. INTERNAL FOUNDATION OF CORPORATE GOVERNANCE o BOARD OF DIRECTORS -is a body of elected or appointed by shareholders who jointly oversee the activities and the overall managerial and operational aspects of the corporation.  Authority, Responsibility and Purpose of BOD:  Protect the resources entrusted to them by shareholders' and make sure the latter receive a decent return on their investment.  Top governing authority w/in the management structure at any publicly listed company.  Their job is to select, evaluate, and approve appropriate compensation for the company’s CEO, assess attractiveness dividend payment scheme and its amount, recommend stock splits, oversee share reacquisition programs, approve the company’s financial statement reports and recommend or discourage acquisition and mergers.
  • 3.  Structure and Makeup of the Board of Directors  The board is made up of individual men and women, the “directors” who are elected by shareholders.  Directors either : 1. have a vested interest in the company 2. work in the upper management of the company, or 3. independent from the company but are known for their business abilities  Committees on the Board of Directors  Audit Committee – responsible in making sure that the company’s financial statements and reports are reasonably accurate and use fair estimates in accordance with the applicable financial reporting standards.  Compensation Committee - places the base compensation, stock option awards, and incentive bonuses for the company’s executives, including the CEO.
  • 4.  Ownership Structure and Its Impact on the Board of Directors  The particular ownership structure of a corporation has a huge impact on the efficiency and effectiveness of the board of directors to govern.  In a company where a large, single shareholder exists, that entity or individual can effectively control the corporation.
  • 5. o CHIEF EXECUTIVE OFFICER (CEO) - is usually the singular organizational position that is principally accountable in carrying out the strategic policies and procedure as established by the BOD’s. -is directly under the board of directors. -is responsible to bring into line the company, internally and externally, with their long tern vision. - make possible to engage business outside of the company while directing employees, managers and other executive towards a central objective.  Responsibilities of a CEO:  Support the Board - supports operations and administration of board by giving information and advice to board members. Delivery of Program, Product and Services (PPS) - administer design, marketing, promotion, delivery and quality of programs, products and services
  • 6.  Financial, Risk and Tax Management - recommends yearly budget for board’s approval and cautiously manages organization’s resources within the budget guidelines. - this utilization of resources may also have other basis such as laws, regulations, and other directives. Human Capital Management - efficiently manages the human capital of the organization based on personnel policies and procedures that fully conform to current laws, regulations and standards both local and international. Public Relations (PR) - pledge that the organization and its mission, programs and initiatives, products and services are consistently presented in strong and physically visible manner to the community.
  • 7. o CHIEF FINANCIAL OFFICER (CFO)  Responsibilities of a CFO  Implements Internal Control - responsible for conveying the important financial controls to a company.  Supervises Major Impacts Projects - handles and supervise projects that require significant quantitative and qualitative interpretations and analysis to reach at an understanding options that are available.  Develops Relations with Financing Sources - institute good working relationships with banks and other financial institutions that may impact on the company’s ability to finance its operations.
  • 8.  Advisor to Management - facilitate and help the business owners, executives and other top managers make the substantial connection between a company ‘s operations and its financial performance that are reflected in financial figures.  Drives major Strategic Issues -expected to take part in important role of attending some major strategic issues that will have an impact on the company’s long-term future.  Risk Manager - best position to foresee risk considering that they have this rare perspective on how the company operates.
  • 9.  Relationship Role - is a nucleus in an organization with many connections.  Objective Referee - needs to demonstrate impartially, such as when advising the CEO or the board of directors on accounting matters.
  • 10. o SHAREHOLDERS  Share Ownership - gives the owner with the right to a share of the income of the company called dividend and a right to a share of net proceeds on the sale during liquidation of the company. - includes the right to sell or transfer that share without the need to inform or getting the consent of the other stockholder. -an important right and responsibility of the shareholders is to vote.  Responsibilities of the Shareholders  They must ensure that the obligation to provide information to shareholders does not detract the company’s ability to compete in its marketplace.
  • 11.  They must ensure that their right to attempt to influence the company does not translate into behavior that will paralyze and detrimental to the company. Fundamentals that Requires the Approval of the Shareholders, Under the Corporation Code of the Philippines, includes;  Effecting certain merger or reorganizations.  Selling all or substantially all of the corporation’s assets.  Adding or removing any restrictions on the business that the corporation may carry on.  Changing the corporation’s share capital.  Increasing or decreasing the number of directors or the minimum or maximum numbers of directors.  Confirming by-laws.  Adding or changing restrictions on the issue, transfer or ownership of shares.
  • 12. Shareholder Ability to Change the Board  Shareholders who are dissatisfied with how the directors are running the corporation may remove the directors or refuse to re-elect them.  In practice, this may be a difficult course to take, particularly where the shares of the corporation are widely held.
  • 13. EXTERNAL ENVIRONMENT OF CORPORATE GOVERNANCE  AUDITORS  One of the most important external institutions in governance.  Their job is to help to ensure that firms are run efficiently by keeping public records accurate, adhering standards of reporting for public purposes, and taxes paid properly and on time.  Independent Auditors  Independent auditors analyze and communicate financial information for various entities such as companies, potential investors, individual clients, government both at the local and national level.  They may also engage in consultancy services which may include, financial and investment planning, information technology consulting, and limited legal services.
  • 14.  LEGAL ENVIRONMENT  Some contend that it is the market that can really press real governance considering that it is a variable independent from anybody.  There are, however, some limits to this connection.  Markets may be good for some governance tasks, weak for others.  Markets may be good at limiting some types of “skirting”, but be less good at limiting “stealing”, especially if the stealing represents a small part of the firm's total value. Three distinct dimensions of legal environment:  The domestic laws of home countries.  The domestic laws of each of foreign markets.  International law in general
  • 15.  MARKETS  Considered the most important institution of corporate governance.  Other External Factors Political Environment Technological Environment Social Environment