1

Prelim-Good governance
Review Material
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Test I.
1. Corporation. an artificial Being created by operation of law, having the right of succession and
powers, attributes and properties expressly authorized by law or incident to its existence.
2. Artificial being. An attribute of a corporation which means that, by fiction of law a corporation is
juridical person whose personality is separate and distinct from its owners.
3. Created by operation of law. Means it will come into existence through a charter or a grant from
the state.
4. Right of Succession. A corporation can continue to exist even in death, incapacity or insolvency
of any stockholder or member.
5. Powers, Attributes and Properties. Means it is authorized to do activities within the purpose(s) of
its creation, it has its own traits, and it operates based on what has been expressly provided in the
charter including those that are considered incident to its existence as a corporation.
6. Management. Refers to the party given the authority to implement the policies as determined by
the Board in directing the course/business activities of the corporation, (SEC, Code of Corporate
Governance).
7. Creditors. Refers to the party who lend to the corporation goods, services or money.
8. Shareholders. Refers to people who invest their capital in the corporation.
9. Employees. Are those
corporation.

people who contribute their skills, abilities, and ingenuity to the

10. Clients. The party considered to be the very reason for the existence of the corporation.
11. Government. Has several interest in private corporations the most apparent of which are the
taxes that the corporations are paying.
12. Public. Has a stake in corporations considering that the latter provides the citizens with the
essentials such as goods, services, employment and tax money for public programs.
13. Purposes of a Corporation
a) Early Stage Survival
b) To increase Profit
c) To offer vital services to the General Public
d) To offer Goods and Services to the Mass Market
14. Stockholders. Are entitled to their profits as a result of a contract among the corporate
stakeholders.
15. Shareholders or Stockholders. are artificial or natural persons that are legally regarded as
owners of the corporation.
16. Right of shareholders
a) The right to vote on matters such as elections of the board of directors.
b) The right to propose shareholders resolutions.
c) The right to receive dividends.
d) Pre-emption right which is the right to purchase new shares issued by the company to
maintain its percentage of ownership in the company.
17. Shareholders. Are considered principals, and the directors and officers are considered agents
under the agency theory in governance.
18. Bondholder. Generally defined as a person or entity that is the holder of a currently outstanding
bond.

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19. Bond. An artificial certificate of indebtedness by the issuing corporation provides some
advantages on the holder of said instrument.
20. Bondholder. Will receive regular interest payments during the life of the bond computed at face
value multiplied by the interest rate.
21. Board of Directors. Refers to the collegial body that exercises the corporate powers of all
corporations formed under the Corporation Code (Sec Code of Corporate Governance).
22. Duties and Responsibilities of the Board of Directors.
a) Governing the organization by establishing broad policies and objectives;
b) Selecting, appointing, supporting and reviewing the performance of the chief executive;
c) Ensuring the availability of academic financial resource;
d) Approving annual budgets;
e) Accounting to the stakeholders the organizations performance.
23. Multinational corporations. Have investment in other in each country.
24. Transnational Corporation. Has been technically defined by the United Nations Commission,
Own and control production or service facilities outside the country in which they are based,
registered and operate operates in more than one country at a time.
25. Corporate governance. Is the Process and structure used to direct and manage the business
and affairs of the company towards enhancing business prosperity and corporate accountability
with the ultimate objective of realizing long-term shareholder value, whilst taking into account the
interest of other stakeholders.
26. Corporate Governance. Defined as the structures and processes by which companies are
directed and controlled.
27. Corporate Governance. Helps companies operate more efficiently, mitigate risk and safeguard
against mismanagement, and improve access to capital that will fuel their growth, it makes
companies more accountable and transparent to investors and gives then the tools to respond to
stakeholder concerns, including implementation of good environmental and social practices.
28. Fundamental objectives of corporate governance.
a) Improvement of Shareholder Value
b) Conscious Consideration of the Interest of Other Stakeholders
29. What Good Governance Promotes?
a) Transparency
b) Accountability
30. Benefits of Good Governance:
a) Reduced Vulnerability
b) Marketability
d)
e) 31. Agency Problem in Corporations
a) Agency Relationship and Cost
b) Goals of Financial Management
c) Managerial Compensation
g) 32. Financial Goals of Corporations:
a) To survive
b) To avoid financial distress ad
bankruptcy
c) To beat the competition
d) To maximize sales or market share
i) 33. Effects of Governance
a) Conflict of interest
b) Managerial Opportunism
c) Incurrence of Agency Cost
g) 34. Performance Incentives and disincentives
a) Pay dependent of Profit Level
b) Shares Incentives
c) Shareholders Intervention

c)

c)

Prudence

Credibility

d) Control of the Firm

e) Stakeholders
f)
e) To minimize costs
f) To maximize profits
g) To maintain steady earnings growth
h)
d) Shareholder Activism
e) Managerial Defensiveness
f)
d) Threat of Being Fired
e) Takeover Threat

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f)
g)
h)
a)
b)
e)
a)
b)
c)

35. Non-executive director is a member of the Board of directors of the company who does
not take part in the executive function of the management tea.

36. Role of Non-executive directors

Strategy formulation
c) Monitoring of Performance
Establishing Networks
d)
37. Roles of the Chief Financial Officer
Implements Internal Control
e) Drives Major Strategic Issues
Supervises Major Impact Projects
f) Risk Manager
Develops Relations with Financing
g) Relationship Role
Sources
h) Objective Referee
d) Advisor to Management
i)
j) 38. Roles of the Audit Committee
a) Understanding the Audit Committees Responsibilities
b) Risk Identification and Response
k)
l) 39. Types of Risk that could affect the company and that the audit committee should be
conscious about:
a) External Risk
c) Information and Control Risk
b) Operating/Internal Risk
d)
e) 40. Group Responsible for Financial Reporting
a) BOD
b) Finance and Accounting
f)
c) Auditor-Independent
g) 41. Auditing. Is a systematic process by which a competent, independent person
objectively obtains an evaluates evidence regarding assertions about economic action and
vents to ascertain the degree of correspondence between those assertions and established
criteria and communication the results to interested users.
h)
i) 42. Factors that Contribute to Information Risk
a) Remoteness of Information Providers to the Information Users
b) Bias of Information Providers
c) The Volume of Data
d) Complexities in Transactions
j)
k) 43. In the Conduct of an Audit, the Auditor must consider whether the following are
present
a) Proper accounting records being kept by the company.
b) Financial statement figures that agree with accounting records.
c) Adequacy of notes to financial statement and other disclosures necessary.
d) Compliance with relevant laws and standards of financial accounting and reporting.
l)
m) 44. Organization Structure. Is the pattern of relationship among positions in the
organization and among member of the organization.
n)
o) 45. Objective of Organization Structure
a) accountability for areas of work undertaken by groups and individual members of the
organization
b) coordination of different part of the organization and different areas of work
c) effective and efficient organizational performance including resources utilization
d) monitoring the activities of the organization
e) flexibility in order to respond to changing environmental factors
f) the social satisfaction of members of the organization
p)
q) 46. Types of Organizational Structure
a) functional
d) divisional
b) product/service
e) matrix
c) geographical
f)
g) 47. Regulation. Is the administrative process of writing and passing laws that, to a certain
extent, restrain some fundamental rights of businesses.
h)
i) 48. Advantages of Planned Economy
a) Driven for Collective Benefits
d) Stability
b) Economies of Scale
e)
c) Inherently Protected
f)

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g)
a)
b)
d)

49. Disadvantages of Planned Activity

Inefficient Use of Resources
c)
Restraint of Democracy
50. Recurring legal and administrative barriers to entrepreneurship common to ASEAN
countries
a) Disproportionate Licensing and Regulatory Requirements
b) Excessive, Complex, and Arbitrary Taxation
c) Inadequate Banking Systems and Poor Banking Practices
d) Lack of Governments Commitment to Reduce Administrative Barriers.
e)
f) 51. Regulations Relevant to the Conduct of business
a) Advertising
b)
e) Privacy
c) Employment and Labor
f) Safety and Health
d) Environmental
g)
h) 52. Contemporary Social Issues
a) Environmental Issues
c) Technological Issues
b) Global Issues
d)
e)
f) 53. Ethical Behavior in the Enterprise
a) Character
e) Morals
b) Ethics
f) Values
c) Integrity
g)
d) Laws
h) 54. Role of Government in Business
a) Consumer Protection
e) Investor Protection
b) Contract Enforcement
f) Permission
c) Employee Protection
g) Taxation
d) Environment Protection
h)
i) 55. Economic Pressure Groups
a) Giant Private Corporations
d) Trade Unions
b) Professional Organizations
e)
c) Trade Associations
f) 56. Good Governance Pressure Groups
a) Economic Groups
d) Religious/Attitude Pressure Groups
b) Public Pressure Groups
e) Government units pressure group
c) Sectoral Pressure Groups
f)

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57. Major Cause of Economic Inequality

Culture and Religion
Development
Diversity of Choices
Education
Globalization
Inflation
Labor market
Wealth Condensation
58. Responsibilities of CEO
Support to the Board
Delivery of Program, Product and Service
Financial, Risk and Tax management
Human Capital management
Public Relations

59. Functions of CFO

Implements Internal Controls
Supervises Major Impact Projects
Develops Relations with Financing Sources
Advisor to Management
Drives Major Strategic Issues
Risk manager
Relationship Role
Objective Referee
60. Role of Shareholders (general)
effecting certain merger or reorganizations
Selling all or substantially all of the corporations assets
Adding or removing any restrictions on the business that the corporation may carry on.
Changing the corporations share capital
Increasing or decreasing the number or directors or the minimum ir maximum numbers of
directors.
f) confirming by-laws.
g) adding or changing restrictions on the issue, transfer or ownership of shares
h) and ability of shareholders to change the Board.
m)
n) 61. External Environment of Corporate Governance
a) auditors
b) legal environment
c) markets
d) Political Environment
e) Technological Environment
f) Social Environment
o)
p) 62. Personal Liability of Officers and Directors
a) Issues involving misappropriation
b) Issues involving nondisclosure of conflict of interest
c) Issues of loyalty
d) Issues on non-separation of personal and business concerns
e) Issues on prudence
q)
r) 63. Four main types of shares
a) Ordinary share
b) Preference shares
c) Cumulative Preference Shares
d) Redeemable Shares
s)
t) 64. the Features of a shareholders agreement
a) Board Appointment rights
b) Veto Rights
c) Adoption and Amendment of business Plans and Budgets
d) Scope of Business
e) Intellectual Property Rights
f) Right to Information
g) Warranties from the Management Team
h) Strategic Investor rights
i) Restrictions on Transfers of Shares
j) Restrictive Covenants
k) Exit Provisions

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65. Maslow Hierarchy of needs

Physiological needs
Safety needs
Belonging and Love needs
Esteem needs
Self-actualization needs
66. Hygiene Factors (Frederick Herzberg) leading to dissatisfaction
company policy
supervision
relationship with boss
work conditions
salary
relationship with peers
67.Motivators (Frederick Herzberg) leading to satisfaction
Achievement
Recognition
The work itself
Responsibility
Advancement
Growth
68. Integrity. Defined as adhering to a moral code in daily decision making.
69. Law. A series of rules and regulations designed to express the needs of the people.
70. character. Drives what we do when no one is looking.

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