The Corporate and Corporate Governance

The aims and process of a corporation and the goals of the different interest groups involved. The aims and objectives of the corporation: Firms exist to supply goods and services to consumers as efficiently as possible. (Social point of view) The firm exists to supply income, power, prestige, creative satisfaction, or a combination of these to those who work for it or with it. (Individual point of view)

Interest groups need to fit their intent with the corporate vision and long term strategy

Leverage Buyouts (LBOs)

Is commonly used as restructuring strategy to correct for managerial mistakes or because the firms managers are making decisions that primarily serve their own interest rather than those of shareholders. A leverage buyout is a restructuring strategy whereby a party buys all of a firms assets in order to take the firm private. Once the transaction is completed, the companys stock is no longer traded publicly. Significant amounts of debt are usually incurred to finance the buyout. To support debt payments and to down scope the company to concentrate on the firms core businesses, and the new owners may immediately sell a number of assets. It is not uncommon for those buying a firm through an LBO to restructure the firm to the point that it can be sold at a profit within a five to eight year period.

Goal of interest group (stakeholders)

Stake holder Shareholders Suppliers of materials Banks and other lenders Government agencies Employee and unions Customers Competitors Communities and society at large Goal To receive bigger dividends To have a fair deal with clients To receive prompt repayment of debt To enforce the laws of the land To have safe working environment and Fair negotiation corporate with management To buy safe products To have fair competition and avoid restraints of trade To have safe environment

Management buyouts(MBOs) / Employee buyouts (EBOs) / Whole firm buyouts

These are the three types of LBOs where a company or partnership purchases an entire company instead of a part of it. MBOs have been found to lead to downscoping(divestiture, spin off, or some other means of eliminating businesses that are unrelated to a firms core businesses) and to greater entrepreneurial activity and growth.

Goal Congruence
Corporate goals must be in alignment with the goals of the different interest groups so they could have a common framework which can serve as a basis in monitoring the attainment of the goals established. Goal congruence can be achieved by focusing on the corporate vision and the intent of the different interest groups.

Audit committee
The audit committee shall be

composed of at least three (3) Boar members, preferably one of whom shall be an independent director and another should have related audit experience.(code of corporate governance) Role of Audit committee

under review the non-audit fees paid Provide oversight over the senior to the external auditor both in relation managements activities in managing to their significance to the auditor and credit, market, liquidity, operational, in relation to the companys total legal and other risks of the expenditure on consultancy corporation. Establish and identify the reporting Provide oversight of the corporations line of the chief audit executive so internal and external auditors. that the reporting level allows the Review and approve audit scope and internal audit activity to fulfill its frequency, and the annual internal responsibilities. audit plan Chief Financial Officer Discuss with the external auditor Responsibilities towards Board before the audit commences the of Directors nature and scope of the audit, and The CFO is required to furnish ensure coordination where more than necessary and classified information one audit firm is involved. to the board of directors along with Setup an internal audit department his/her analysis and suggestions. and consider the appointment of an Attends board meetings and discusses internal auditor as well as an any issue with financial implications. independent external auditor, the Information required from audit free and any question of the CFO: resignation or dismissal 1. Annual business plans, cash flows Monitor and evaluate the adequacy projection, forecast and long term and effectiveness if the corporations plans. internal control system 2. Budgets include capital, manpower Receive and review reports of internal and overhead budgets along with and external auditors and regulatory variance analyses. agencies where applicable and ensure 3. Quarterly operating results of the that management is taking company as a whole and in terms appropriate corrective actions, in a of its operating divisions or timely manner in addressing control business segments and compliance functions with 4. Details of joint ventures or regulatory agencies collaboration agreements with Review the quarterly, half-year and distributors, agents, etc. annual FS before submission to the 5. Default in payment of principal and board, focusing particularly on: / or interest including penalties on o Any change/s in accounting late payments and other dues, to a policies and practices creditor, bank or financial o Major judgmental areas institution, or in default in payment o Significant adjustments resulting of public deposit from the audit. 6. Failure to recover material amounts o Going concern assumptions of loans, advances and deposits o Compliance with accounting made by the company, including standards trade debts and inter-corporate o Compliance with tax, legal and finances stock exchange requirements 7. Significant public or product Coordinate, monitor and facilitate liability claims likely to be made compliance with existing laws, rules against the company, including any and regulations adverse judgment or order made Evaluate and determine non-audit on the conduct of the company work by external auditor and keep

Responsibilities toward shareholders The CFO must ensure the ff: 1. The FS, prepared by the management of the company, present fairly its states of affairs, the results of its operation, cash flows and changes in equities. 2. Proper books of accounts of the company have been maintained 3. Appropriate accounting policies have been consistently applied in preparation of FS and accounting estimates are based in reasonable and prudent judgment 4. International accounting standards, as applicable in the Phil., have been followed in the preparation of FS and any departure therefrom has been adequately disclosed. 5. The system of internal control is sound in design and has been effectively implemented and monitored. 6. There are no significant doubts upon the companies ability to continue as a going concern. 7. There has been no material departure from the best practice in the corporate governance code.

annual report, information statement or proxy statements filed during his engagement is incorrect or incomplete, he shall present his views in said reports.

Internal auditor
The corporation shall have in place an independent internal audit function which shall be performed by an internal auditor or a group of internal auditors. The internal auditor shall provide the board, senior management, and stockholders reasonable assurance that the corporations key organizational and procedural controls are effective, appropriate and complied with The internal auditor shall report to the audit committee The minimum internal control mechanism for managements operational responsibility shall center on the CEO, who is ultimately accountable for the corporations organizational and procedural controls

Board of directors

Primarily responsible for the governance of the corporation Sets the policies for the attainment of corporate objectives and provides an independent check on management Composition of the board External Auditor At least five but not more than 15 and to An external auditor shall be selected and be elected by the stockholders appointed by the stockholders upon At least two independent directors or 20 recommendation of the audit committee % of the members of the board, The reason/s for the resignation, whichever is lesser. dismissal or cessation from service and The combination of executive and nonthe date thereof of an external auditor executive directors in the board will shall be reported in the companys discourage a director or a small group of annual and current reports. directors to dominate the decision The external auditor of the company shall making process. not at the same time provide the services of and internal auditor to the same client. Potential agency conflict between The corporation shall ensure that other stockholders and creditors non-audit work shall not be in conflict with the functions of the external auditor. Creditors have fixed financial claim on the companys resources in the form of The companys external auditor shall be long term debt, bank loans, commercial rotated or the handling partner shall be papers, leases, accounts payable, wages changed every five (5) years or earlier payable, taxes payable etc. If an external auditor believes that the Returns to stockholders are variable statements made in the companys

determined by the board in directing the Potential conflict: owners may attempt to course/business activities of the increase the riskiness of the companys corporation investment hoping to receive greater Executive director refers to a director returns. I this happens, bondholders who is at the same time appointed to suffer because they do not have an head a department / unit within the opportunity to share in the higher corporate organization. returns. Effects of the agency theory on corporate Non-executive director refers to a board member with non-executive governance functions Principle: managers wont work for Non-audit work refers to other owners unless it is in their best interest services offered by the external auditor The agency problem arises from the to a corporation that are not directly separation of management and related and relevant to its statutory audit ownership of the firm function. Managers may make decision that are o Examples of non-audit work not in line with the goal of maximization include: accounting, payroll, of shareholders wealth bookkeeping, reconciliation, Definition of terms computer project management, Board of directors refers to all data processing, or information collegial body that exercises the technology outsourcing services, corporate powers of all corporations internal auditing, and services that forms under the corporation code. It may compromise the independence conducts all business and controls or and the objectivity of the external holds all the property of such audit corporations. Internal control - refers to the process Independent director refers to a effected by a companys board of person other than an officer or employee directors , management and other of the corporation, its parent or personnel, designed to provide subsidiaries, or any other individual reasonable assurance regarding the having any relationship with the achievement of objectives in the corporation which would interfere with effectiveness and efficiency of the exercise of independent judgment in operations, the reliability of financial carrying out the responsibilities of a reporting, and compliance with applicable director. laws, regulation and internal policies Public company refers to any Internal control environment refers corporation with a class of equity to the framework under which internal securities listed in the exchange or with controls are developed, implemented, assets in excess of fifty million pesos alone or in concert with other policies or (50,000,000) and having 200 or more procedures, to manage and control a stockholders each holding at least one particular risk or business activities , to hundred (100) shares of a class of its which the company Is exposed securities. Internal auditing refers to an Corporate governance refers to a independent objective assurance and system whereby shareholders, creditors, consulting activity designed to add value and other stakeholders of a corporation and improve an organizations ensure that management enhances the operations. It helps an organization value of a corporation as it competes in accomplish its objectives by bringing a an increasingly global market place systematic, disciplined approach to Management refers to the body given evaluate and improve the effectiveness the authority to implement the policies

of risk management, control, and governance and processes Internal audit department- refers to a department division, team of consultants, or other practitioners that provide independent objectives assurance and consulting services designed to add value and improve an organizations operations Chief audit executive refers to the top position within the organization responsible for internal audit activities. This may refer to the internal audit director, general auditor, chief internal auditor, or inspector general. Independence refers to that environment which allows the person to carry out his/ her work freely and objectively. Objectivity refers to unbiased mental attitude required the person to carry out his / her work in such a manner that he/ she has an honest belief in his / her work product and that no significant quality compromises are made. Standard for the professional practice of internal auditing (SPPIA) refers to the criteria by which the operation of and internal auditing department are evaluated and measured.

Ethical and socially responsible behavior

Leadership by example Written code of conduct Formal mechanism to Awareness to cross-cultural influences.