Corporate Governance key terms

The conflict that arises when managers, acting as agents for shareholders, pursue their own interests rather than the owners' interests, creating costs that must be controlled through monitoring and incentives.

An arrangement in which one party, the principal, delegates decision-making authority to another party, the agent, whose actions the principal cannot fully observe or control.

The total expense of aligning agent behaviour with principal interests, comprising monitoring costs, bonding costs, and the residual loss that remains despite controls.

The view that a company should be governed in the interests of all parties affected by it, including employees, customers, suppliers and communities, not only shareholders.

The doctrine that directors' primary duty is to maximise long-term value for shareholders, with other constituencies treated as instrumental to that goal rather than as ends in themselves.

An approach requiring directors to pursue shareholder benefit while having regard to wider stakeholder factors such as employees, suppliers, community and environment when exercising their duties.

The structural split in large public companies between dispersed shareholders who own the firm and professional managers who control its day-to-day decisions and resources.

A set of non-binding principles and provisions on board leadership, accountability and remuneration that listed companies must either comply with or explain their departure from.

A regulatory technique allowing companies to depart from governance code provisions provided they disclose the departure and give reasoned justification to the market.

A framework setting expectations for institutional investors to monitor investee companies actively, engage on governance matters and disclose how they discharge those responsibilities.

A legal obligation requiring a person entrusted with another's interests to act loyally and in good faith, avoiding conflicts and not profiting personally from the position.

The standard requiring directors to exercise reasonable care, diligence and judgement, measured against the knowledge and experience reasonably expected of someone in that role.

A judicial deference doctrine protecting directors from liability for honest, informed decisions made in good faith, even where the outcome later proves harmful to the company.

A situation where a director's personal, financial or other interest could improperly influence decisions made on behalf of the company, requiring disclosure and often abstention.

A dealing between a company and a director, senior manager or their connected persons, subject to disclosure, approval and sometimes independent shareholder consent requirements.

The exceptional judicial power to disregard separate legal personality and hold shareholders personally liable, typically only where the corporate form is used as a sham or fraud.

The principle that a company is a legal person distinct from its owners, able to own property, contract and sue or be sued in its own name.

The protection limiting shareholders' financial exposure to the amount they have invested or agreed to contribute, shielding personal assets from company debts.

The doctrine that acts beyond the powers conferred on a company by its constitution or by law are invalid, now largely relaxed for third parties dealing in good faith.

The constitutional document governing a company's internal affairs, setting out rules on shares, meetings, directors' powers and decision-making procedures.

The condition in which a majority or specified proportion of directors have no material relationship with the company, so they can exercise objective judgement free of management influence.

A board member without executive management responsibilities who provides independent oversight, challenges strategy and chairs key committees such as audit and remuneration.

The governance arrangement in which different individuals hold the chair and chief executive roles, preventing concentration of power and strengthening board challenge.

The mix of gender, ethnicity, experience and background among directors, promoted through targets and disclosure because varied boards improve debate and reduce groupthink.

A deterioration of decision quality that occurs when a cohesive group suppresses dissent and fails to test assumptions critically, seeking unanimity over accuracy.

The systematic process of identifying and developing internal candidates for key leadership roles, ensuring continuity of executive and board positions without disruptive gaps.

A board committee, usually led by independent directors, responsible for identifying candidates, assessing board composition and recommending appointments and succession arrangements.

A committee of independent directors overseeing financial reporting integrity, external auditor independence and the effectiveness of internal control and risk management systems.

A committee of independent directors that designs executive pay packages, sets performance targets and ensures reward is aligned with long-term shareholder interests.

A shareholder vote, often advisory, on the company's executive remuneration report or policy, giving owners a formal channel to express approval or disapproval of pay.

The policies, procedures and systems a company uses to safeguard assets, ensure reliable reporting and manage risk, typically assessed through a recognised control framework.

The structured process by which a board identifies, assesses, monitors and mitigates risks to strategy and operations, including setting appetite and reporting thresholds.

An independent firm engaged to examine the financial statements and express an opinion on whether they give a true and fair view, reporting to shareholders.

A large organisation such as a pension fund, insurer or asset manager that holds shares on behalf of beneficiaries and can exert significant influence over governance.

The mechanism by which shareholders who cannot attend a meeting appoint someone to vote on their behalf, central to investor participation in governance decisions.

The statutory meeting at which shareholders receive accounts, appoint auditors, elect directors and vote on resolutions, providing a forum for accountability.

A reporting approach combining financial and non-financial information to explain how a company creates value over time across strategy, governance and stakeholder relationships.