A shares represent the most important class of ordinary shares in the USA, typically carrying greater voting power and various privileges compared to B shares, playing a crucial role in corporate governance.
Instances in which corporations have been found in serious breach of accounting ethics by falsifying or manipulating information so that financial statements do not give a true and fair view of the company's performance.
An EU directive (2003) requiring companies to publish comprehensive information on their financial and non-financial performance, including environmental and employee matters.
The situation in which a number of persons act collectively in the affairs of an undertaking, whether on the basis of a formal agreement or an informal understanding.
Investors who acquire an equity stake in a publicly traded company as a means of attempting to influence the company's practices or policies. Shareholders can be ethically motivated, for example wanting an improvement in the environmental or social impact of a business, or interested mainly in changing its business strategy or management.
An Annual General Meeting (AGM) is a mandatory yearly gathering of a company's interested shareholders to receive the annual report and elect the board of directors.
An annual meeting is a once-a-year event where company managers report to stockholders on yearly results, and the board of directors stand for election. The CEO typically comments on the outlook for the upcoming year and answers questions from shareholders.
ACIS stands for Associate of the Institute of Chartered Secretaries and Administrators, a professional designation for corporate governance, compliance, and company secretarial professionals.
In public companies, a committee of non-executive directors that is responsible for oversight of financial reporting, internal and external audits, compliance with regulatory codes, and risk management. This committee enhances accountability, auditor independence, and public confidence.
Audit Fees, also known as auditors' remuneration, are the amounts payable to auditors for conducting an audit of a company's financial statements, which must be distinguished from fees for non-audit work and approved during the company's annual general meeting.
Audit rotation refers to a regulatory or policy requirement that mandates the periodic changing of an audit firm or auditor for a company to maintain the audits' objectivity and independence.
Auditors' remuneration is the compensation paid to auditors for the services they provide in scrutinizing a company's financial statements. This term is often interchangeable with audit fees.
A 'Bear Hug' in corporate takeovers refers to an acquisition offer made by a potential suitor at a price significantly higher than the target company's current market value. If the target company's management resists the offer, it risks violating its fiduciary duty to act in the shareholders' best interests.
A Board of Directors is a group of individuals elected by the stockholders of a company to set corporate policies and appoint the chief executives and operating officers. They meet several times a year and are compensated for their services.
A boardroom refers to both a space within a business setting where its board of directors holds meetings and, in the context of stockbrokers, refers to an office where registered representatives work.
Business Performance Management (BPM) is a set of performance management and analytic processes that enables the management of an organization's performance to achieve strategic and operational goals.
A voluntary payment offered, usually surreptitiously, in expectation of a special favor. While offering a bribe is not always illegal, accepting one is unethical or frequently illegal.
Under the Bribery Act 2010, bribery refers to the offering, giving, receiving, or soliciting of any 'financial or other advantage' to induce or reward the improper performance of a public function or business activity.
A committee responsible for overseeing and managing the budgetary control process within an organization, including the preparation, scrutiny, and submission of budgets for approval.
The Business Judgment Rule provides courts' deference to the good-faith operations and transactions of a corporation by its executives. It ensures that reasonable decisions, even if not the most profitable, are protected from legal challenges by disgruntled parties.
Bylaws are rules adopted for the regulation of an association's or a corporation's own actions. In corporation law, bylaws are self-imposed rules that constitute an agreement or contract between a corporation and its members to conduct the corporate business in a particular way.
A code of best practice, established by Thomas Dunfee and David Hess of the University of Pennsylvania, that outlines how a company and its employees should deal with any attempt to make or solicit improper payments. This code emphasizes ethical behavior in business practices to prevent bribery and corruption.
The Cadbury Report, issued in 1992, laid the foundation for the principles of corporate governance in the UK, emphasizing the importance of non-executive directors, formal appointing processes, and accountability.
A Chairman of the Board is the highest-ranking officer in a corporation and presides over the meetings of the board of directors. This role may or may not possess the most executive authority within the firm. In some cases, the Chairman also carries the title of Chief Executive Officer (CEO), who is the principal executive of the corporation.
Channel stuffing is a practice where a company inflates sales figures by sending more products through distribution channels than retailers can sell, potentially deceiving financial markets if done intentionally.
A Chief Executive Officer (CEO) is the highest-ranking executive in a company or organization, responsible for making major corporate decisions, managing overall operations and resources, and acting as the main point of communication between the board of directors and corporate operations.
The City Code on Takeovers and Mergers, initiated in 1968, provides guidelines and regulations to ensure fair practices in company takeovers and mergers, safeguarding shareholder interests and maintaining market integrity.
Classified stock refers to a company's common stock that is divided into two or more classes, typically with varying voting rights and privileges. This approach is often used to maintain control within a specific group, such as management or the founders, while raising equity capital from the broader market.
A clawback is a provision in a law or contract that limits or reverses a payment or distribution for specified reasons.
A Close Corporation, also known as a Closely Held Corporation, is a type of corporation in which stock is publicly limited to a small group of investors, often involving tighter control and fewer regulations compared to large public corporations.
A closely held corporation in the USA is a public corporation that has a limited number of stockholders, with relatively few of its shares actively traded.
A Code of Ethics is a crucial framework for guiding professional conduct and maintaining integrity within a profession. It outlines the standards of behavior and practices that are expected, providing a foundation for ethical decision-making.
Legislation governing the activities of companies in the UK, with a comprehensive overhaul implemented in the Companies Act 2006.
A company auditor examines the financial statements of a company to ensure accuracy and compliance with the Companies Act. Since 1989, appointment as a company auditor is restricted to registered auditors only.
Company officers are high-ranking employees or executives who manage the day-to-day operations of a business and are responsible for the company's overall strategic direction.
An EU directive (2006) designed to enhance public confidence in financial reporting within the EU by increasing the transparency of financial statements and reports.
A company seal is an official embossed emblem used to authenticate share certificates, important documents, and contracts. It often includes the company's name engraved in legible characters.
Compliance in accounting and corporate governance refers to the adherence to laws, regulations, and internal controls that govern an entity's operations, ensuring legal and regulatory obligations are met.
A connected person refers to individuals or entities that are related to a director under the Companies Act, with implications for disclosure requirements.
An amount paid above the average market value of shares to gain enough ownership to set policies, direct operations, and make decisions for a business. Contrast with Minority Discount.
A controlled corporation is a company whose policies and major decisions are determined by another firm, which owns more than 50% of its voting shares.
An interest in a company that gives a person or another company control of it, usually through ownership of more than half the voting shares. Controlling interest can also be achieved with fewer shares if they are widely dispersed.
To falsify financial records or statements with the intention of misleading others about the financial performance or financial position of an accounting entity.
Corporate governance refers to the system by which companies are directed and controlled, focusing on the structure and relationships that determine corporate performance and accountability.
A code of best practice in corporate governance that outlines expected standards for UK's listed companies, originally issued with the Hampel Report of 1998.
An individual within a corporation who has access to privileged, non-public information about the company’s activities, often due to their significant shareholding or role within the company.
Corporate Social Responsibility (CSR) is a business model in which companies integrate social and environmental concerns in their operations and interactions with stakeholders.
Creative accounting involves the use of accounting practices and principles that adhere to the letter of the rules of standard accounting practices but deviate from the spirit of those rules. This kind of accounting presents company financial performance in an overly favorable light, often inflating profits and hiding liabilities.
Cumulative voting is a system of stockholder voting for a board of directors that allows all votes an individual is eligible to cast to be cast for a single candidate. This system is designed to give minority stockholders representation on the board.
Defalcation is a financial crime that involves the embezzlement of property or funds by an individual entrusted with its custody or control.
A defended takeover bid refers to an acquisition attempt where the directors of the target company actively oppose the bid, employing various defenses to prevent the takeover.
Delisting refers to the removal of a company's stock from trading on an organized stock exchange, such as the New York Stock Exchange. This can occur if the issuer fails to meet specific listing requirements or voluntarily chooses to delist.
A legal action initiated by a shareholder on behalf of a corporation against a third party, often an executive or director of the corporation, due to the corporation's failure to enforce its rights. This remedy allows shareholders to address wrongs done to the corporation when the corporation itself fails to take action.
A derivative claim is a legal action brought by a shareholder on behalf of a company for wrongs done to it, typically when those in control of the company are the ones responsible for the alleged misconduct.
A person appointed to manage the day-to-day operations of a company, holding fiduciary and statutory duties, and operating within the bounds of corporate governance.
The directorate, also known as directorship, is a group of people elected by shareholders to establish company policies and oversee the management of the organization.
Directors' and Officers' Liability Insurance (D&O Insurance) offers coverage for the personal liabilities of corporate directors and officers arising from their actions or decisions made on behalf of the company. This insurance provides protection against legal judgments and the associated costs of defense such as legal fees and court costs.
Directors' interests refer to the interests held by directors in the shares and debentures of the company of which they are a director. These interests extend to options on shares and debentures and must be disclosed to comply with the Companies Acts.
Directors' remuneration, also known as directors' emoluments, refers to all forms of compensation directors receive from their office or employment. This includes salaries, fees, wages, perquisites, and other profits, as well as expenses and benefits paid or provided by the employer.
An annual report by the directors of a company to its shareholders, which forms part of the accounts required to be filed with the Registrar of Companies under the Companies Act. It includes information on the company's activities, performance, future developments, and other crucial matters.
An Employee Share Ownership Trust (ESOT) is a trust set up by a UK company to acquire and distribute company shares to its employees, benefiting both the employees and the company through tax-deductible payments.
An Employee Stock Ownership Plan (ESOP) is an employee benefit plan that gives workers ownership interest in the company. Through ESOPs, companies provide their employees with stock ownership, often at no upfront cost to the employees. ESOPs are used by a broad variety of publicly traded and closely held companies.
An executive committee is a senior-level management committee empowered to make and implement major organizational decisions, oversee organizational activities, request justifications for certain matters, and plan activities.
Executive perquisites, often referred to as 'perks,' are special benefits or privileges provided by a company to its senior executives. These perks are usually not available to lower-level employees and can include a wide range of amenities, such as company cars, private jet access, and significant bonuses.
An approved share option scheme that entitles a specified class of directors or employees to purchase shares in the company in which they are employed.
An Extraordinary General Meeting (EGM) is a meeting held between a company’s shareholders and management to discuss urgent matters that arise between annual shareholders' meetings. EGMs are used to deal with urgent business issues that require the input and approval of shareholders.
An Extraordinary General Meeting (EGM) refers to any meeting of the company members that is not an Annual General Meeting (AGM). EGMs can be convened by the directors at any time or requisitioned by members holding a specified percentage of shares, and require adequate notice as per the Companies Act 2006.
The term 'Fellow of the Institute of Chartered Secretaries and Administrators (FCIS)' signifies a prestigious qualification awarded to high-level corporate governance professionals.
The Financial Reporting Council (FRC) is a UK body set up in 1990 to promote high-quality corporate governance and financial reporting.
The Financial Reporting Council (FRC) is a regulatory body established to oversee the accounting, auditing, and actuarial professions, ensuring high standards in financial reporting and corporate governance.
The Financial Reporting Review Panel (FRRP) monitors the accounting practices of public and large private companies in certain jurisdictions to ensure compliance with legal and regulatory financial reporting requirements.
The Financial Reporting Review Panel (FRRP) is an essential entity tasked with upholding the integrity and quality of financial reporting by examining and ensuring compliance with reporting standards.
A firewall in a conglomerate is a strategic barrier designed to segregate the organization, funding, and ownership of different business entities within the group, ensuring that challenges faced by one entity do not adversely affect others.
An in-depth analysis of the 2003 Freddie Mac accounting scandal where the US Federal Home Loan Mortgage Corporation fraudulently misstated billions of dollars in earnings to meet Wall Street's expectations.
A 'general meeting' is a key event in the corporate calendar, during which the shareholders or members of an organization come together to discuss and vote on various issues concerning the business. It plays a critical role in corporate governance, transparency, and accountability.
An international non-profit organization that encourages companies to disclose information about their ethical, social, and environmental behavior as well as their financial performance. The GRI has developed a Sustainability Reporting Framework for companies and aims to make its use standard practice.
The situation in which the objectives of agents coincide with those of principals, ensuring organizational and shareholder goals align with individual managers' objectives. Essential in agency theory for optimizing performance and reducing conflicts.
The 'Golden Key' in an employment context typically refers to a provision or payment that releases an employee from a long-term employment contract, often described as the key that unlocks the Golden Handcuffs.
A provision in an executive's employment contract that promises substantial severance packages if the individual is terminated or chooses to leave following a change in company ownership or a takeover.
GRC is an integrated approach to managing an organization's governance, risk management, and compliance activities. It promotes cohesive information sharing and coordination to enhance purpose and efficiency.
A pivotal report on corporate governance issued in 1995 by a committee under Sir Richard Greenbury emphasizing executive remuneration and non-executive director involvement.
Greenmail refers to the practice of purchasing a substantial block of a company’s shares and then selling them back to the company at a premium over the market price, often to prevent a hostile takeover bid. This contentious tactic is more prevalent in jurisdictions like the United States, where companies can more freely repurchase their shares.
A report issued in 1998 by a committee under the chairmanship of Sir Ronald Hampel, reviewing the implementation of the Cadbury Code and the Greenbury recommendations and combining these into a new Corporate Governance Code.
A hierarchy is a system where entities are ranked according to levels of importance, authority, or priority within an organization or a structure, often depicted as a pyramid. The CEO stands at the top in a corporate management hierarchy.
A comprehensive analysis and publication on the role and effectiveness of non-executive directors, led by Sir Derek Higgs. The Higgs Report, alongside the Smith Report on audit committees, significantly influenced the Corporate Governance Code revisions in 2003.
The abbreviation IIA stands for the Institute of Internal Auditors, a global organization focused on advancing the internal audit profession through education, certification, and advocacy. The IIA is instrumental in defining internal audit standards, providing resources, and fostering the growth and development of internal auditors worldwide.
An incorporated company results in a legal entity that is distinct from its owners, providing limited liability protection and other benefits.
An independent director, also known as an outside director, is a member of a company's board of directors who does not have a material or financial relationship with the company or related entities, apart from receiving a director's fee, and does not own shares in the company. Independent directors are considered better suited to provide impartial judgment and governance.
Information inductance refers to the extent to which a person's behavior is affected by the information they are required to communicate. This concept highlights the potential biases in the presentation and interpretation of key financial data.
An inside director is an employee of a company who sits on the board of directors and participates in the governance and management decisions of the organization.
An insider is a person whose opportunity to profit from their position of power in a business is limited by law to safeguard the public good. Both federal securities acts and state blue-sky laws regulate stock transactions of individuals with access to inside information about a corporation.
Insider trading refers to the practice of trading a company's securities by individuals who have access to confidential or non-public information about the company. This practice is illegal under various laws and regulations worldwide.
Insider trading refers to the practice of trading a public company's stocks or other securities based on material, non-public information about the company. This can provide insiders with an unfair advantage and is illegal.
The ICAEW (Institute of Chartered Accountants in England and Wales) is a professional membership organization that promotes, develops, and supports more than 150,000 chartered accountants worldwide. It provides qualifications, educational resources, advocacy, and maintains high standards in accounting practice.
The Institute of Chartered Secretaries and Administrators (ICSA) is an international professional body that represents the interests of professionals in corporate governance and compliance, notably company secretaries.
A nonpolitical organization founded in London in 1903, the Institute of Directors (IoD) supports business leaders by providing information, training, networking opportunities, and representing their interests to the government.
An interlocking directorate refers to the practice where individuals serve on the boards of multiple companies. While legal for non-competing firms, it is restricted by the Clayton Anti-Trust Act of 1914 for competing companies.
An internal auditor is an employee who is responsible for providing independent and objective evaluations of the company's financial and operational business activities. They assess compliance with laws and regulations, ensure policies are effective, and help maintain organizational integrity.
The International Integrated Reporting Council (IIRC) is a global coalition promoting integrated reporting, where financial and sustainability information are combined to reflect comprehensive value creation.
A global alliance promoting integrated reporting to showcase how organizations create value over time, combining financial and non-financial performance metrics.
