Corporate Governance flashcards
Corporate Governance · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Agency problem
- Conflict arising when managers (agents) pursue their own interests rather than those of shareholders (principals), typically due to separation of ownership and control.
- Principal-agent relationship
- Arrangement where a principal delegates decision-making to an agent; governance aims to align agent incentives with principal interests through monitoring and compensation.
- Board independence ratio
- Proportion of board members with no material relationship to the company; higher ratios generally strengthen monitoring of management.
- CEO duality
- Situation where the same person serves as both chief executive officer and board chair, concentrating power and potentially weakening board oversight.
- Poison pill
- Shareholder rights plan that dilutes an acquirer's stake if it crosses a threshold, raising the cost of a hostile takeover.
- Say-on-pay vote
- Shareholder vote on executive compensation, usually advisory rather than binding, signalling investor views on pay alignment.
- Staggered board
- Board structure where only a fraction of directors is elected each year, delaying takeover control and entrenching incumbents.
- Shareholder primacy
- Governance view that directors should maximise long-term shareholder value, treating other stakeholder interests as instrumental rather than primary.
- Piercing the corporate veil
- Legal doctrine allowing courts to disregard limited liability when the corporate form is used for fraud, sham, or gross undercapitalisation.
- Business judgment rule
- Judicial presumption that directors acted on an informed basis and in good faith, shielding them from liability for poor outcomes.
- Duty of loyalty
- Director obligation to act in the company's interest and avoid conflicts of interest, self-dealing, and usurpation of corporate opportunities.
- Derivative action
- Shareholder lawsuit brought on behalf of the company against directors or officers, generally requiring demand on the board or proof of futility.
- Insider trading
- Trading securities on material non-public information, or tipping others who trade, violating securities law and fiduciary duties.
- Related-party transaction
- Deal between the company and a director, officer, or affiliate; requires disclosure and independent approval to ensure fair dealing.
- Beneficial ownership threshold
- Percentage of shares (commonly 5%) that triggers disclosure obligations to regulators and the market.
- Whistleblower protection
- Legal safeguards prohibiting retaliation against employees who report suspected violations to regulators or internal compliance.
- Groupthink
- Deterioration of group decision quality driven by conformity pressure, self-censorship, and illusion of unanimity, suppressing dissent.
- Psychological safety
- Shared belief that speaking up with questions or errors is safe; predicts candour, learning, and early risk reporting in teams.
- Social loafing
- Reduced individual effort when working in groups, mitigated by clear role assignment and individual accountability.
- Board size effect
- Larger boards broaden expertise and networks but slow decisions and dilute individual responsibility; smaller boards monitor more sharply.
- Confirmation bias
- Tendency to seek and interpret information consistent with existing beliefs, distorting board evaluation and strategic review.
- Anchoring bias
- Over-reliance on an initial reference value, such as management's first forecast, skewing subsequent board judgments.
- Information asymmetry
- Condition where management knows more than directors or investors; mitigated by internal audit access and transparent reporting.
- Pre-mortem
- Technique imagining a decision has failed and identifying causes in advance, reducing overconfidence and surfacing dissent.
- Succession planning
- Board-led process identifying and developing CEO and senior leadership candidates to ensure continuity and reduce transition risk.
- Accrual versus cash earnings
- Divergence between reported net income and operating cash flow; large positive accruals may signal aggressive accounting or lower earnings quality.
- Beneish M-score
- Statistical model using financial ratios to estimate likelihood of earnings manipulation; higher scores indicate greater risk.
- Altman Z-score
- Composite of five financial ratios predicting bankruptcy probability; lower scores indicate higher financial distress risk.
- Free cash flow
- Operating cash flow minus capital expenditures; available for dividends, buybacks, debt reduction, or reinvestment.
- DuPont decomposition
- ROE expressed as net profit margin multiplied by asset turnover multiplied by equity multiplier, isolating profitability, efficiency, and leverage.
- Goodwill impairment
- Write-down when acquired goodwill's carrying value exceeds recoverable amount; reduces reported earnings without affecting cash flow.
- Earnings quality
- Degree to which reported earnings reflect sustainable economic performance, indicated by cash conversion, accruals, and restatement history.