(image from: http://www.atlasgenetics.com/corporate-governance.htm)
For this week, the tenth group presented their Good News Monday. It was about a fashion event which will support/help the community. This campaign was compared with the Rags2Riches story, wherein the community was taught on how to create quality bags using their skills in making rags. The R2R bags are now very popular not only because of the nice designs but it is because of how people could help the community when they purchase a bag. This is what CSR is all about because even if R2R is not present anymore, the community could still sustain their business or livelihood. I think that it was a good step for the company to help the community and at the same time earn profit. This is what people should do so that the people and the country could progress/succeed. If we share our knowledge about business to most of the people, they would be able to understand/apply this in their lives. They would also become successful which would be beneficial for everyone.
For the governance part, miss gave us a brief introduction and she made us watch a film about Enron- The smartest guys in the room. Enron corporation operated as one of America's largest energy, commodities and services company. However, Enron was considered as an example of corporate corruption and accounting fraud. It was uncovered in 2001 that the company was a leader of the industry because it falsified its accounting records. The company filed for bankruptcy after the revelation. I think that Enron would be a great company if they became truthful. The company would have succeeded until now if they did things slowly but surely. It's true that most of the people behind Enron lacked virtues and moral standards. Most of them focused on greed which put the company down.
For our second meeting for the week, we talked about ethics. It is important to know what is right from wrong because with the decisions that we make, there would always be an impact on everyone. For this session, we focused on Governance. We learned that organization and leadership of a company is important. Also, we need to give shareholders a fair return on their investments.
Corporate governance involves a lot of stakeholders. There are two sides based on the diagram, first would be the shareholders, board and executive management. Second would be the managers employees, customers, suppliers, community at large, government, financial markets, and environmentalists. Corporate governance has many links since many people and things are involved.
If the CEO and the chairman of the board are the same person, it would be bad since there is a conflict of interest. There needs to be a separation because the job of the chairman of the board is to look out for the shareholders while the CEO needs to manage and report to a board that sets policies and priorities. If this happens, one who is a chairman would basically be reporting to himself or herself. Conflict of interest is the heart of the matter in corporate governance. There is what we call the principal-asset dilemma and asymmetrical information. In typical agency costs, it was mentioned that the main role of corporate governance is to reduce total agency costs in order to maximize shareholder value.
There are four basic values of corporate governance. First would be transparency, this would apply with Enron which lacked transparency especially in the financial aspect. Second would be accountability, wherein the management should be accountable to board and the board is accountable to the shareholders. Third would be fairness, this would apply to the woman in court that spilled pie over Enron's representative. The goal of the company is to protect shareholders rights, treat all shareholders equitably, and provide effective redress for violations. Fourth would be independence, it is important to be free from the influence of others to minimize/avoid conflicts.
There are different types of board. Some examples in the presentation would be rubber stamp, yes-men, good old boys, country club, phantom, trophy and the real thing. A trophy board would be the committee wherein they want to use the name only. The members would usually consist of celebrities, politicians, etc.While an operating board sets an example and this is what the board should be. Miss told us a story about being a member in a board. An example would be Lani Mercado who was assigned by the Philippine government to be the representative for San Miguel, she might not be qualified since there was no basis/standard on why she was chosen to become the representative.
There are benefits of good corporate governance. First would be basic legal compliance that would improve the company reputation. Second is improved corporate governance structure lowers cost of capital. Third, public recognition results to better access to finance. Fourth, there is improved operational efficiency increases competitiveness. Fifth would be the shareholder wealth creation is assured. When there is good corporate governance, everything would follow. It is important the company gains the trust of the investors and customers so that business would be smooth. There should be good corporate governance because it allows easy access to capital, it stimulates firm performance, lowers the cost capital and raises the value of the firm, and increases long term performance.
Building the business case for good corporate governance- if the company is governed well you will attract people. Companies well governed would result to good impact which means it can attract more investors. Like businesses, when investors/customers have a good impression about the product it would be easier for them to trust and purchase it.
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