Klarence Manguiat GOVRISK
AIS3C M4-T1
Governance Concepts
Please answer the following questions. Limit your answers to a minimum of 5 sentences
and maximum of 15 sentences.
1. Why are there arrows flowing in both directions between the different elements of
governance depicted in slide 2 of our lecture pdf file?
In the figure depicted in slide 2 of the pdf file for our lecture, the arrows are
flowing in both directions between the different elements of governance because
represents that information flows all throughout the governance structure whether it
be from the top or bottom. It depicts that flow of direction and accountability from
lower and senior management. It could be that Senior management in turn provides
direction to lower levels of management who are responsible for the specific controls
or Senior management is accountable to provide the board assurances regarding
the effectiveness of risk management activities.
2. What is corporate governance? Compare the definition of OECD and the
definition in the video you've watch. Give the similarities or differences of the two
definitions.
OECD’s definition of corporate governance is that it involves a set of
relationships between a company’s management, its board, its shareholders and
other stakeholder. Corporate governance also provides the structure through which
the objectives of the company are set, and the means of attaining those objectives
and monitoring performance are determined. On the other hand, according to the
video that I have watched, corporate governance is the process by which
organizations are directed and controlled in terms of authority, accountability,
stewardship, leadership, direction, and control. It is the framework by which a
company’s board of directors and senior management establishes and pursues
objectives while providing effective separation of ownership and control. The
definition given by the video and OECD are very similar. Both have said that
corporate governance has something to do with the relationships in an organization,
may it be between stakeholders, the board, and the management. Also, both
definition focuses on monitoring and controlling performance in a corporation.
3. What is the difference between the two areas of governance depicted in slide
number 23?
The two areas presented in slide number 23 are strategic direction and
governance oversight. The difference between the two is that in strategic direction
the board provides a strategic direction for the organization. Such strategic direction
should be relative to the organization’s objective, consistent with the business model
used by the organization, and is aligned with what the stakeholders prioritize.
Corporate governance, on the other hand, focuses on the board’s responsibility to
manage and monitor the internal and external activities of an organization for risk
management.
4. What are the three (3) different types/characteristics of stakeholders that the
board must understand. Give examples of each type.
The three types/characteristics of stakeholders that the board must understand
are some stakeholders are directly involved in the operation of the organization’s
business (employees); other stakeholders are not directly involved, but are
interested in the organization's business; that is, they are affected by the success or
other outcomes of the business (investors, suppliers, governments); and some
stakeholders are neither directly involved nor interested in the success of an
organization's business, but these stakeholders may nonetheless influence aspects
of the organization's business and, as a result, the organization's success
(customers, communities).
5. According to the video you've watched, why is corporate governance important?
With proper implementation of strong corporate governance policies ensures that
proper oversight in enforced in an organization accountable to the standards, laws,
and regulations that it should be abiding by. Corporate governance helps an
organization achieve its objectives and fulfill its obligations through sound, concrete,
and strategic business planning, risk management, financial management and
reporting, human resource planning and control, and compliance and accountability
systems. Also, effective corporate governance helps provide framework for
establishing responsibility to all of the participants connected to an organization’s
clients, employees, and providers of capital. An effective corporate governance
framework is essential an organization’s overall safety and soundness.
6. Discuss how corporate governance is assess based on the video you've watch.
Assessing corporate governance can be classified into 4 topic areas: structure
effectiveness, board supervision adequacy, management effectiveness, and
adequacy of control functions. A three-teared rating system is used to summarize
the results of an assessment (strong, adequate, or weak). Structure effectiveness
targets the organizational structure through a top-down review of legal entities,
individuals, and policies. To be more specific, it focuses on how clearly roles,
responsibilities, and authority as well as communication channels are reflected in the
legal structure of the institution. As for board supervision adequacy, it focuses on
elements that demonstrate the ability of board members to understand and oversee
the activities of the organization. On the other hand, management effectiveness,
focuses on management committee charters and activities in line of business
metrics. Particularly, this area focuses of the qualifications of committee members,
the scope of committee activities, and the flow of information into the board. Lastly,
adequacy of control functions focuses on the efficacy of the internal audit,
external audit, credit review, and compliance. A three-teared rating system of strong,
adequate or weak is commonly used to summarize the results of an assessment in
this area.
