Corporate governance is a system of processes, policies, and rules that direct

and control an organization's conduct for the excellent management of

companies.

Corporate governance consists of the relationships between the numerous

stakeholders involved and the goals for which the corporation is directed.

Corporate governance is also a process that aims to apportion corporate

resources to enhance value for all stakeholders such as the shareholders,
investors, employees, customers, suppliers, the environment, and the community
in general.

Corporate governance's main objective is to end some entrepreneurs' and

business owners' abusive and somehow unlawful and improper activities.
Some of the strategic aims of corporate governance consist of:
1. Good corporate governance aims at ensuring a higher degree of transparency in
an organization by encouraging full disclosure of transactions in the company
accounts.
2. A strong corporate governance structure encourages accountability of the
management to the company directors and the accountability of the directors to the
shareholders.
3. A corporate governance structure ensures equitable treatment of all the
shareholders of the company.
4. Corporate governance allows firms to evaluate their behavior before they are
scrutinized by regulatory bodies.
5. The main objective of corporate governance is to protect the long-term interests
of the shareholders.
 Direction

Oversight

Stakeholder relations

Elements of Corporate citizenship

Corporate Independence of directors

Governance Effective risk management

Solid structure and organization

Transparency

Self-Evaluation
Who Is Responsible for Corporate Governance?

The board of directors is pivotal for the governance of the company.

The board's role is to set the company's strategic direction, provide
the leadership to put those strategies into effect and
supervise the management of the company.

Shareholders have the collective power to take legal action against

a company that does not exercise good governance.
Conflict of interest

Oversight issues POTENTIAL

CHALLENGES IN
Accountability issues CORPORATE
GOVERNANCE
Transparency
Ethics violations

Governance standards POTENTIAL

CHALLENGES IN
Short-termism CORPORATE
GOVERNANCE
Diversity
 Corporate governance is all about monitoring and controlling
management decisions and strategies all in the best interest of the
company's stakeholders.

There are two approaches to corporate governance regulations and companies

can decide which of these principles to apply. They are briefly discussed here
below:

Rules-Based Approach
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
The principles-based approach is grounded on the outlook that a
distinct set of rules is unfitting for every company. Circumstances
and situations vary from company to company.
The circumstances of a company can change every now and
then.
Here are the common characteristics of a principle-based
approach, which are:
1. Activities of entities must address major principles set out in
codes of best practice
2. Not merely a box-ticking application
3. More demanding to avoid than a rules-based approach
4. Easy to observe that entity is complying

5. Directors are necessary to work in the entity's best interests

6. More stretchy, and therefore better able to cope with

different situations

7. Easier defense for obvious breach of principles

8. But principles may be construed in different ways

Give at least one element of
Corporate Governance.
Give at least one potential challenge
in Corporate Governance.
What are the two (2) distinct
approaches to Corporate
Governance?
 THE AGENCY THEORY

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.

There are two situations that make efforts on

resolving agency conflicts all the more
vital, which are:
1. Different risk desire-Shareholders and managers differ in the level of
risk they are eager to assume. Shareholders do not participate in the
daily operations of the company. Hence, they do not have full knowledge
of the reasons behind important business decisions.

2. Super self-centered executives- This situation is when the managers

are just interested in providing short-term performance to the owners to
obtain their compensation hikes. Generally, this is more common yet
very risky condition.
The Agency Theory in Corporate Governance

Agency theory in corporate governance is an extension of the agency

theory discussed above. It tells about the definite type of agency
relationship that happens between the shareholders and top
management of a company. The true owners of the corporation or the
shareholders as principals select the members of the board who
would act and make decisions on their behalf. The objective is to
represent the outlooks of the shareholders or owners and conduct
actions in their interest.
 Steward is defined as someone who
protects and takes care of the needs of
others. Under the stewardship theory,
company top executives protect the THE
interests of the owners or shareholders STEWARDSHIP
and make decisions on their behalf.
Managers innately seek to do a good
THEORY
job, maximize company profits and bring
good returns to stockholders because
they feel a strong duty to the company.
There are several models that a company may use to operate using
stewardship theory, which could be in the form of:
1. Operating with as little negative impacts as possible against the
environment or the Earth;

2. Supporting human and animal rights;

3. Abstaining from using products made in sweatshops (business

employing workers at
low ranges, for long hours, and under poor conditions);

4. Renouncing product testing on living subjects; and

5. Honoring the belief of servant leadership

STEWARDSHIP THEORY IN CORPORATE
GOVERNANCE
The main purpose of this theory is to satisfy the shareholders. With a
single leader, a strong channel is formed to convey business
requirements to the shareholders and vice versa. During difficult
situations.

Significant applications of stewardship theory in corporate

governance:
On business- A company dedicated to a higher purpose will attract
customers who believe in a similar purpose
On Employees - The company's stewardship
attitude can be clearly seen in 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.
THE STAKEHOLDER THEORY

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.
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

2. The principle of governance

3. The principle of externalities

4. The principle of contract costs

5. Agency principle

6. The principle of limited immortality

Organizational Stakeholders

Organizational stakeholders are those people that are present

inside the company. They have a direct interest on how the
company is doing. These stakeholders usually make certain that
the company is robust and healthy to seek advantages and
benefits from it.
In this group, the customers in
addition to bankers, creditors and
suppliers are the most important
stakeholders. These people function
as the essential boundary between Economic
the company and the bigger societal
environment. Customers are
Stakeholders
regarded as very important because
without their loyal customers, a
company may not even exist.
 Societal Stakeholders

These stakeholders regulate the business setting under which

the companies function. Government agencies, regulators
communities, and the environment itself are the major players
here. Obviously, a company is required to follow the laws and
respect certain issues in the society is involved.
 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 their governance practice. This consists of taking extra
efforts to reduce or lessen any conflicts that may confront
stakeholders' interests.
There are certain general principles around which
businesses are expected to operate,
which are:
1. Rights and equitable treatment of shareholders

2. Interests of other stakeholders

3. Role and responsibilities of the board

4. Integrity and ethical behavior

5. Disclosure and transparency

What are the three (3) types of Theory?
Give at least one significant application of
Stewardship Theory.

What are the three (3) categories of

stakeholders inside the company?
 Thank you for listening!
Group Member:
Malabanan, Rhea S.
Palomera, Francinne O.
Gullaba, Jemima Veah M.
Mendoza, Maylyn C.
Mercado, Glaiza D.
Tanciangco, Patricia Claire E.