GGSN01B Good Governance and Social Resposibility

Introduction to Corporate Governance and Social Responsibility

Mrs. Mary Mayette A. Carandang
LPU - Cavite
WHAT IS GOOD GOVERNANCE?
Good governance is about the processes for making and implementing decisions.
Its not about making correct decisions, but about the best possible process for making
those decisions.
What is Corporate Governance
Corporate governance broadly refers to the mechanisms, processes and relations by
which corporations are controlled and directed.
Governance structures and principles identify the distribution of rights and
responsibilities among different participants in the corporation (such as the board of
directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders)
and includes the rules and procedures for making decisions in corporate affairs.
Corporate governance has also been more narrowly defined as "a system of law and
sound approaches by which corporations are directed and controlled, focusing on the
internal and external corporate structures with the intention of monitoring the actions of
management and directors and thereby, mitigating agency risks which may stem from the
misdeeds of corporate officers.
Characteristics of Corporate Governance
1. Discipline
Corporate discipline is a commitment by a companys senior management to adhere to behavior
that is universally recognized and accepted to be correct and proper. This encompasses a
companys awareness of, and commitment to, the underlying principles of good governance,
particularly at senior management level.
All involved parties will have a commitment to adhere to procedures, processes, and authority
structures established by the organization.
2. Transparency
Transparency is the ease with which an outsider is able to make meaningful analysis of a
companys actions, its economic fundamentals and the non-financial aspects pertinent to that
business. This is a measure of how good management is at making necessary information
available in a candid, accurate and timely manner not only the audit data but also general
reports and press releases. It reflects whether or not investors obtain a true picture of what is
happening inside the company.
All actions implemented and their decision support will be available for inspection by
authorized organization and provider parties.

3. Independence
Independence is the extent to which mechanisms have been put in place to minimize or avoid
potential conflicts of interest that may exist, such as dominance by a strong chief executive or
large share owner. These mechanisms range from the composition of the board, to appointments
to committees of the board, and external parties such as the auditors. The decisions made, and
internal processes established, should be objective and not allow for undue influences.
All processes, decision-making, and mechanisms used will be established so as to minimize or
avoid potential conflicts of interest.
4. Accountability
Individuals or groups in a company, who make decisions and take actions on specific issues,
need to be accountable for their decisions and actions. Mechanisms must exist and be effective to
allow for accountability. These provide investors with the means to query and assess the actions
of the board and its committees.
Identifiable groups within the organization - e.g., governance boards who take actions or make
decisions - are authorized and accountable for their actions.
5. Responsibility
With regard to management, responsibility pertains to behavior that allows for corrective action
and for penalizing mismanagement. Responsible management would, when necessary, put in
place what it would take to set the company on the right path. While the board is accountable to
the company, it must act responsively to and with responsibility towards all stakeholders of the
company.
Each contracted party is required to act responsibly to the organization and its stakeholders.
6. Fairness
The systems that exist within the company must be balanced in taking into account all those that
have an interest in the company and its future. The rights of various groups have to be
acknowledged and respected. For example, minority share owner interests must receive equal
consideration to those of the dominant share owner(s).
All decisions taken, processes used, and their implementation will not be allowed to create
unfair advantage to any one particular party.
7. Social responsibility
A well-managed company will be aware of, and respond to, social issues, placing a high priority
on ethical standards. A good corporate citizen is increasingly seen as one that is nondiscriminatory, non-exploitative, and responsible with regard to environmental and human rights
issues. A company is likely to experience indirect economic benefits such as improved
productivity and corporate reputation by taking those factors into consideration.
What is Social Responsibility?

 It is the adoption by a business of a strategic focus for fulfilling the economic, legal,
ethical, and philanthropic responsibilities expected of it by its stakeholders.
WHAT IS CORPORATION
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being;
It is created by operation of law;
It has the right of succession, and;
It has only the powers, attributes and properties expressly authorized by law or incident
to its existence.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being
A corporation is a legal or juridical person with a personality separate and apart from its
individual members or stockholders, who as a natural persons, are merged in the corporate body.
It is not actually a person but the law treats it as thought it is a person.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being
As a consequence of this legal concept
1) As a rule corporation is not liable for the debts of its stockholders the latter are not
individually liable for the corporations debts.
2) It may acquire and possess property of all kinds, as well as incur obligations and bring
civil and criminal actions in its own name.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being
As a consequence of this legal concept
3) Property conveyed to or acquired by the corporation is in law the property of the
corporation itself as a distinct legal entity and not that of the members or stockholders.
4) All contracts entered into in its name by its regular appointed officers and agents are the
contracts of the corporation and not those of the members of stockholders.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being
As a consequence of this legal concept
5) A tax exemption granted to a corporation cannot be extended to include the dividends paid by
such corporation to its stockholders
6) A corporation has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders.
ANALYSIS OF DEFINITION OF A CORPORATION
It is an artificial being

As a consequence of this legal concept

7) An entity distinct from its members or stockholders, a corporation remains unchanged and
unaffected in its identity by changes in its individual members. It has continuous existence since
it would exist even if all the stockholders die.
The relationships among Stakeholders of a Corporation
What are Stakeholders
a person or organization with a legitimate interest in a given situation, action, or
enterprise
Stakeholders are involved in and/or affected (negatively or positively) by the outcome
and impact of an action, project or program.
Stakeholders can be divided into two main categories:
1. Internal stakeholders
2. External stakeholders
Internal Stakeholders are engaged in economic transactions with the business. (For
example, stockholders, customers, suppliers, creditors, and employees)
External Stakeholders are affected by or can affect a business's actions without being
directly engaged in the business. (For example, the general public, communities, activist
groups, business support groups, and the media)
Stakeholder Relationships
Most companies envy the passionate loyalty that Apple customers have for their
products, the dedication that Southwest Airlines employees demonstrate without
understanding that effectively managing their stakeholder relationships is the key to
earning these benefits.
Employee engagement and customer loyalty are intangible (non-physical) assets that
contribute more to the value of a company than the physical things it owns.
Each relationship is an intangible asset of the business. As any accountant will tell you,
assets can either appreciate or depreciate or hold their value.
By effectively managing relationships with increasing the opportunities and lowering the
risk for each relationship, a company can enhance the quality of its intangible assets and
therefore increase the overall valuation of the business.
So then the question becomes; how to effectively manage your relationships with
customers, employees, owners/investors, suppliers, competitors, communities and
government agencies and regulators?
For each group the principles of integrity, authenticity and engagement (engaging in open
dialogue rather than treating them as audiences who receive information) apply.
Customers
Customers want, demand and deserve a superior customer experience, however they (the
customers) define it.
Employees

 Employees want to feel valued. The fact is that employees need to know that they are
valued. The best way to demonstrate (rather than say) that the work they are doing is
appreciated by their colleagues and important to customers is by showing them how their
role fits into the larger picture.
For example, the partnership between building materials company Lafarge and Habitat
for Humanity International reconnected employees to the tremendous value that the
products they helped create bring to thousands of people.
In addition, a consistent theme running through Working Mothers annual list of Best
Places to Work is that top employers treat their employees as their most valued assets by
investing in their growth, engagement and satisfaction.
Owners/Investors
A return on investment is critically important to owners and investors but at the same
time there are people who will buy a stock (think Disney or Apple) because they
appreciate what the company stands for as well.
There are also people who will refuse to own (and work for) companies or industries that
they find unpalatable, regardless of return (such as tobacco or firearms).
Suppliers
A companys suppliers are critical to their success. The quality of the products that go
into what you manufacture has a direct impact on the quality of the products that go to
market bearing your brand.
Making the right choice can enhance a companys reputation and increase the value of its
brand. Making the wrong choice can have a devastating impact.
Therefore, companies must be sure to seek partners who share their commitments for
reducing their environmental footprint, preserving and protecting human rights and a host
of other issues.
Competitors
An often overlooked stakeholder for any company is its competitor, because often the
actions of one player can influence the image of an entire industry (or business in
general).
Communities
Anyone who has tried and failed to get a business permit knows the power of local
communities.
They need to buy you before you get a chance to sell them anything.
Despite the promise of jobs, products and contributing to the tax base, local people have
protested and ultimately prevented major corporations from coming into their
community.
Managing your relationship with the community on the other hand, so that they see you
as a benefit to the community, can result in public hearings where people speak on your
behalf and expedited permits.
Government regulators and legislators:

 Environmental inspectors very quickly know if they have entered a cleaner operation.
Safety inspectors from the Occupational Health and Safety Administration (OSHA) can
recognize a safe and clean operation and engage in a thorough inspection that takes less
time and is less disruptive.
Perhaps this is the reason why it is time we stop referring to sustainability as the soft side of the
business and recognize that building good CSR practices is not merely a nice thing to do, it is
the key to creating sustainable corporations.