35 Corporate Governance Key Terms
Welcome to the world of corporate governance!
If you’re here, it means that you have an interest in understanding how organizations are managed and directed. In this document, we will explore 35 key terms related to corporate governance that are essential for anyone wanting to gain a deeper understanding of this important subject.
- Board of Directors: A group of individuals who are elected or appointed to oversee the management and strategic direction of a company on behalf of its shareholders.
- Shareholders: Individuals or entities that own shares in a company, giving them an ownership interest and certain rights, such as voting at shareholder meetings and receiving dividends.
- Stakeholders: Groups or individuals who have an interest in the operations and success of a company, including shareholders, employees, customers, suppliers, and the community.
- Corporate Social Responsibility (CSR): The idea that companies have a responsibility to consider the impact of their actions on society and act in a socially responsible manner.
- Ethics: Moral principles that govern behavior and decision-making within a company, often guided by a code of ethics or conduct.
- Transparency: The act of openly sharing information and being accountable to stakeholders for decisions and actions taken by the company.
- Disclosure: The release of information to stakeholders, including financial statements, governance practices, and other relevant information that may impact their decision-making.
- Fiduciary Duty: A legal obligation of directors and officers to act in the best interests of the company and its shareholders.
- Independence: The concept that individuals serving on a board of directors should be free from any conflicts of interest or undue influence.
- Audit Committee: A subcommittee of the board of directors responsible for overseeing the financial reporting process, internal controls, and independent audits.
- Executive Compensation: The financial compensation, including salary, bonuses, stock options, and other benefits, paid to top executives of a company.
- Annual General Meeting (AGM): A yearly meeting of shareholders where they have the opportunity to ask questions, vote on important matters, and receive updates from the company’s management.
- Proxy Voting: The process by which shareholders can appoint someone else to vote on their behalf at shareholder meetings.
- Insider Trading: The illegal practice of buying or selling a company’s stock based on material non-public information.
- Whistleblower: An employee or insider who reports wrongdoing, unethical behavior, or other concerns within a company to authorities.
- Corporate Governance Guidelines: A set of principles and policies that outline the roles, responsibilities, and expectations of the board of directors and management in governing a company.
- Code of Conduct: A set of rules outlining acceptable behavior for employees and representatives of a company.
- Compliance: The act of following laws, regulations, and internal policies to ensure ethical and legal conduct within a company.
- Internal Controls: Policies, procedures, and systems put in place to ensure the accuracy and reliability of financial reporting, prevent fraud, and safeguard company assets.
- Risk Management: The process of identifying, evaluating, and managing potential risks that could impact a company’s operations, finances, or reputation.
- Conflict of Interest: A situation where an individual’s personal interests or relationships may interfere with their ability to act in the best interests of the company.
- Diversification: The practice of spreading investments across different industries, regions, and asset classes to minimize risk.
- Corporate Culture: The shared values, beliefs, and behaviors that shape the overall atmosphere and identity of a company.
- Board Diversity: The representation of individuals from diverse backgrounds on a company’s board of directors, including gender, race, ethnicity, age, and expertise.
- Succession Planning: The process of identifying and developing internal candidates to fill key leadership positions within a company in the future.
- Independent Director: A member of the board of directors who is not affiliated with the company or its management in any way and can provide an unbiased perspective.
- Shareholder Activism: The use of shareholder rights and influence to advocate for changes in a company’s policies, practices, or management.
- Non-Executive Director: A member of the board of directors who does not hold an executive position within the company but contributes to governance and oversight.
- Lead Independent Director: A non-executive director selected by other independent directors to serve as a leader and liaison between the board and management.
- Risk Appetite: The amount of risk a company is willing to take on in pursuit of its strategic objectives, often outlined in a risk appetite statement or policy.
- Board Evaluation: A process used to assess the performance and effectiveness of a company’s board of directors, including individual directors and the overall composition of the board.
- Compliance Program: A set of policies, procedures, and controls put in place to ensure compliance with laws and regulations, including regular monitoring and reporting.
- Enterprise Risk Management (ERM): A holistic approach to identifying, assessing, and managing all types of risks that could impact a company’s performance and objectives.
- Internal Audit: An independent function within a company responsible for evaluating and improving the effectiveness of risk management, control, and governance processes.
- Corporate Governance Best Practices: Guidelines and recommendations for companies to follow in order to promote strong corporate governance practices, often developed by regulatory bodies or industry organizations.
In conclusion, understanding the key terms of corporate governance is crucial for any organization to succeed. These terms not only help in creating a transparent and accountable system within the company but also ensure ethical business practices.