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Corporate Governance - A Basic Glossary

Introduction/Purpose This glossary has been produced as an aide memoir for company secretaries, charity secretaries and students studying for the ICSA qualification, as well as a definition of key terms for people who are not familiar with the roles of company and charity secretaries. There are several glossaries in the not-for-profit sector and a glossary in the Higgs Report into the Effectiveness of Non-Executive Directors (Jan 2003) (the ‘Higgs Report’) for the corporate sector. There is not, however, a standardised glossary that bridges all sectors of the UK economy, or that assumes little or no knowledge of the professional activities of Chartered Secretaries. It is hoped that this glossary will be informative for all sectors and give a good understanding of the key words to people who may have only a little or no knowledge of the profession or practice. Term Definition Abstention See ‘Voting’. Accountability Accountability is the unavoidable duty to explain the ways in which an

individual or group has carried out, or caused to be carried out, the obligations placed upon him or them by law, a governing body or constitutional document. While the discharge of these activities/obligations may be delegated to others, the obligation to account for (ie remain accountable for) the actions cannot be delegated. For more information please refer to the ICSA Handbook of Good Boardroom Practice 2nd edition and the ICSA Best Practice Guide: Improving Accountability in Charitable Organisations.

Acquisition The purchase of an asset eg plant or a company. In the latter case this is usually achieved by buying the shares of another company. If the purchaser in pursuance of a takeover acquires 90% of the shares in the company then a compulsory acquisition of the remaining shares could be made. Hostile Takeover/Contested Takeover – A takeover bid where the board of the target organisation does not recommend it to the shareholders. Merger – Organisations coming together voluntarily to seek benefits of synergy The Charities Act 2006 S.75C (4) describes a merger for charities as: a) a merger of two or more charities in connection with which one of them (“the transferee”) has transferred to it all the property of the other or others, each of which (a “transferor”) ceases to exist, or is to cease to exist, on or after the transfer of its property to the transferee, or

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(b) a merger of two or more charities (“transferors”) in connection with which both or all of them cease to exist, or are to cease to exist, on or after the transfer of all of their property to a new charity (“the transferee”).

Takeover – The act of buying a company by purchasing over 50% if its shares; or the process of acquiring another organisation through negotiation or by increasing on existing holding to over 50%.

Ad Hoc Committee See ‘Committee’. Agenda A programme of items to be discussed at a meeting. Items of business

on the agenda are placed (usually) in the order that they will be discussed in the meeting. Consent Agenda - where there are a few items that do not need any discussion or debate either because they are routine procedures or are already have unanimous consent. A consent agenda allows the board to approve all these items together without discussion. They are only discussed if there is a particular matter raised by an individual director or trustee. Timed Agenda - an agenda which specifies the amount of time to be dedicated to each item.

Annual General Meeting (AGM)

See ‘Meeting’.

Annual Report The formal financial statement issued yearly by an organisation. The annual report shows assets, liabilities, revenues, expenses and earnings, how the organisation stood at the close of the business year, how it fared profit-wise during the year, as well as other information of interest to shareholders.

For more information on the standard for annual reports please see these websites.

ASB - www.frc.org.uk/asb/

IASB - www.iasb.org/Home.htm

The annual report must contain a report by the trustees or board of directors on the activities of the organisation during that year, and such other information relating to the organisation or to its trustees or officers, as may be prescribed by regulations made by the Secretary of State or in legislation affecting companies, charities, NHS trust and Foundation Trusts etc.

For more information on the standard for annual reports please see these websites.

Monitor - www.monitor-nhsft.gov.uk/

Charities: SORP - www.charity-commission.gov.uk/investigations/sorp/sorp05docs.asp

For further information see www.audit-commission.gov.uk/caa/

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State schools are not obliged to produce a governors’ annual report to the parents but now under the Education Act 2005 S.104 a school profile must be published. For further information see

www.standards.dfes.gov.uk/parentalinvolvement/pwp/annual_report/

Articles of Association See ‘Governing Document.’ Audit An inspection of an organisations accounts. Auditor Person appointed by an organisation, usually in general meeting, to

report whether the accounts reflect a true and fair view of the organisation’s affairs. The auditor is also required to consider whether the information contained in the directors’ report is consistent with the accounts; if it is not, they are required to say so. The audit report informs the shareholders of the scope of the audit, that is, that work done complies with the standards issued by the Auditing Practices Board (www.frc.org.uk/apb/) for the guidance of the auditors. The auditor of a limited company must be professionally qualified, this is achieved through becoming a chartered accountant and then joining one of the five recognised qualifying bodies: Association of International Accountants; Institute of Chartered Accountants of England and Wales; Chartered Accountants of Scotland; Chartered Accountants of Ireland or the Association of Chartered Certified Accountants. The auditor is expected to exercise appropriate skill and judgment when reaching his conclusion. In the case of listed and large unlisted companies a qualified report is not a common feature. Auditors of listed companies are also required to review the company’s compliance with the Combined Code (on corporate governance), and to obtain evidence to support the company’s statement of its compliance with the Code.

With regard to charities, all charities with yearly incomes of more than £10,000 are required to have their accounts independently examined – below that threshold, accounts inspection is only needed if it is required by the charity’s governing document.

Independent examination is needed if income is between £10,000 and £500,000 and an audit is needed where the income exceeds £500,000. An audit will also be needed if total assets (before liabilities) exceed £2.8m, even if the charity’s income is less than £500,000. More detail can be found at

www.charity-commission.gov.uk/publications/cc15.asp

Auditors are appointed by, and responsible to, the members of the

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company (or charity) and must report to them on the accounts prepared by the directors. More guidance on auditors can be found in The ICSA Study Text: Financial Accounting 5th Edition or The ICSA Study Text: Corporate Governance 5th Edition”

Authority The right of an individual or entity to do something. Authority can be derived from many sources such as legislation or a superior delegating authority specific to a type of organisation – individual Acts, regulators etc. Within the administration of a company or membership charity the ultimate authority belongs to the members in general meeting. A properly approved members’ resolution contains the highest authority to bind the company. Budget Holder - The director or employee with delegated authority to manage finances (both income and expenditure) for a specific area of the organisation. Legislation - Written laws governing individuals’ and organisations’ actions with respect to both specific and general business and civil activities. Power - Ability to exert authority, control and/or influence over something and/or someone

Ballot See ‘Voting’. Benchmarking The process of recognising and examining the best practices of other

organisations in the same line of business, and using the knowledge gathered as the basis for improvement in all aspects of the organisation.

Best Practice Examples of procedures, policies and operational activities that are considered to be the attainable standard to which entities in a particular sector should strive to achieve.

Board A group of elected or appointed individuals who are collectively responsible for the governance and strategic direction of an organisation. The board will often consist of the chair, executive directors and non-executive directors. In reference to the not-for-profit sector, very few charities have executive directors as part of their board. With regard to NHS Foundation Trusts, the composition of a board should be an equal balance between executive and non-executive directors and the number of members of the board should reflect the size of the Trust. www.monitor-nhsft.gov.uk/

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Also see ‘Combined Code’. Also see ‘Directors’.

Board Performance/Evaluation

The periodic review to assess the performance of the board (and individual directors) either by itself (self assessment) or by a third party, and indicate where improvements can be made. The chairman and a senior independent director should report to the board on the results and the board should then report the result to the members in the annual report. For more information see the ICSA Corporate Governance Handbook.

Budget A plan, expressed in financial terms, proposed by the organisation, senior management team or board, for the purpose of carrying out, for a specific period, any or all of the functions of the organisation. Financial Accounts - Statements prepared to summarise the overall financial progress of an enterprise, whether prepared for managers, owners, creditors or any other interested party. There is a legal duty for limited companies to produce accounts at least once a year, (S. 394 Companies Act 2006). A financial statement is produced which is a report outlining the current financial position of an organisation. Financial Planning - The formulation of short-term and long-term plans of an organisation in financial terms.

Budget holder See ‘Authority’. Business Ethics See ‘Corporate Social Responsibility (CSR)’. Business Plan A detailed plan setting out the objectives of an organisation over a

stated period (and how they will be achieved), including financial and non-financial activities/goals.

Bye-Laws See ‘Governing Document’. Cadbury Report Report of the committee published in 1992, under the chairmanship of

Sir Adrian Cadbury, set up by the Financial Reporting Council, to consider the financial aspects of corporate governance, and to develop Codes of Practice for improved corporate governance. Further committees added to the Cadbury Report and the amalgamation of the advice is now encapsulated in the Combined Code on Corporate Governance Code (See Combined code) and www.fsa.gov.uk/pubs/ukla/lr_comcode3.pdf Other influential reports pertaining to corporate governance include: Greenbury, Hampel, Higgs, Smith, Turnbull. For further information on these reports please see their individual entries in this glossary.

Certificate of A certificate issued by the Registrar of Companies upon the

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incorporation registration of a company. It is conclusive evidence that the company has been registered and that all the requirements of the Companies Act in respect of registration have been complied with.

Chair, Chairman, Chairperson

Person presiding over a meeting. Ensures procedures are followed, sums up arguments, and provides leadership to the board/committee. It is established best practice for listed companies in the UK and best practice for all organisations that in a boardroom the chairman and the chief executive should not be the same person (The Combined Code).

Charitable Incorporated Organisations (CIO)

A CIO is a new legal form of incorporation designed for charities, bestowing a charity with its own legal identity. The CIO only needs to register with the Charity Commission and then will have less onerous requirements on reporting and for preparing accounts compared to a charitable company limited by guarantee. Not likely to be available until Summer 2009, a CIO can be in two forms: a foundation or an association – one has a membership base the other does not.

Charity The Charities Act 2006 states that a charity is an institution which is for the public benefit and;

i. is established for charitable purposes only, and

ii. falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities. This includes –

a) the prevention or relief of poverty;

b) the advancement of education;

c) the advancement of religion;

d) the advancement of health or the saving of lives;

e) the advancement of citizenship or community development;

f) the advancement of the arts, culture, heritage or science;

g) the advancement of amateur sport;

h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;

i) the advancement of environmental protection or improvement;

j) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;

k) the advancement of animal welfare;

l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services;

m) any other purposes within subsection (4) of Section 2 .

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See the Charities Act 2006 for more information

www.opsi.gov.uk/acts/acts2006/ukpga_20060050_en_2#pt1-l1g1

Charity Secretary See ‘Secretary’. Chief Executive The senior executive officer responsible to the organisation’s board for

ensuring that decisions are implemented and that the organisation functions effectively and efficiently. Sometimes interchangeable with the role of managing director but both roles may exist in some organisations although it is rare. The CEO is an executive director of the board of directors, except within charities (in general); in NHS FTs and other NHS Trusts they are also the Accounting Officer. (Monitor - www.monitor-nhsft.gov.uk/ ) For more information see ICSA Guidance Note: Roles of the Chairman, Chief Executive and Senior Independent Director under the Combined Code

Combined Code The UK code on corporate governance, which applies to UK listed companies. It is a voluntary code rather than a regulatory requirement. However, the UK Listing Rules require listed companies to disclose in their annual report the extent of their compliance and to explain any non-compliance. The code also refers to the correct balance of boards, directors remuneration and the chairman and CEO relationship amongst other things. See www.fsa.gov.uk/pubs/ukla/lr_comcode3.pdf

Committee A group of individuals who receive and consider reports from a third party and present the findings to a superior body. All committees should have appropriate and up-to-date terms of reference that are approved and reviewed by the board. Audit Committee – A committee of the board of directors, with responsibility for a range of audit-related issues, and in particular the conduct of the external audit and the company’s relationship with its auditors. For further information please see ICSA Guidance Note: Audit Committee - Terms of Reference Executive Committee - A committee of senior executives who are appointed, usually by the governing board, with authority to manage the day to day affairs of the organisation concerned. Nominations Committee - The Combined Code states that: ‘There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board.’

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It also provides that: ‘There should be a nomination committee which should lead the process for board appointments and make recommendations to the board.’ The Combined Code recommends that companies go through a formal process of reviewing the balance and effectiveness of the board, identifying the skills needed and those individuals who might best provide them. In particular the nomination committee should assess the time commitments of the board posts and ensure that the individual has sufficient available time to undertake them. For further information please see ICSA Guidance Note: Nomination Committee - Terms of Reference. Ad hoc Committee - A committee appointed to perform a specific task and which, normally, ceases to exist upon completion and reporting of that task. This differs to other committees such as a standing committee which is permanent. Joint Committee - A combined committee appointed by two or more main bodies, with members drawn from each. Special Committee - Committee appointed to perform a specific task. Upon completion and reporting of that task, it ceases to exist. Also referred to as an Ad-hoc committee. Sub Committee - A small committee appointed by a larger one to perform and report back on a specific task.

Community Interest Companies (CIC)

See ‘Company’.

The Compact An agreement between Government and the voluntary and community sector in England. It recognises shared values, principles and commitments and sets out guidelines for how both parties should work together. For further information please see the Compact website www.thecompact.org.uk/

Company Community Interest Companies - A corporate vehicle designed for social enterprises, entities that provide products and services to benefit community, social and environmental needs. Companies wishing to qualify for CIC status are required to satisfy the community interest test. A CIC must also register with the Registrar of Companies and CIC Regulator. In addition to publishing annual report and accounts, CICs must also provide details of how they meet the community interest test.

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A CIC is also a separate legal entity and so its guarantors will only be liable for their guarantee if it is formed by guarantee. If it is formed through shares then the shareholders are not personally liable. For further information see ICSA Best Practice Guide: Community Interest Companies. Company Limited by Guarantee - A corporate vehicle used by a variety of organisations, but best suited to undertakings where no division of profit is contemplated, for example, non profit making associations such a charities, research associations and organisations such as sporting clubs supported by private subscriptions. The benefits of a CLG are that the member agrees to pay a fixed amount (often £1) to the company, in the event of being called upon to do so (the ‘Guarantee’). The CLG is a legal person in its own right and so members do not take on the CLG debts and liabilities – except to the total amount of the Guarantee given by the member should the CLG be wound up and have insufficient funds to meet its debts. For more information see the ICSA Best Practice Guide: Companies Limited by Guarantee. Company Limited by Shares - A company which has a stated capital divided into shares. An interest in the company is then acquired by subscribing to or purchasing a share or shares in company and becoming a member. A member who then has no further liability for the debts of the company. Where shares are only partly paid, however, members may then be required to pay the balance if called upon to do so by the liquidator. Private Limited Company (ltd) – A private company must have limited or ‘ltd’ after its name to give a visible sign it is a limited company. Private companies do not offer their shares to the public. The benefits of a private limited company are the company is a legal entity in its own right and as a result the shareholders are not personally liable for the debts of the company once all the company’s funds have been exhausted. Public Limited Company (plc) – Companies limited by shares and must have been registered (or re-registered) on or after 22 December 1980. The Memorandum must state that the company is a public company. Just because a company has been registered as a public limited company (plc), this does not mean that it becomes listed on the stock exchange or the Alternative Investment Market (AIM). There is a separate process for public companies to be admitted to public stock markets, and companies must meet additional criteria before admission

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is granted such as complying with the Listing regime. A public limited company also has the benefit of being a separate legal entity so shareholders are not personally liable.

Company Limited by Guarantee (CLG)

See ‘Company’.

Company Limited by Shares (CLS)

‘See Company’.

Company Secretary See ‘Secretary’. Compliance The action of meeting those requirements organisations are obliged to

meet as set down in legal and regulatory frameworks. Constitution See ‘Governing Document’. Contingency Plan A plan of action made to be implemented when an unexpected

situations arise that cause project plans or overall plans to fall behind target, when this happens the contingency plan is followed.

Copyright See ‘Intellectual Property Rights’. Corporate governance See ‘Governance’. Corporate Social Responsibility (CSR)

How an organisation takes account of its economic, social and environmental impacts in the way it carries out its activities. Ethics – Standards of morality and conduct of either an individual or organisation. Business Ethics – Moral principles concerning acceptable and unacceptable behaviour by business people. Executives should maintain a high sense of values and conduct honest and fair practices with the public. Probity – The quality of having strong moral principles; honesty and decency. Socially Responsible Investment - This combines investors' financial oligations with their commitment to social concerns such as education, social justice, economic development, peace or a healthy environment. The Seven Principles of Public Life as defined by the committee on public life chaired by Lord Nolan

• Accountability - Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.

• Honesty - Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.

• Integrity - Holders of public office should not place themselves under any financial or other obligation to outside individuals or

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organisations that might influence them in the performance of their official duties.

• Leadership - Holders of public office should promote and support these principles by leadership and example.

• Objectivity - In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.

• Openness - Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.

• Selflessness - Holders of public office should take decisions solely in terms of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends.

www.public-standards.org.uk/

Director An officer of am organisation responsible for determining policy, supervising the management of the company’s business and exercising the powers of the company. Directors must generally carry out these responsibilities collectively as a board. Executive Directors - Working directors (usually full-time). In most instances they have service contracts which, as well as their employment details, will set out their executive and management functions such as responsibility for production, finance, marketing, human resources and health and safety. They will be often given titles such as ‘finance director’. Typically they will possess qualifications and experience relating to their specialist function. They sit on the board of directors but they are also part of the senior management team. Independent Directors – ‘Non-executive directors who should be independent of management and free from any business or other relationship which could materially interfere with the exercise of their judgment’. This definition was used in the 1998 Combined Code and Cadbury report. A further attempt at defining independence in this context is contained in the Higgs Report mentioned above. The 1998 Combined Code and Cadbury reports can be found at - www.fsa.gov.uk/pubs/ukla/lr_comcode3.pdf Non-Executive Directors (NEDs) – Directors who are not also employees of the company and only have to devote part of their time to its affairs. They do, however, have the same statutory duties and function as any other director. They are considered necessary in order to give balance

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to the interests of the shareholders and that of the management, bring independent judgment to matters of strategy, performance and use of resources and mediate over issues in which executive directors may have a personal interest, ie directors remuneration. They are also important as they monitor performance of the Senior Management Team (SMT) and ensure efficient safeguards and controls are in place to safeguard the organisation. The Higgs Report into the Effectiveness of Non-Executive Directors (Jan 2003) (the ‘Higgs Report’) described the role thus: “Non-executive directors should constructively challenge and contribute to the development of strategy. Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. Non-executive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible. Non-executive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning.” The full report can be found at: www.berr.gov.uk/files/file23012.pdf Senior Independent Director - The Higgs Report required each listed company to nominate one of its independent directors as a Senior Independent Director (SID) and stated that the senior independent director should be available to shareholders, if they have reason for concern that contact through the normal channels of the chairman or chief executive has failed to resolve. The SID should also chair meetings between non-executive directors where the chairman does not attend. They also work with the Chairman and report back to the board after a board evaluation (see previous section on ‘Board Evaluation’) The Code of Governance for NHS Foundation Trusts states in provision A.3.3 that the SID should be available to members and governors if they have concerns which contact through the normal channels of chairman, chief executive or finance director has failed to resolve or for which such contact is inappropriate. The senior independent director could be the deputy chairman. A SID is, in effect, a channel of communication between the company and its members when normal channels are not working, ie the principles of good corporate governance are not being applied.

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For more information see ICSA Corporate Governance 5th edition. Higgs - www.berr.gov.uk/files/file23012.pdf Monitor - www.monitor-nhsft.gov.uk/ Shadow Director – Any person, including a corporate body such as a bank, in accordance with whose directions or instructions the other directors of the company are accustomed to act. For more information see ICSA Guidance Note: Roles of the Chairman, Chief Executive and Senior Independent Director under the Combined Code

Directors’ and officers’ liability

See ‘Liability’

Disaster planning Sometimes referred to a Business Continuity Plan or Disaster Recovery Plan. The aim of the plan is to ensure that an organisation is fully prepared to recover effectively from any major interruption with minimal loss of business, market share (if relevant), customers and customer confidence, whilst maintaining its statutory obligations (including health and safety obligations).

Dividends A payment made to members out of a company’s distributable profits, in proportion to their shareholding. For further information see ICSA Corporate Secretaryship 5th edition.

Division 1. A company can have divisions which together constitutes a whole such as “the finance section of the company” or “the BBC’s engineering division.” 2. Method of voting usually related to Parliament whereby voters (MPs or members of the House of Lords, respectively) ‘divide’ into separate groups when they vote.

Due diligence A systematic investigation into a company’s financial position, past performance, assets, legal liabilities, etc before a deal is done to ensure that no unexpected problems emerge afterwards. You may also undertake a due diligence exercise before undertaking a major activity such as setting up a new business. Due diligence is generally carried out by companies or their advisers before acquiring or merging with another company. The 2003 Combined Code of Corporate Governance (superseded by the 2006 code) recommends that prospective directors should also carry out a process of due diligence before joining the board of a company with which they have no prior involvement. For more information see the ICSA Guidance Note: Due Diligence for Directors

Duty Statutory Duty – Legal requirement placed upon an organisation or

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individual. Fiduciary Duty – Duty imposed upon certain persons such as directors or trustees, arising from their position of trust and confidence.

Ethics See ‘CSR’. Executive Committee See ‘Committee’. Executive Director See ‘Directors’. Extraordinary General Meeting (EGM)

See ‘Meetings’

Fiduciary See ‘Fiduciary Duty’. Fiduciary Duty See ‘Duty’. Financial Accounts See ‘Budget’. Financial Planning See ‘Budget’. Financial Risk See ‘Risk’. Fundamental Risk See ‘Risk’ Governance Corporate Governance – ‘Corporate governance is the system by which

companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.’ – Definition from the Cadbury Report page 14. Healthcare Governance – The overall framework through which NHS organisations are accountable for continuously improving clinical, corporate, staff and financial performance.

Governing Document Document that outlines the aims and purposes of an organisation and how it should be governed/managed. The rules and practices that determine the composition and functions of an organisation. Articles of Association – Rules governing the internal conduct of a company’s affairs, such as appointment, powers, and proceedings of directors/trustees, alteration of capital structure, dividends, and so on. Limited companies may draft their own articles or adopt a model format. Bye-Laws – Rules and regulations adopted by an organisation for its internal governance. It usually contains provisions relating to trustees, members, shareholders, directors, officers and general corporate business. The first bye-laws should be adopted at the organisation’s initial meeting. Bye-laws can usually be amended by resolution of the board.

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Memorandum of Association – A Memorandum of Association is a memorandum stating that the subscribers wish to form a company under the Companies Act 2006, and agree to become members of the company and, in the case of a company to have a share capital, to take at least one share each. The memorandum must be in the prescribed form and must be authenticated by each subscriber.

Under the Companies Act 2006 Sections 8 and 28 from October 2009 there is no longer a legal requirement for a Memorandum of Association as the matters it covers will now be contained in the Articles of Association. Standing Orders – Rules detailing the internal procedures/governance of an organisation to supplement those outlined in the governing document. For more information regarding the governing documents in the not-for-profit sector please see ICSA Guidance Note: Governing Documents for Charities.

Governors NHS Foundation Trust Governor – They attend meetings of the Council of Governors, representing their local communities, and working together to advise and influence its development as an NHS Foundation Trust to meet the needs of local people in the future. Governors also meet with people in their local community or staff group, to help report back on what happens at Council of Governor meetings, and to listen to ideas and opinions from members of the public and staff. Legal duties of governors for a NHS FT consist of obligations to:

• appoint and remove the chairman’s and non-executive directors,

• to approve the appointment of the chief executive • to appoint and remove the foundation trust’s auditor • to receive the annual report and accounts, and the auditor’s

report at a general meeting; and • to be consulted on, consider and express a view on forward

planning by the board of directors. For more information see the ICSA Best Practice Guide on NHS Foundation Trusts. School Governor – Schools are run by a governing body working with the headteacher and senior management team to ensure pupils get a good education. The governing body of a school is responsible for ensuring that it is run to promote pupil achievement. Its duties include: setting strategic direction, policies and objectives, approving the school budget, reviewing progress against the school’s budget and objectives, appointing, challenging and supporting the headteacher. For more information see www.direct.gov.uk

Greenbury Report The Report of a study group under the chairmanship of Sir Richard

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Greenbury, established in 1995 to develop a number of recommendations on director’s remuneration. www.fsa.gov.uk/Pubs/ukla/lr_comcode.pdf

Hampel Report The Report of the Committee, chaired by Sir Ronnie Hampel, to review the implementation of the recommendations of both the Cadbury and Greenbury Committees. The Hampel Report was produced in 1998. www.ecgi.org/codes/documents/hampel.pdf

Healthcare Governance See ‘Governance’.

Higgs Report In the wake of the Enron and WorldCom failures, the UK government initiated a review, led by Derek Higgs, into the role and effectiveness of NEDs. The review was published in January 2003 and following a further review by the Financial Reporting Council, many of their recommendations were incorporated into a revised combined code published in July 2003. Higgs – www.berr.gov.uk/files/file23012.pdf

Honorary Officers Generally refers to the elected or appointed chairperson, vice chair, treasurer, honorary secretary and others who have special responsibilities which distinguish them from the other members of the board, organisation or governing body.

Indemnity Insurance See ‘Liability’ Independent Directors See ‘Directors’. Induction Process of initial training for new members of staff or the board. The

objective of induction is to inform the new member such that he or she can become as effective as possible in their new role as soon as possible. Non-executive Directors are often given an induction on how to fulfil their role on the board.

Integrated Governance Systems, processes and behaviours by which NHS Trusts lead, direct and control their functions in order to achieve organisational objectives, safety and quality of service and in which they relate to patients and carers, the wider community and partner organisations. It is a mix of clinical and organisational governance. For more information see the NHS Integrated Governance Handbook 2006 at www.dh.gov.uk

Intellectual Property Rights

There are generally considered to four aspects of intellectual property these are: Copyright – Unregistered protection for the creators of literary, artistic, dramatic and musical works against the unauthorised copying of their works which lasts the life of the author + 70 years. Copyright also protects other types of intellectual creations such as sound recordings, films, broadcasts, cable programmes and published editions. The

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duration of these other copyrights varies depending upon the right concerned. Designs – Both registered and unregistered rights that protect the aesthetic appearance of articles and which last for varying periods of time (from 3 to 25 years depending on the type of design right in question). Patents – Registered rights protecting industrial inventions which last up to 20 years. Trade marks – Registered rights protecting elements of brand identity which continue as long as registration fees are paid. For more information please see ICSA Corporate Administration 5th edition.

Internal Audit An audit of an organisation by members of its own staff to test its internal control systems and assess its operating systems and structures and how they are being applied or complied with. For more information see www.icaew.com/index.cfm/route/120907/icaew_ga/pdf

Investors Individuals and institutions that have an interest in an organisation, usually through financial investment. Institutional investors – organisations with generally large amounts to invest, such as investment companies, mutual funds, insurance companies, pension funds, investment banks and endowment funds. Retail investors – An individual who purchases relatively small amounts of securities for him/herself. Philanthropists – When a person donates, money, goods, services and/or time to support a socially beneficial cause, with a defined objective and with no financial or material reward to the donor. Also see ‘Shareholder(s)’

Joint committee See ‘Committee’. Key Performance Indicators (KPIs)

A factor by which the development, performance or position of the company can be measured and assessed. The business review in the directors’ report should state financial key performance indicators (except for medium-sized companies) other non-financial key performance indicators where appropriate, including measurements relating to environmental and employee factors.

Legislation See Authority. Liability The likely or possible impact of failing to comply with obligations

usually of a legal or regulatory nature.

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Indemnity Insurance – The object of indemnity is to protect the organisation from the consequences of the professional negligence of the organisation or its employees. It is generally accepted that a professional person will exercise reasonable care and skill when dealing with a client bust since the case of Hedley Byrne & co. V Heller & Partners Ltd (1963) a professional person is also regarded as having a duty of care to third parties, even though he may not be in a contractual relationship with them. Directors’ and officers’ liability – A director or officer failing to comply with obligations can be sued by the person affected by the legal or regulatory failure, usually the company or the organisation. As a result, directors and officers often take out insurance to pay for the costs of defending these claims. Product Liability – Liability to third parties for death, injury, loss or damage to their property, caused by goods sold, supplied, repaired, serviced or tested by the organisation. Public Liability – The liability of a company for injury to a third parties such as members of the public or loss or damage to their property (insurance can be acquired to protect the company). Vicarious liability – A liability imposed on a person (usually an employer) for a tort or crime committed by another (usually an employee). The test is whether the commission of the tort committed is so closely connected with the employment that it would be fair and just to hold the employer vicariously liable for the employee’s action, see Lister v Hall [2002] 1 AC 215 (HL). For more information see ICSA Corporate Administration 5th edition.

Management The delegation of tasks by those charged with them to a body or individuals at a lower level in the organisation. For more on information on management in the not-for-profit sector please refer to ICSA Guidance Note: Governance and Management– An Overview for Charities. www.icsa.org.uk/assets/files/pdfs/guidance/080313.pdf

Meeting The Oxford English dictionary defines a meeting as “an assembly of people for a particular purpose, especially for formal discussion.” The courts have decided that a valid meeting relating to a charity “normally consists of people who can both see and hear each other.” (Byng v London Life Association (1989) 1 All ER 560).

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Annual General Meeting (AGM) – The AGM is a primary meeting of shareholders where accounts are presented, resolutions are voted on and directors and auditors are elected or re-elected. For other companies who are not public companies the former AGM has now become a ‘general meeting’ and each company can therefore regulate as it sees fit. An organisations’ governing document may contain clauses in which it states how the general meeting will be run, how often it will occur etc. Since the introduction of the Companies Act 2006 Part 13 Chapter 4 the legal requirement for an AGM only applies to listed companies. Public meeting – Meeting to which admission of the public at large is permitted. For more information see the ICSA Meetings and Minutes Handbook. Also ICSA/Charity Commission Best Practice Guide to charity meetings

Member The definition of a member has some complications. Within a normal company a member is essentially a shareholder in a company limited by shares or a guarantor in a company limited by guarantee (CLG). Members of unincorporated associations usually become so by agreeing to abide by the bye-laws. In general, people usually become members when their name is entered in the register of members which is a formal document required of companies and CIOs as set out in the Companies Act 2006. For CLG membership is limited to the subscribers to the Memorandum and to those who are admitted to membership under the rules set out in the Articles. Members under the charity definition can be the same as that for charitable companies, but they may also operate a membership or supporters scheme which provides certain benefits. Memebers of a charity have the right to vote and to receive information on the running of the charity.

Corporate members – Include companies, local authorities and other public bodies or organisations for which a nominated representative holds a right to vote at the general meeting on behalf of the organisation that they represent. This category would also include any unincorporated charities and other not-for-profit organisations for whom a representative is a voting member of another charity.

Individual Member – An individual with the ability to affect the governance of a charity by voting at the charity’s annual general meeting and who meets all other criteria for a member as set out in the charity’s governing document. Trustees, directors and any other person who is on the governing body are excluded from this definition of a

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member. For more information see www.charity-comission.gov.uk NHS foundation trust members – Specific information on membership will be outlined in an organisation’s constitution and membership development strategy which is available from the NHS foundation trust. There is no limit to the number of members that an individual NHS foundation trust may have, nor any restriction on an individual becoming a member of several NHS foundation trusts, as long as the eligibility criteria is met. For more information please see ICSA Best practice Guide: NHS Foundation Trusts.

Memorandum of Association

See ‘Governing Document’.

Mergers See ‘Acquisition’. Minutes The clear recording and promulgation of decisions made both by the

members of the company and the board are essential for the good administration of the organisation. The keeping of minutes is also a legal requirement under the Companies Act 2006 S. 248. Minutes can best be described as a record of proceedings in a meeting which compiles the decisions being taken. In addition to providing a record of decisions made by the board, minutes can also provide contemporaneous and written evidence that the directors were conscious of and complying with their duty of care. For more information see ICSA One stop Company Secretary Fifth Edition.

Monitor The independent regulator of NHS Foundation Trusts. Monitoring Monitoring involves organisations setting up overview and scrutiny

committees. Their purpose is to hold the executive to account and also to support the organisation in terms of policy development and contribute to the organisations leadership role through scrutiny of the organisations services and actions.

Motion See ‘Proposals’. NHS Trust Individual Trusts provide many services on behalf of the National

Health Service in England and Wales. They are not trusts in the legal sense but are in effect public sector corporations. Each trust is headed by a board consisting of executive and non-executive directors, and is chaired by a non-executive director. Non-executive directors are recruited by open advertisement.

NHS primary care trust (PCT) – Can provide or commission both primary and secondary care services

NHS Foundation Trusts – Created as new legal entities in the form of

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public benefit corporations by the Health and Social Care (Community Health and Standards) Act 2003 (the 2003 Act consolidated in the NHS Act 2006). The legislation constituted NHS Foundation Trusts with a new governance regime that is fundamentally different from NHS Trusts. NHS Foundation Trust boards of directors now have more autonomy to make financial and strategic decisions. They also have a framework of local accountability through members and a board of governors, which has replaced central control from the Secretary of State for Health. – Monitor: Code of governance.

NHS Foundation Trust See ‘NHS Trust’. NHS primary care trust (PCT)

See ‘NHS Trust’.

Nolan: Seven Principles of Public Life

See ‘Corporate social Responsibility (CSR)’.

Nomination The naming of a person put forward for appointment to a post or office.

Non-Executive Directors (NEDs)

See ‘Director’.

Notice Notification issued to call members to a meeting at a given time and place and to inform them in advance of the general nature, and details, of the business to be transacted.

Operational Risk See ‘Risk’. Particular Risk See ‘Risk’. Patent See ‘Intellectual Property Rights’. Poll See ‘Voting’. Pre-emption right The right guarantees that new shares issued by a company must first be

offered to the existing shareholders (usually in proportion to their existing shareholdings).

Procedures Chronological sequence of actions. Established or specified method of dealing with or processing a particular issue or process.

Product liability See ‘Liability’ Proposals Management proposal – Something advanced by the board of directors to

the members of the company for their approval, eg a resolution proposed by the board of directors that the members approve the annual remuneration report of the board. Motion - Formal proposal of action, or decision put before a meeting. Once passed it becomes a resolution. Shareholder Proposal – A proposal made to the members of the company by an individual shareholder or shareholders, eg a resolution proposed at the AGM by a shareholder (or group of shareholders) holding the requisite number of shares, to appoint a specified individual as a director of the company.

Proxy See ‘Voting’. Public liability See ‘Liability’. Public meeting See ‘Meeting’.

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Pure Risk See ‘Risk’. Quorum Minimum number of persons who must be present at a meeting for

that meeting to be constitutionally valid, often defined in the governing document, bye-laws, standing orders or terms of reference.

Remuneration Committee

See ‘Committee’.

Resolution A proposal or motion put to a meeting and passed. (See ‘Motion’) Ordinary Resolution – The normal method of securing the members’ approval for routine business transacted at a general meeting, such as the election or re-election of directors. Ordinary resolutions will require a majority of more than 50% votes cast to be in favour. They are defined in the Companies Act 2006 s. 282. Special Resolution – A resolution that must be described as a special resolution in the notice of a general meeting and must be passed by a majority of 75% of the votes cast. The notice should set out the exact text of the resolution and it may not be amended except to correct minor clerical errors that do not affect the substance of the resolution. A special resolution would be required, for example to alter the Articles. A signed copy of the resolution must be delivered to the Registrar of Companies within 15 days of it being passed. Special resolutions are defined in the Companies Act s. 283 Extraordinary Resolution – A resolution that must be described as an extraordinary resolution in the notice of a general meeting and must be passed by a majority of 75% of the votes cast. The notice should set out the exact text of the resolution and it may not be amended except to correct minor clerical errors that do not affect the substance of the resolution. A signed copy of the resolution must be delivered to the Registrar of Companies within 15 days of it being passed. The Companies Act 1985 s.378 (1) defines extraordinary resolutions but the Companies Act 2006 does not refer to them. They will however continue to exist if the Memorandum or Articles of Association refer to them as the Companies Act 1985 s.378 (1) has not been repealed. Written Resolution - The Companies Act 2006 s. 288 sets out the procedure for written resolutions of private companies (but not public companies), as an alternative to holding a shareholder meeting. A written resolution can be passed if it is agreed to by 50% of the members for an ordinary resolution or if it is a special resolution then 75% is needed. A written resolution has the same effect of a resolution that has been passed at a general meeting (s. 288 (5)). For more information see ICSA Corporate Secretaryship 5th edition.

Risk The probability that a situation or circumstance will occur. Usually related to events that may have an adverse impact on the organisation

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or individual concerned. Once the potential event has been identified and the loss which it could cause has been measured (gross risk), the probability of loss is measured and means are considered for reducing the risk (eg risk transfer by contractual agreement or insurance, safety measures introduced, etc). This leads to a calculation of net risk. Risk is frequently defined in terms of financial risk (investment, credit risk, etc) or operational (or business risk) risk (eg fraud, legal, people, regulatory, etc). Financial risk - The risk that a company will not have adequate cash flow to meet financial obligations. Fundamental risk – Unforeseen or unavoidable external factors such as natural disasters (eg storms) or environmental changes (eg inflation). Operational risk - the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Particular risk – a risk which a business or individual party can control, eg driving a motor car. Pure risk – situation where, if the event occurs, only loss or damage can follow, eg a fire. For more information see ICSA Corporate Administration 5th edition.

Risk Management The analysis and management of risk. Involves the identification and assessment of risk, the decision whether to accept, guard against, prevent or insure against the occurrence and the process of implementing such decisions.

Scrutiny The action of taking an analytical examination of processes, procedures and accounts. Scrutiny has a distinct meaning in the local government sector. The main overview of roles required for scrutiny in local government is: holding the executive to account, policy development and review, best value reviews , external scrutiny An aspect of external scrutiny consists of reviewing the work and impact of external agencies on a council's residents. These may be other public agencies such as health service organisations and quangos, or voluntary and private sector organisations. For more information see www.idea.gov.uk/idk/core/page.do?pageId=76099

Secretary Chartered Secretary – A Chartered Secretary is a person who has obtained the requisite professional qualification of the Institute of Chartered

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Secretaries and Administrators and the requisite training to be a Chartered Secretary and accepted into the membership. The qualification is not compulsory for being appointed the secretary of a company, although a Chartered Secretary is automatically qualified to be the secretary of a public company by virtue of S. 273 of the Companies Act 2006. For more information on the qualifications see www.icsa.org.uk Charity Secretary - charity secretaries (the company secretary within a charity) are responsible for ensuring that charities are run in compliance with relevant legislation and adhere to the terms of the charity’s governing document. Common functions will be to support the board to understand issues of law, governance and good practice and to facilitate effective meetings. Company Secretary - An officer of the company with statutory duties (eg to sign the annual return and accompanying documents) and charged with a range of duties relating to the company’s statutory books and records and filing requirements. The Company Secretary also keeps under close review all legislative, regulatory and corporate governance developments that might affect the company’s operations, and ensuring the board is fully briefed on these and that it has regard to them when taking decisions. In larger companies, the Company Secretary is usually also a senior adviser to the chairman and/or the chief executive and the board. Under the Companies Act 2006 there is a legal requirement for a listed company to appoint a company secretary. Private companies however are not required to appoint or retain one but may do so if they wish. It should be noted that where a company decides to dispense with the services of a company secretary, the duties they would normally fulfil will be the responsibility of the directors. Where a company secretary is required to be appointed by provisions in the memorandum and articles, a change to them will have to be resolved on by members before removing the company secretary position. Trust Secretary – Like a charity or company secretary but for organisations such as Pension Trusts or an NHS Trust. For NHS Foundation Trusts, Monitor states a trust secretary has a “significant role to play in the administration of corporate governance.”

Senior Independent Director

See ‘Director’.

Seven Principles of Public Life

See ‘CSR’.

Shadow Director See ‘Director’. Share Capital The company’s ownership, which has been divided into shares and can

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be subscribed for or purchased to gain an interest in the company. Each share is essentially an equal proportion (with each other share) of the authorised capital of a company, indicating ownership of that company. Different classes of share may have different rights attached such as voting rights, entitlement to dividends, their purchase by the company or their conversion into a different class of share. Equity or Ordinary Shares – Such shares are described as permanent capital because the funds supplied for their subscription or acquisition are non-refundable in most circumstances other than in the event of liquidation. Ordinary shareholders collectively own the company and have voting rights, but stand last in line for dividends (generally unless deferred shares exist) and in the event of liquidation. They do, however, have ownership of any remaining funds (after the discharge of creditors and liabilities) in the event of liquidation. Redeemable shares - A limited company may, if authorised by its Articles, issue shares which are to be redeemed at the option of the shareholder. There are various rules relating to the redemption of redeemable shares, varying between public and private companies, developed to protect shareholders and the general investing public. Preference shares – Owners of these shares are entitled to a fixed percentage dividend, which is paid before any profits are distributed to ordinary shareholders. Deferred shares – The last in line for dividends and the proceeds of a liquidation. In rare circumstances, a founder’s ordinary share may be issued and held by the founders of the company and be deferred. Where deferred shares exist, they will rank behind all other shares for dividend. Non-voting shares – A company may issue non-voting shares which still carry the risk of equity shares but do not allow the shareholder any say in the running of the company. For more information see ICSA Corporate Financial Management 5th edition.

Shareholder(s) Institution or individual with a financial interest in the ownership of the organisation. Usually equates with ‘Member’ although will also include someone who has acquired an interest but whose name does not appear in the register of members.

Show of hands See ‘Voting’. Smith Report In the wake of the Enron and WorldCom scandals, the UK

government initiated a review led by Sir Robert Smith in respect of audit committees. The review was published in January 2003 (along the

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Higgs Report) and following further review by the Financial Reporting Council, many of its recommendations were incorporated into a revised Combined Code published in July 2003. Smith - www.ecgi.org/codes/documents/ac_report.pdf

Socially Responsible Investment

See ‘Corporate Social Responsibility’.

SORP Statements of Recommended Practice (SORPs) are recommendations on accounting practices for specialised industries or sectors (eg the charity sector). They supplement accounting standards and other legal and regulatory requirements in the light of the special factors prevailing or transactions undertaken in a particular industry or sector. SORPs are issued by industry or sectoral bodies recognised for the purpose by the ASB.

Special committee See ‘Committee’. Special resolution See ‘Resolution’. Stakeholders Person or group with an interest, not necessarily financial, in an

organisation. Would include such as employees, customers, suppliers, creditors and the local community who may to a greater or lesser extent depend upon the continuing success of the organisation.

Standing Committee A permanent committee that meets regularly. – Oxford English Dictionary Standing Orders See ‘Governing Document’. Statutory Legal requirement placed upon an organisation or individual. Sub-committee See ‘Committee’. Takeover See ‘acquisition’. Terms of Reference Clear guidance as to the purpose, composition, tenure and means by

which a committee or project team undertakes its responsibilities. Trademark See ‘Intellectual Property Rights’. Trust The definition given by Sir Arthur Underhill is most commonly

quoted. A trust “is an equitable obligation, binding a person (a trustee) to deal with property over which he has control (trust property), for the benefit of persons (beneficiaries), of whom he may himself be one, and any of whom may enforce the obligation”. The law relating to private trusts & trustees by Sir Arthur Underhill

Trust Secretary See ‘Secretary’. Trustee A person who holds the legal title to property but who is not its

beneficial owner, (ie who holds property on someone else’s behalf) or an appointed person or institution that manages or controls assets for the benefit of someone else. S. 97 Charities Act 1993 defines charity trustees as “the persons having the general control and management of the administration of a charity”.

Turnbull Report A committee headed by Nigel Turnbull produced a report in 1999 entitled ‘Internal Control: Guidance for Directors on the Combined Code’. It established guidance for directors on how to maintain a sound system of internal control to ensure shareholders’ investment and the company’s assets are safeguarded. The report was revised and updated in 2005.

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For more information see www.frc.org.uk/corporate/internalcontrol.cfm

Vicarious liability See ‘Liability’ Vote See ‘Voting’. Voting Abstention - A decision to refrain from casting a vote. There is also

included on a Proxy Voting form a right to withhold a vote, which again is classed as an abstention. for further information see ICSA Guidance Note - Proxy Voting – Abstentions. Ballot - Method of voting. Similar to a poll – each voter completes an individual voting paper in secret. This is placed into a ballot box and independently counted. Electronic voting –Subject to the company choosing to offer the related facilities, there are currently two ways for shareholders to vote electronically. One is the electronic appointment of a proxy directly via the company's or their registrar's website and the second is the electronic appointment of a proxy through the Crest system for members of Crest. Poll - A system of voting. A process whereby each person entitled to vote does so in writing (as opposed to a vote by show of hands) either before or at the meeting. For further information on the Chairman’s duties regarding poll voting please see the ICSA Guidance Note: Polls - Chairman's Obligations. Proxy voting - Person appointed by a shareholder/member entitled to vote, to attend a meeting and vote on his/her behalf. For further information please refer to the ICSA Guidance Note: CREST Proxy Voting System www.icsa.org.uk/assets/files/pdfs/guidance/030703.pdf and the ICSA Guidance note: Disclosing Proxy Votes www.icsa.org.uk/assets/files/pdfs/guidance/040830.pdf Show of hands - Method of voting. Votes are counted on the basis of the number of hands raised in favour of or against a proposal. Usually reflects a one person, one vote situation whereas a poll will tend to reflect one share = one vote. For further information refer to ICSA Guidance Note: Voting at General Meetings - www.icsa.org.uk/knowledge/guidance/031219 Vote - Means by which participants in a meeting may inform the chairman of their decision with regard to a motion. Vote withheld - The registration of a decision to abstain from voting (as opposed merely failing to vote), otherwise referred to as a positive

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abstention. See ICSA Guidance Note – Abstentions. For more information see ICSA Guidance Note: Voting at General Meetings. ICSA Guidance Note: Disclosing Proxy Votes. ICSA Guidance Note: Proxy Instructions – Abstentions.

Whistleblowing Action by which a person associated with an organisation (usually an employee) reports any wrongdoing to an external source. For further information see the ICSA Best Practice Guide: Establishing a Whistleblowing Procedure.