SEC Code of Corporate Governance

Summary

This chapter focuses on the SEC Code of Corporate Governance, emphasizing the importance of sustainability reporting and non-financial disclosures. Key principles include promoting shareholder rights, ensuring effective communication channels, and strengthening internal controls and risk management frameworks. The chapter outlines the need for companies to respect stakeholder rights and encourage employee participation while being socially responsible. Additionally, it discusses the significance of corporate social responsibility (CSR) and the triple bottom line approach, which integrates financial, environmental, and social performance. This holistic perspective aims to foster transparency and accountability in corporate governance.

Takeaways

• 😀 Principle 10 emphasizes the importance of non-financial and sustainability reporting, requiring companies to disclose relevant ESG issues and strategic goals.
• 🌱 Sustainability reporting involves voluntary disclosures about a company's sustainability initiatives and outcomes, highlighting their commitment to responsible practices.
• 🗣️ Principle 11 stresses the need for comprehensive communication channels to ensure timely and relevant information reaches investors and stakeholders.
• 🔍 Companies must maintain effective internal control systems and enterprise risk management frameworks as outlined in Principle 12 to uphold integrity and transparency.
• 👥 Principle 13 mandates fair treatment of shareholders, requiring companies to facilitate and protect their rights through appropriate governance documentation.
• 🤝 Principle 14 emphasizes the respect for stakeholder rights and the provision of effective redress mechanisms for any violations, enhancing trust and engagement.
• 💼 Principle 15 advocates for employee participation in governance processes, promoting a culture of collaboration and accountability within the organization.
• 🌍 Principle 16 highlights the importance of social responsibility, urging companies to engage positively with communities and ensure sustainable practices.
• 📊 Non-financial reporting includes accountability for performance beyond financial metrics, and is essential for transparency and stakeholder engagement.
• 🔍 The demand for independent assurance on sustainability reporting is growing, as it enhances the credibility of reported information and supports informed decision-making.

Q & A

What is the main focus of Principle 10 in the SEC Code of Corporate Governance?

Principle 10 emphasizes increasing focus on non-financial and sustainability reporting, which involves disclosing essential non-financial information and managing ESG issues.

What does sustainability reporting include?

Sustainability reporting includes voluntary corporate disclosures about sustainability initiatives, plans, and outcomes related to a company's operations.

Why is it important to disclose non-financial information?

Disclosing non-financial information is important as it provides stakeholders with a comprehensive understanding of a company's sustainability initiatives and impact beyond financial statements.

How should a company maintain communication with shareholders according to Principle 11?

According to Principle 11, a company should maintain comprehensive and cost-efficient communication channels that ensure timely dissemination of relevant information to shareholders and other investors.

What constitutes an effective internal control system as per Principle 12?

An effective internal control system should ensure integrity, transparency, and proper governance, including a strong risk management framework and independent internal audit functions.

What are the responsibilities of an independent internal audit in a company?

The independent internal audit is responsible for assessing the effectiveness of internal controls and risk management practices, ensuring compliance, and reporting findings to management and the board.

How does Principle 13 address shareholder rights?

Principle 13 promotes fair treatment of all shareholders and emphasizes the need for clear disclosure of shareholder rights and mechanisms for active participation in corporate governance.

What are some examples of stakeholders mentioned in the script?

Examples of stakeholders include suppliers, contractors, and employees, all of whom should have their rights respected and have mechanisms in place for redress if those rights are violated.

What mechanisms should a company develop to encourage employee participation according to Principle 15?

A company should develop policies and programs that promote employee involvement in governance, establish anti-corruption measures, and provide channels for reporting concerns about unethical practices.

What is the significance of the triple bottom line reporting?

Triple bottom line reporting is significant as it assesses a company's performance across three dimensions: financial, environmental, and social, thereby supporting comprehensive sustainability reporting.

Outlines

00:00

📚 Chapter 4: Corporate Governance Code Continuation

This section discusses principles 10 to 16 of the SEC Code of Corporate Governance. Principle 10 focuses on increasing the emphasis on non-financial and sustainability reporting, highlighting the importance of disclosing essential non-financial information and managing economic, environmental, and social governance (EESG) issues. It refers to the Robinson's Land Corporation (RLC) as an example of effective sustainability reporting. Principle 11 addresses the need for comprehensive communication channels to keep shareholders and stakeholders informed for better decision-making. Principle 12 emphasizes strengthening internal control systems and risk management frameworks, stressing the significance of effective oversight to ensure transparency and governance. Principle 13 promotes shareholder rights, underlining fair treatment and the facilitation of shareholder participation, exemplified by RLC's engagement practices. Principle 14 focuses on respecting stakeholder rights, ensuring that stakeholders can seek redress for any violations, and providing necessary contact information for complaints. Principle 15 encourages employee participation in governance processes, advocating for anti-corruption policies and merit-based incentive mechanisms. Lastly, Principle 16 underscores corporate social responsibility, stressing the interdependence between businesses and communities while encouraging sustainable practices and transparency in community engagements.

Keywords

💡Sustainability Reporting

Sustainability reporting refers to the practice of disclosing corporate activities related to social, environmental, and economic impacts. This concept is central to the video as it emphasizes the importance of transparency in how companies operate and their commitment to sustainable practices. The transcript highlights that companies should voluntarily disclose their sustainability initiatives, plans, and outcomes, which helps stakeholders understand their environmental footprint.

💡Non-Financial Information

Non-financial information encompasses data that is not strictly monetary but is crucial for assessing a company's overall performance. This includes details about environmental, social, and governance (ESG) factors. In the video, the need to disclose such information is underscored as a means of providing a holistic view of a company's sustainability efforts, as seen in the example of Robinsons Land Corporation's sustainability report.

💡Corporate Governance

Corporate governance is the system by which companies are directed and controlled, focusing on the relationships among various stakeholders. The video addresses how effective corporate governance principles, such as transparency and accountability, are essential for building trust with investors and stakeholders. It lays out specific principles, like promoting shareholder rights and ensuring compliance with reporting standards.

💡Stakeholders

Stakeholders are individuals or groups that have an interest in the performance and activities of a company, including shareholders, employees, suppliers, customers, and the community. The video discusses the importance of respecting stakeholder rights and providing avenues for redress in case of violations. For instance, the transcript mentions the provision of contact details for stakeholders to voice their concerns, emphasizing the need for corporate accountability.

💡Shareholder Rights

Shareholder rights refer to the entitlements of individuals or entities that own shares in a company, which can include voting on company matters and receiving dividends. The video stresses the importance of treating all shareholders equitably and ensuring that their rights are respected, as highlighted in the example of Robinsons Land Corporation's practices to facilitate shareholder participation in meetings.

💡Internal Control Systems

Internal control systems are processes designed to ensure the integrity of financial reporting and compliance with laws and regulations. The video underscores the significance of strong internal controls as a mechanism for promoting transparency and accountability in corporate governance. It notes that weaknesses in internal control systems, such as ineffective audit committees, can lead to serious deficiencies in financial reporting.

💡Enterprise Risk Management

Enterprise risk management (ERM) is a comprehensive approach to identifying and mitigating risks that could impact an organization’s objectives. In the video, ERM is presented as a critical aspect of governance, ensuring that companies not only address financial risks but also operational and strategic ones. The emphasis on having a chief risk officer reflects the growing need for companies to proactively manage risks in an increasingly complex business environment.

💡Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) refers to a company's commitment to conducting business ethically and contributing to economic development while improving the quality of life for employees, their families, and the community. The video emphasizes CSR as a vital part of sustainability reporting, illustrating how businesses can engage with their communities positively. Examples include companies disclosing their efforts in community development and environmental conservation.

💡Whistle-Blowing Policies

Whistle-blowing policies are guidelines that protect employees who report unethical or illegal activities within an organization. The video highlights the need for such policies to encourage transparency and accountability in corporate governance. It mentions that having robust whistle-blowing mechanisms helps to create a culture where employees feel safe to voice concerns about misconduct, ultimately enhancing ethical business practices.

💡Communication Channels

Communication channels refer to the methods used to share information between a company and its stakeholders. The video discusses the importance of maintaining comprehensive and efficient channels to ensure timely dissemination of relevant information. This is crucial for informed decision-making by investors and stakeholders, as demonstrated by the need for up-to-date information on company websites.

Highlights

Chapter 4 discusses the continuation of the SEC Code of Corporate Governance, focusing on non-financial and sustainability reporting.

Sustainability refers to a company's ability to maintain itself at a certain level, which is crucial for long-term success.

Sustainability reporting includes voluntary corporate disclosures about sustainability initiatives and their outcomes.

Companies must disclose essential and relevant non-financial and sustainability issues to stakeholders.

Management of economic, environmental, social governance (EESG) issues is essential for effective sustainability reporting.

The Robinson's Land Corporation (RLC) provides a sample sustainability report showcasing energy consumption and greenhouse gas emissions.

Strategic goals and the impact of sustainability issues must be disclosed by the company.

Principle 11 emphasizes the importance of comprehensive and cost-efficient communication channels for relevant information dissemination.

Effective internal control systems and enterprise risk management frameworks are critical for transparency and governance.

Principle 13 advocates for fair treatment of all shareholders and recognition of their rights.

The rights of stakeholders should be respected, with effective redress mechanisms for violations.

Encouraging employee participation through policies and programs enhances corporate governance processes.

Companies must engage socially with the communities they operate in to promote sustainability and social responsibility.

Audit committee effectiveness is critical in evaluating internal control over financial reporting.

Demand for sustainability reporting has increased due to investor interest and the growth of socially responsible investment funds.

Independent assurance enhances the credibility of sustainability reports, promoting transparency.

It is not unethical for companies to provide sustainability reports without assurance; it is a reporting decision.

The importance of understanding the UN's Sustainable Development Goals (SDGs) in relation to corporate governance and sustainability.

Transcripts

let's now proceed to chapter 4 the

continuation of the sec code of

corporate governance

as you watch this video please bring

with you your books

notes and the materials that i have

uploaded in our google classroom

for principle number 10 increasing focus

on non-financial and sustainability

reporting

sustainability is the ability of the

company

to be maintained at a certain level the

ability of the company to exist

constantly sustainability reporting

includes voluntary corporate disclosures

about sustainability initiatives plans

and associated outcomes

the company should ensure that material

meaning essential

and relevant and reportable

non-financial

and sustainability issues are disclosed

under this principle the important

points to remember

are disclosure of non-financial

information

whatever needs to be disclosed aside

from the financial reports or statements

second the management of the economic

environmental

social governance issues or the eesg

issues of the business

example sutoyuma reports and updates on

climate change

if you can see duns on a sample

sustainability report

of the rlc or the robinson's land

corporation

on page eight onwards you could see the

energy and reduction of energy

consumption

water consumption greenhouse gas

emissions report

of the company in relation to their uh

sustainability

rlc or the robinsons land corporation is

one of the leading

real estate developers in the

philippines

then third there must be disclosure of

the company's strategic goals

and the impact of the sustainability

issues

so as you can see in the sustainability

report of the

rlc

and the management approach for those

impact and risks

so before we proceed to the next

principle

i want you to take a look at the sample

corporate governance report that i gave

you

so page six magikita new zealand

principle

and then underneath my four columns

first

recommendations as per the sec memo

and others an optional or supplemented

dependency company

second the statement of whether the

company is compliant or not

third additional information containing

links and references

supporting their compliance and lastly

explanations kapagmai parts

non-compliant

company yenyoung disclosure which is in

consonance with a comply or explained

approach

nasa chapter three susanna maging

helpful

in actual businesses for

principle number 11 promoting a

comprehensive and cost efficient access

to relevant information

the company should maintain a

comprehensive and cost

efficient communication channel for

disseminating relevant

information this channel is crucial for

informed decision making by investors

stakeholders and other interested users

important points to remember the

inclusion of

media and analyst briefings as channels

of communication

reporting of timely and up-to-date

information

relevant to investors decision making

example non-compliance of principle

number 11

is the company's website which contains

the updated information

about the company like downloadable fs

reports

articles of incorporation notices

and minutes of the annual stockholders

meetings

then under internal control system and

the risk management framework

we have principle number 12

strengthening the internal control

system

and the enterprise risk management

framework

to ensure the integrity transparency

and proper governance in the conduct of

its affairs

the company should have a strong and

effective internal control system

an enterprise risk management framework

important points to remember effective

internal control system

effective enterprise risk management

framework

company's size risk profile and

complexity of operations

functions of an independent or a

separate internal audit

chief audit executive his or her

responsibilities and to whom he or she

reports

risk management function chief risk

officer and his or her functions

example non-compliance of principle

number 12

frequency non-review non-internal

control system non-company

attestation accompany nomiron selang

internal audit

and third information about the key

risks

that the company is currently facing and

how the company manages

them then under cultivating a

synergistic relationship with the

shareholders

we have principle number 13 promoting

shareholder

rights principle the company should

treat

all shareholders fairly and equitably

and also recognize protect and

facilitate

the exercise of their rights important

points

disclosure of shareholder rights in

shareholder rights

but disclosed through the corporate

governance manual

or through the website through their

articles of incorporation

how the board can encourage active

shareholder participation

and then the investor relations office

or the iro

this is uh needed to ensure constant

engagement with its

shareholders example

reports rlc's optional recommendation

to comply with principle 13 the company

appointed an independent party which is

sgv

to count and or validate the votes at

the annual stockholders meeting

then duties to stakeholders for

principle number 14

respecting the rights of stakeholders

and effective redress

for violation of the stakeholders rights

the rights of the stakeholders

established by law

by contractual relations and through

voluntary commitments

must be respected so those are the three

ways on how the

rights of the stockholders the

stakeholders

can be established where stakeholders

rights and our interests are at stake

stakeholders should have the opportunity

to obtain prompt

effective redress for the violation of

their rights

important points to remember examples of

the stakeholders

which we have already covered in the

previous chapters

so their common goal is to create wealth

growth and sustainability then the

stakeholder engagement touch points

example of compliance with principle

number 14

the company provides the contact details

which the stakeholders can use

to voice their concerns and their

complaints for possible violation of

their rights

the company provides information on

whistle-blowing policy

practices and procedures for

stakeholders

for example rlc the robinson stand

they were real estate developers so for

sure

mero nashan suppliers contractors

and to show respect for their rights so

in the case of rlc

these suppliers and contractors are

there

are two of their stakeholders so rlc

provides

policies programs and practices that

address

their selection procedures or provide

link or reference to a document

containing the same

so that their suppliers and contractors

would uh be knowledgeable of their

rights

then for principle number 15 encouraging

employees participation

a mechanism for employee participation

should be developed to

first create a symbiotic environment

second realize the company's goals

and third participate in the company's

corporate governance

processes important points to remember

establishment of policies programs and

procedures

to encourage the employees

anti-corruption policies

and program free communication of

concerns

about illegal or unethical practices so

example

whistle-blowing policies to help conduct

the business

according to the highest ethical and

legal standards

in order to ensure namapo protect

mobile protecting whistleblowers against

any form of retaliation

examples the company has a merit-based

performance incentive mechanism or

scheme

that awards and incentivizes employees

at the same time aligns their interests

with those of the shareholders

disclosure

compensation structure employees

policies and practices on health safety

and welfare of the employees

code of business conduct and ethics

which contains the procedures

for penalizing employees involved in

corrupt

and unethical practices

then lastly the principle number 16

encouraging sustainability and social

responsibility

the company should be socially

responsible

in all its dealings with the communities

where it operates

it should ensure that its interactions

serve its environment

and stakeholders in a positive and

progressive manner

that is fully supportive of its

comprehensive and balanced

development important points to remember

the interdependence between the business

and the society

sustainable development and value chain

examples disclosure of information

on the company's community involvement

and environment related programs for

example

uh if the company did covet responses or

actions to minimize the or mitigate the

risk of cove then

they should disclose such information

so that's it let's now answer some of

the review questions in our book

first question assume that the

management

had determined that its organization's

audit committee is not effective

how do the witnesses in audit committee

affect the management's evaluation of

internal control

over financial reporting would an

ineffective audit committee constitute a

material witness in internal control

over financial reporting

state the rational for your response

the answer is yes if an audit committee

has weak directors

with little financial knowledge and

inadequate independence the management

would have to consider

that to be a control deficiency

professional guidance

indicates that ineffective oversight by

the audit committee

would likely indicate the presence of a

material witness

in internal control over financial

reporting

as it indicates that an essential part

of internal control may be lacking

second question why is there a need for

a corporation

to maintain a comprehensive and cost

efficient communication channels to

shareholders and other investors

it is needed to ensure that there is

timely and accurate dissemination

of public material and relevant

information

to its shareholders and other investors

to enable them to make informed decision

making

define the terms non-financial reporting

corporate social responsibility and

triple bottom line reporting

how do these terms relate to sustainable

sustainability reporting

non-financial reporting is a practice of

measuring

disclosing and being accountable to

internal and external stakeholders

for organizational performance towards

the goal of sustainable development

csr or the corporate social

responsibility reporting

is a continuing commitment by business

to behave ethically

and contribute to economic development

while improving the quality of the life

of the workforce their families the

local community

and the society at large

triple bottom line reporting is the

reporting on financial

environmental and social performance

these three terms are commonly used to

describe what we define as

sustainability reporting

in other words the voluntary corporate

disclosures about sustainability

initiatives

plans and associated outcomes

what factors have driven the demand for

sustainability reporting

factors that have driven the demand for

sustainability reporting

include investor interest socially

responsible investment funds

and the those zone sustainability index

the dj djsi or the dozone

sustainability index evaluates the

sustainability performance of thousands

of companies

which are trading publicly it's the

longest running global sustainability

benchmark

and it became the key reference point in

sustainability investing

for investors and companies alike

why is there a demand for independent

assurance

on sustainability reporting there is a

demand

for independent assurance on

sustainability reporting because such

assurance

enhances the credibility of the reported

information

and this might be information that the

management would have the incentive

for misstating is it unethical for a

company to provide a sustainability

report

but provide no assurance on the

reliability of the information contained

therein

no it is not unethical for a company to

provide a sustainability report

with no assurance on the reliability of

the information contained therein

rather it is simply a corporate

reporting decision

some companies want to provide

reasonable or high assurance

on their sustainability reports to lend

them greater credibility

in contrast some companies choose to

make only limited assurance

or to provide no assurance at all the

only thing that would be unethical would

be for a company

to knowingly provide false information

and need sustainability reports

but this is a separate issue from that

of assurance provision

so that's all for the sec code of

corporate governance

for a more realistic application of the

concepts that we have studied you may

browse the materials that i've uploaded

so meronsona sustainability report

corporate governance report disclosure

of non-financial information

and annual report this is a

sustainability report

if aware chaos is 17 sdgs or the

sustainable development goals of the

united nations

so these were for the

2030 agenda for sustainable development

sustainability reporting rlc sdg targets

and contributions so it's on page 29

then for the corporate governance report

on page six

onwards

then for the disclosure of non-financial

information

so you already know what affini what

financial information

is so non-financial example

material related party transactions

policy

then fourth annual report on pages 24 to

29

maikita new york corporate governance

reporting rlc

on page 30 the members of the rlc board

of directors

that was a succeeding paceless

monkeytonium audit reports

[Music]

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