Chapter 1: Review Questions

1. What does governance mean?

Governance is defined as the process in which elements in society exercise power, authority
and influence and lay down policies relating to the public and its welfare. It is the sound exercise of
political, economic, and administrative authority to manage a country’s resources for development.
In simpler terms, governance refers to the process of decision-making by which the implementation
is through the exercise of authority by a leader of a country or an organization.

2. Explain whether the following statement is true or false.

a. “Governance is exercised only by the government of a country.”
Governance is not only restricted to the government of a country. It is, as well, applicable
even in a small organization where there stands an authorized person to maintain the welfare
of the whole group. It can be present in a corporation, different organizations, local or
national estate and even in small groups where decisions are accomplished through the
power of the leader.

3. Explain how governance can be used in the following context and give appropriate example:
a. National governance – Governance in the national scale is the exercise of political and economic
authority to cater public’s affairs in all aspects accommodate the citizen’s welfare.
b. Local governance – Local governance, on the other hand, covers a small area by which the leader
makes decision through his power and authority. He is authorized to implement policies and
laws in just a smaller scale compare to national setting. An example of which is the town council.
c. Corporate governance – Its primary feature involves the protection of shareholders and proper
communication of policies within a corporation.
d. International governance – International governance affects more than one country or region as
it covers the political cooperation and transactions that are beyond borders. It is a movements
towards negotiating responses to problems that involves connecting states.

4. Explain briefly the eight (8) basic characteristics of good governance.

 Participation – It includes all both men and women, either directly or through legitimate
representatives by which their involvement plays a significant role in decision making. It should
be organized and every individual is given the freedom of expression for the best interests of the
organization.
 Rule of Law – Good governance requires fair legal frameworks that are enforced by an impartial
regulatory body, for the full protection of stakeholders.
 Transparency – Transparency means information should be easily accessible to those who will
be affected by the policies and laws as well as its results. It should be easily understood by the
subordinates and its enforcement should be in compliance with accepted rules and regulations.
 Responsiveness - Good governance requires that organizations and their processes are designed
to serve the best interests of stakeholders within a reasonable timeframe.
 Consensus Oriented – A good governance requires conference in order to gather the different
concerns of stakeholders to reach a wide consensus of what is in the best interest of the whole
group and it can be accomplished in a wise manner.
 Equity and Inclusiveness – It gives privilege to its stakeholders to maintain and improve their
well-being emphasizing their involvement in the group and to find reason for its existence and
value to the society.
 Effectiveness and Efficiency – The organization is required to implement policies and rules that
aims to produce favorable results in order to meet the needs of its stakeholders while utilizing
the resources in the wisest manner at its disposal. Resources may refer to human, technical,
environmental, natural and financial resources.
 Accountability – the organization should emphasize its responsibilities to those who will be
affected by its decisions, actions and implemented rules and regulations. It should be held
 responsible for anything that happens to their subordinates as long as its reason is directly
attached to the organization.

5. Transparency and accountability are synonymous. Explain whether the statement are
correct or not.
This is incorrect. We might think that these two characteristics are similar but it isn’t
Transparency is concerned with the information that he company is providing to both external
and internal users. It should be able to deliver the correct information to be used primarily in
decision-making. On the other hand, accountability covers the one who will be accountable for the
outcomes of the decisions to those who are affected by it. Accountability cannot be enforced
without transparency, thus it is interrelated to one another.

6. Explain whether the following statement is true or not.

a. “Responsiveness usually results to effectiveness and efficiency.”
This statement is false because there are instances that you might be able to respond to
what is asked but it does not mean that you always reach what is needed in terms of either its
quantity or quality. It still varies on the performance and efforts not just on being responsive.

7. Define corporate governance.

Corporate governance refers to the system of practices and rules by which authority and
power is vested to the leader which aims to direct and control the whole group for the welfare of
both the external and internal agents affected by its decisions. It involves balancing the interests of
a company’s shareholders, management, customers, suppliers, government, financers and the
community.

8. What does corporate governance structure involve?

The corporate governance structure specifies the distribution of rights and responsibilities
among different stakeholders such as the board, managers or shareholders, and spells out the rules
and procedures for decision-making in corporate affairs.

9. State the purpose of corporate governance.

The purpose of corporate governance is to assist the management of a company towards
effective and prudent output, and reach a long-term success of the company. Its primary purpose is
to increase the shareholder’s value and protect the interests of other stakeholders by improving
corporate performance and accountability.

10. Explain the basic objectives of corporate governance.

 Fair and Equitable Treatment of Shareholders
A corporate governance ensures fair treatment of all shareholders of the company.
 Self-Assessment
Corporate governance lets the firm to assess their behavior to lessen risks and further
problems. It enables the company to point out its deficiencies in operations and help solve
issues internally on a regular basis.
 Increase Shareholders’ Wealth
One of its objectives is also to protect the long-term interests of the shareholders of the
company. One basis of having a good corporate governance is its high valuation attached to
their shares by investors. A higher number of potential investors reflect to a good corporate
governance.
 Transparency and Full Disclosure
Another corporate governance’s objective is to ensure a higher degree of transparency by
which the company is able to fully disclose its transactions to the company accounts.
 11. Explain the three basic principles of effective corporate governance.
 Transparency and Full Disclosure
An effective corporate governance safeguards integrity in their financial reports. It is able to
make timely and balance disclosure which aims to provide a clear information about the
company to both internal and external users.
 Accountability
A company with an effective corporate governance promotes objective and responsible
decisions which caters the best interests of its shareholders. It clearly identifies the role of
its subordinate and management and ensures an appropriate range of expertise and
knowledge among its employees.
 Corporate Control
The company should be able to build a long-term sustainable growth in shareholders’ value
for the corporation. It should be company that recognizes risks and fairly manages it for
better outcomes needed by the company.

Chapter 1: Multiple Choice Questions

1. The basic principle of "transparency and full disclosure" for effective corporate governance
responds positively to the following questions except.
a. Does the board of directors safeguard integrity in financial reporting?
b. Does the board meet the information needs of investment communities?
c. Can an outsider meaningfully analyze the firm's actions and performance?
d. Has the board built long-term sustainable growth in shareholders' value for the corporation?

2. The basic principle of “accountability" for effective governance answers the following
questions positively, except
a. Does the board recognize and manage risk?
b. Does the board lay solid foundations for management oversight?
c. Does the composition mix of board membership ensure an appropriate range and risk of
expertise diversity, knowledge added value?
d. Does the board promote objective, ethical and responsible decision making?

3. "Transparency and full disclosure" principle advocates the following except

a. Sound disclosure policies and practices
b. Solid foundations for management oversight
c. Meeting the information needs of investment communities
d. Safeguards integrity in financial reporting

4. The rights of shareholders can be effectively upheld through the following measures except
 a. By establishing an audit committee
b. By designing and disclosing a communications strategy to promote affective communication
with shareholders.
c. By encouraging active participation at general meetings.
d. By requiring the external auditor to attend the annual general meeting and to answer
questions about the audit.

5. To safeguard integrity in financial reporting, the business firm should do the following
except
a. Establish an audit committee
b. Request the external auditor to attend the annual general meeting
c. Disclose the functions reserved to the board and those delegated to management
d. Disclose the policy concerning trading in company securities by directors, officers and
employees.

6. To encourage enhanced performance by the board and management, it is recommended that

the following should be adopted except
a. Disclosure of the process for performance evaluation of the board, its committees,
individual directors and by executives.
b. A remuneration committee
c. Distinguish between non-executive director's remuneration from that of executives.
d. Establish policies on risks oversight and management

7. The characteristic of good governance where fair legal framework are enforced impartially
is
a. Participation
b. Rule of Law
c. Equity
d. Accountability

Chapter 2: Review questions

1. “Small business enterprise do not need good governance” do you agree? Explain.
I disagree with this statement. Good governance should be applied to even the smallest
scale even in business enterprises. In order to run a business smoothly, there should be governance
 in which the authority is used to implement policies in maintaining order, monitoring workers, and
execution of plan.

2. Does good governance require absolute rules that must be adopted by all organizations?
There is no absolute rules that all organizations follow as one group differs from the other.
Each organizations have unique features including its structure, procedures and nature therefore
they adopt different rules that fits to the needs of the organization and is necessary in order to
pursue its objectives.

3. What is the essence of any system of corporate governance?

The essence of any system of corporate governance is to allow the top level managers to
uplift their organization and exercise freedom within a framework of effective accountability.
Good governance provide the leaders of the company the authority to implement policies that
would provide greater outcomes from the company’s performance.

4. Where does the board of directors derive its authority?

The board of directors derived its authority from the favors of the shareholders. They are
elected for the position for their skills and knowledge needed by the company in making decisions
in behalf of the whole shareholders.

5. To whom is the board of directors accountable?

The Board of Directors is accountable to shareholders for the company's business
operations and corporate governance in accordance with management objectives and maximization
of shareholders' benefit within the framework of sound business ethics whilst taking into account
the benefits of all stakeholder groups.

6. On what aspects do shareholders demand accountability from the board of directors?

The shareholders demand accountability to the board of directors in all decisions they make
from planning to the issuance of dividends. The shareholders gives the capitalization of the
business and the board serves as the decision maker of the business all of the decisions the boars
makes they are accountable to the shareholders

7. What is management’s responsibility as far as financial reporting is concerned?

Management is responsible for the integrity and objectivity of the financial statements.
Management recognizes its responsibility for conducting the company's affairs in compliance with
established financial standards and applicable laws, and maintains proper standards of conduct for
its activities. They should produce the needed financial statements on the required dates of release
and with the compliance of the external users. The presentation of accounts and disclosures should
be understandable, and correct.

8. Describe the broad role of the shareholders in a corporation.

The shareholders are the financial investors of a company. They are involved in the election
of board members, approval of major initiatives such as buying or selling stocks, annual reports on
management compensation from the board of directors.

9. Describe the broad role of the Board of Directors.

Board of Directors are the major representatives of stockholders of a company. Its role is to
secure that the company is running in accordance to its charter there is proper accountability in
different circumstances. They make big decisions that affect almost all the sectors of a company.
The progress of the company rely heavily on them.

10. What are the specific activities of the board of directors?

The specific activities covered by the board of directors are as follows:
 1. Overall Operations
 Establishing the organization’s vision, mission, values and ethical standards.
 Delegating an appropriate level of authority to management.
 Demonstrating leadership.
 Assuming responsibility for the business relationship with CEO including his or her
appointment, succession, performance, remuneration and dismissal.
 Overseeing aspects of the employment of the management remuneration, performance and
succession planning.
 Recommending auditors and new directors to shareholders.
 Ensuring effective communication with shareholders and other stakeholders.
 Crisis management.
 Appointment of the CFO and corporate secretary.

2. Performance
 Ensuring the organization’s long term viability and enhancing the financial position.
 Formulating and overseeing implementation of corporate strategy
 Approving the plan, budget and corporate policies
 Agreeing key performance indicators (KPIs)
 Monitoring/assessing assessment, performance of the organization, the board itself,
management and major projects
 Overseeing the risk management framework and monitoring business risks
 Monitoring developments in the industry and the operating environment
 Oversight of the organization, including its control and accountability systems
 Approving and monitoring the progress of major capital expenditure, capital management
and acquisitions and divestitures

3. Compliance/Legal Conformance
 Understanding and protecting the organization’s financial position
 Requiring and monitoring legal and regulatory compliance including compliance with
accounting standards, unfair trading legislations, occupational health and safety and
environmental standards
 Approving annual financial reports, annual reports and other public documents/ sensitive
reports
 Ensuring an effective system of internal controls exists and is operating as expected

Chapter 2: Multiple Choice

1. Approving annual financial reports and other public documents are specific responsibilities
of
a. Management
b. Board of directors
c. Shareholders
d. Employees
2. Providing oversight of the internal and external audit function, the process of preparing the
annual financial statements and public reports on internal control are the responsibility of
a. Board of directors
 b. Chief executive officer
c. Chief financial officer
d. Audit committee of the board of directors
3. Who is responsible for ensuring the accuracy, timeliness of public reporting of financial and
other information for public companies?
a. External auditors
b. Securities and Exchange Commission
c. Shareholders
d. Board of Accountancy
4. Who performs audit of companies for compliance with company policies and laws, audits
efficiency of operations and periodic evaluation and tests of controls?
a. External auditors
b. Internal auditors
c. Commission on audit
d. Chief accountant
5. An independent director is expected to
a. Apply expertise and skills in the corporation best interest
b. Asset management to keep performance objectives at the top of its agenda
c. Respect the collective, cabinet nature of the board's decision
d. Act as conduit between the board and the organization