What is corporate governance? Contents of corporate governance

What is corporate governance?

Corporate governance is the mechanisms and regulations through which a company is run and controlled. The corporate governance structure defines the rights and responsibilities among the different members of the company, including the Shareholders, the Board of Directors, the Executive Board, the Supervisory Board and other stakeholders of the company. .

Good corporate governance is different from good ownership structure. Good corporate governance is the foundation for the long-term development of large enterprises. State-owned enterprises and family enterprises in many countries around the world have enjoyed great long-term success thanks to good corporate governance systems. At the same time, poor corporate governance and lack of transparency have led to the bankruptcy of many large joint stock companies in the United States and Western Europe. Recent studies by economists around the world and the World Bank show that there is a strong correlation between corporate governance performance and stock prices and overall company performance. Accordingly, good governance will bring high efficiency to investors and more benefits to other members of the company. However, along with the rapid development of the business sector in both quantity and size, especially the formation of large companies in Philippines today, Corporate Governance, a tool to help separate ownership and management, are increasingly attracting the attention of many businesses and law makers on enterprises, therefore, within the scope of this study, the author presents some basic contents related to related to corporate governance issues that are being concerned.


Difference between “Corporate governance” and “Business Administration” :

Corporate governance, often referred to as corporate governance for short, is a system of institutions, policies and laws aimed at orienting, operating and controlling a company. Corporate governance also includes relationships between many parties, not only within the company such as shareholders (for Joint Stock Company)/capital contributors (for Limited Company), Board of Directors, and the Board of Directors. Executive Board, Board of Directors/Board of Members, but also stakeholders outside the company: State management agencies, business partners and the environment, community and society.

This mechanism was built and continuously improved precisely because of the pressing need for the health of the company and the health of society in general.

However, there are other views on these factors, stemming from different conceptions of enterprises. Adam Smith and investors see a business as an entity that acquires resources from investors, employees, and supply partners to produce goods and services for customers. Marxist theorists and others argue that businesses misappropriate the resources of employees, suppliers, and customers’ cash flows to serve the interests of the company’s owners. . In other words, in this view, businesses value the interests of the owners more than the interests of employees, suppliers and customers. Depending on the point of view, the factors or stakeholders involved may be different. It is important to distinguish clearly between corporate governance and business management. Business administration is the administration and management of production and business activities of an enterprise by the Board of Directors. Corporate governance is a process of monitoring and control implemented to ensure that the performance of business administration is in line with the interests of shareholders/contributors.

Corporate governance in a broad sense also aims to ensure the interests of stakeholders (stakeholders) not only shareholders but also employees, customers, suppliers, environment and government agencies. water. Corporate governance is placed on the basis of separation between management and ownership of the business. The company is owned by the owner (investors, shareholders…), but in order for the company to exist and develop, it must have the guidance of the Board of Directors/capital contributors, the management of the Board of Directors and the management of the company. contributions of workers, who do not always have the same will and interests. Obviously, there needs to be a mechanism to operate and control so that investors and shareholders can control the management of the company in order to bring the highest efficiency.

Corporate governance focuses on handling problems that often arise in the principal-agent relationship in the company, preventing and restricting managers from abusing their assigned rights and duties to use assets. , the company’s business opportunity serves its own benefit or that of others or deprives the company of resources controlled by the company. The provisions of Corporate Governance are mainly related to the Board of Directors/Board of Members, members of the Board of Directors/Board of Members and the Board of Directors, but not related to the management of affairs. company day. Good corporate governance will have the effect of making the decisions and actions of the Board of Directors reflect the will and ensure the interests of investors, shareholders and other stakeholders. In short, Corporate Governance is a model of balancing and restraining power among the company’s stakeholders, aimed at the long-term development of the company.

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Main contents in corporate governance

Corporate governance has many definitions due to different approaches as well as because it covers many activities in the business field, specifically as follows:

– “Corporate governance is a field of business that studies how to encourage effective business administration in companies, especially joint-stock companies, by using incentive structures, organizational structure and by-laws Corporate governance is often limited to the question of improving financial performance, for example, the ways in which business owners incentivize directors their use to provide a higher return on investment”.

– “Corporate governance is the way in which capital providers and investors ensure a return on their investments.”

– “Corporate governance is a system built to direct and control enterprises. The corporate governance structure shows how rights and responsibilities are distributed among the various stakeholders involved in the company. such as the Board of Directors/Board of Members, Directors, shareholders/capital contributors, and other relevant entities Corporate governance also clearly explains the rules and procedures for making decisions. In this way, Corporate Governance also provides the structure through which one establishes company goals, and also the means to achieve them or to monitor performance. .”

– “Corporate governance can be understood in a narrow sense as the relationship of an enterprise with its shareholders/capital contributors, or in a broad sense as the relationship of an enterprise with society…” (Financial Times) , 1997).

– “Corporate governance aims to promote corporate fairness, transparency and accountability”.

– “Corporate governance is a topic that, although not clearly defined, can be considered as a collection of objects, goals and institutions to ensure the good for shareholders, employees, and customers. , creditors and promote the reputation and position of the economy.”

Primary contents of corporate governance

Firstly, using members of the Board of Directors/Board of members of the company must be independent figures to control and restrain the power of the Board of Directors, and at the same time protect the interests of shareholders. winter.

Second, use and trust accountants and auditing companies to prepare and submit authentic financial statements to help shareholders have complete and authentic information when investing in the company.

Third, always use financial analysts to review and analyze the business prospects and financial soundness of companies that are and will issue securities to the public in order to provide adequate information. information for the public wishing to invest.

The main contents in Corporate Governance mentioned above, in general, are listed, including the following details:

– Publicity and transparency of information;

– Conflict of interest between the manager of the enterprise, the Board of Directors/Board of Members and other shareholders/capital contributors;

– Conflict between major shareholders and minority shareholders//large and small capital contributors.

– The role of independent administrators, independent auditing organizations.

– Remuneration policy for managers.

– Private property rights;

– The enforcement of legal provisions and contracts compares two popular corporate governance models in the world Corporate governance works through internal and external mechanisms. Corporate governance needs to harmonize internal and external mechanisms, in which, more emphasis can be placed on internal mechanisms rather than market mechanisms for effective corporate governance. On the basis of these two mechanisms, many corporate governance models have been applied in the world, however, they can be classified into two main groups:

– Model of orientation of shareholders/capital contributors. The model favoring shareholders/capital contributors, popular in the UK and the US, considers the company as a tool for shareholders to maximize their benefits.

– Multi-party governance model. This model is commonly seen in mainland European countries and Japan, but also in many successful US companies. This model recognizes the interests of workers, managers, suppliers, customers and the community.

Supporting the multi-party governance model, Professor Bill George, Harvard Business School, has a famous article: “Shareholders come third” – Shareholders’ interests are only third, after the interests of customers and employees. labor.

Good corporate governance will help companies improve access to capital and operate more efficiently. Recent studies have shown that there is a strong correlation between corporate governance performance and stock prices and overall company performance. Accordingly, good governance will bring high efficiency to investors and more benefits to other members of the company. As a result, investors will be willing to pay higher prices for shares of well-managed companies. Banks are also willing to lend, even at lower interest rates, as good governance reduces the likelihood that the loans will be misused and increases the likelihood that the company will repay the loans in full. and on time. On the contrary, bad governance often leads to bad consequences, even bankruptcy of the company. The collapse of some large companies in the world (such as Enron, Tyco International, Daewoo, WorldCom) or the scandals in large state-owned corporations in Philippines such as PetroPhilippines, VNPT, SEAPRODEX have deep causes. from poor corporate governance practices.


 Administration in a joint stock company

Governance in a joint-stock company and the relationship between the Board of Directors, the Supervisory Board, shareholders and the Executive Board. The Executive Board (including the General Director and other executive officers) is responsible to the Board of Directors. manage its operations and have the obligation to provide information and explanations to the Supervisory Board;

– The Board of Directors is the representative of the shareholders, is responsible to the shareholders for the company’s operations, is accountable to the Supervisory Board for the financial situation and the legitimacy of its actions;

– Members of the Supervisory Board are elected by shareholders in the annual General Meeting of Shareholders, and are responsible for reporting to shareholders on the results of the implementation of the
Assigned duties include supervising the Board of Directors and Executive Board. Corporate governance best practices suggest that the Board should assume and disclose the following six key responsibilities:

– Review and approve business strategies and plans;

– Monitoring the business situation of the company;

– Identify key risks;

– Planning of senior management staff;

– Implement investor relations program and information transparency policy;

Enterprises can perform a general corporate governance system assessment to identify inadequacies and areas that need to be improved to achieve full compliance with international standards. Areas to focus on consideration include: the formulation and appraisal of the company’s strategy; the process of nominating members of the Board of Directors; the operation process and evaluation of the performance of the Board of Directors; transparency program with shareholders and results of this program; the implementation of risk management and internal audit functions; financial reporting process.

Current practice of corporate governance in Philippines

The legal regulations on corporate governance in Philippines are still incomplete and tight, currently, owned by enterprises belonging to different components (state-owned companies, foreign-invested enterprises, etc.) equitized enterprises and private equity) are governed by different legal regulations, so the regulations on corporate governance for these types of enterprises are not uniform, incomplete and there are many differences. illogical.

– The roles and functions of the Supervisory Board in some companies are still unclear, very limited and formal.

– The transparency and disclosure of information has not been done well. Especially in equitized companies, investors are not provided with adequate and timely information about the equitization, leading to the equitization being “closed”, not attracting investors. strategic investment.

– The role of shareholders representing the State’s capital contribution in equitized companies is not clear, or is loose, or overused, creating a seed for conflicts, leading to frequent interference. of state management agencies into corporate governance. On the other hand, the management in these companies is still popularly “new bottle, old wine”, and therefore inefficient.

Related party transactions: These are transactions between two or more parties that have a special relationship with each other before the transaction occurs. The phenomenon of self-interest transactions is quite common, especially in state-owned enterprises, especially in large transactions such as procurement of machinery and equipment, and bidding is still quite common. The role of state management in forcing businesses to disclose information, checking information about transactions with related parties is still limited.

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