Introduction of Corporate Governance

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

Whistleblowing

Action by which a person associated with an organisation (usually an employee) reports any wrongdoing to an external source.

Annual Report

a yearly statement of the financial condition, progress, and expectations of an organization. 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.

Compliance

The action of meeting those requirements organisations are obliged to meet as set down in legal and regulatory frameworks.

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.

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.

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.

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.

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.

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.

Best Practice

A management process, technique, or method that is most effective at arriving at a desired outcome or better outcome than any other process, technique, or method.

Dividends

A payment made to members out of a company's distributable profits, in proportion to their shareholding.

Directors

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.

Procedures

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

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 12 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.

Higgs report 2003

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.

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 26 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.

Investors

Individuals and institutions that have an interest in an organisation, usually through financial investment.

Shareholder(s)

Investors who purchase shares of stock in a corporation. 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.

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.

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.

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.

Preference shares

Owners of these shares are entitled to a fixed percentage dividend, which is paid before any profits are distributed to ordinary shareholders.

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.

Chairman

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).

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.

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.

Integrated Governance S

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.

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.' 8 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.

Greenbury Report (1995)

The Report of a study group under the chairmanship of Sir Richard 16 Greenbury, established in 1995 to develop a number of recommendations on director's remuneration.

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.

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

Share Capital

The company's ownership, which has been divided into shares and can 25 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.

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"

Management

The delegation of tasks by those charged with them to a body or individuals at a lower level in the organisation.

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.

Chief Executive Officer (CEO)

The position hired by the board of directors to oversee the company on a daily basis. The senior executive officer responsible to the organisation's board for ensuring that decisions are implemented and that the organisation functions effectively and efficiently.

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.

Corporate Social Responsibility (CSR)

the notion that corporations are expected to go above and beyond following the law and making a profit. How an organisation takes account of its economic, social and environmental impacts in the way it carries out its activities.

Stakeholders

the people whose interests are affected by an organization's activities. 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.

Audit

to check the accuracy of financial accounts and records. An inspection of an organisations accounts.