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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
Abstention
Accountability

Acquisition

Definition
See Voting.
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.
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

(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
Agenda

Annual General Meeting


(AGM)
Annual Report

See Committee.
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.
See Meeting.
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.charitycommission.gov.uk/investigations/sorp/sorp05docs.asp
For further information see www.audit-commission.gov.uk/caa/

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
Audit
Auditor

See Governing Document.


An inspection of an organisations accounts.
Person appointed by an organisation, usually in general meeting, to
report whether the accounts reflect a true and fair view of the
organisations 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 companys
compliance with the Combined Code (on corporate governance), and
to obtain evidence to support the companys 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 charitys 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 charitys 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

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.

Ballot
Benchmarking

Best Practice
Board

Power - Ability to exert authority, control and/or influence over


something and/or someone
See Voting.
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.
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.
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/

Also see Combined Code.


Also see Directors.
Board
The periodic review to assess the performance of the board
Performance/Evaluation (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.
Budget

For more information see the ICSA Corporate Governance Handbook.


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.

Budget holder
Business Ethics
Business Plan
Bye-Laws
Cadbury Report

Certificate of

Financial Planning - The formulation of short-term and long-term plans


of an organisation in financial terms.
See Authority.
See Corporate Social Responsibility (CSR).
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.
See Governing Document.
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.
A certificate issued by the Registrar of Companies upon the

incorporation
Chair, Chairman,
Chairperson

Charitable Incorporated
Organisations (CIO)

Charity

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.
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).
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.
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 .

See the Charities Act 2006 for more information


www.opsi.gov.uk/acts/acts2006/ukpga_20060050_en_2#pt1-l1g1
Charity Secretary
Chief Executive

See Secretary.
The senior executive officer responsible to the organisations 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.monitornhsft.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

Committee

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
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 companys 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.

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.

Community Interest
Companies (CIC)
The Compact

Company

Sub Committee - A small committee appointed by a larger one to


perform and report back on a specific task.
See Company.
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/
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.

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 companys
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

is granted such as complying with the Listing regime.

Company Limited by
Guarantee (CLG)
Company Limited by
Shares (CLS)
Company Secretary
Compliance
Constitution
Contingency Plan
Copyright
Corporate governance
Corporate Social
Responsibility (CSR)

A public limited company also has the benefit of being a separate legal
entity so shareholders are not personally liable.
See Company.
See Company.
See Secretary.
The action of meeting those requirements organisations are obliged to
meet as set down in legal and regulatory frameworks.
See Governing Document.
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.
See Intellectual Property Rights.
See Governance.
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 companys 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.

Directors and officers


liability
Disaster planning

Dividends

Division

For more information see ICSA Guidance Note: Roles of the Chairman,
Chief Executive and Senior Independent Director under the Combined Code
See Liability
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).
A payment made to members out of a companys distributable profits,
in proportion to their shareholding.
For further information see ICSA Corporate Secretaryship 5th edition.
1. A company can have divisions which together constitutes a whole
such as the finance section of the company or the BBCs
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 companys 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.

Duty

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
Statutory Duty Legal requirement placed upon an organisation or

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individual.

Ethics
Executive Committee
Executive Director
Extraordinary General
Meeting (EGM)
Fiduciary
Fiduciary Duty
Financial Accounts
Financial Planning
Financial Risk
Fundamental Risk
Governance

Governing Document

Fiduciary Duty Duty imposed upon certain persons such as directors


or trustees, arising from their position of trust and confidence.
See CSR.
See Committee.
See Directors.
See Meetings
See Fiduciary Duty.
See Duty.
See Budget.
See Budget.
See Risk.
See Risk
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 companys
strategic aims, providing the leadership to put them into effect,
supervising the management of the business and reporting to
shareholders on their stewardship. The boards 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.
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
companys 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 organisations
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.

Governors

Greenbury Report

For more information regarding the governing documents in the notfor-profit sector please see ICSA Guidance Note: Governing Documents for
Charities.
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 chairmans and non-executive
directors,
to approve the appointment of the chief executive
to appoint and remove the foundation trusts auditor
to receive the annual report and accounts, and the auditors
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 schools budget and objectives,
appointing, challenging and supporting the headteacher.
For more information see www.direct.gov.uk
The Report of a study group under the chairmanship of Sir Richard
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Hampel Report

Healthcare Governance
Higgs Report

Honorary Officers

Indemnity Insurance
Independent Directors
Induction

Integrated Governance

Intellectual Property
Rights

Greenbury, established in 1995 to develop a number of


recommendations on directors remuneration.
www.fsa.gov.uk/Pubs/ukla/lr_comcode.pdf
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
See Governance.
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
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.
See Liability
See Directors.
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.
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
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

16

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.

Internal Audit

Investors

For more information please see ICSA Corporate Administration 5th


edition.
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
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.

Joint committee
Key Performance
Indicators (KPIs)

Legislation
Liability

Also see Shareholder(s)


See Committee.
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.
See Authority.
The likely or possible impact of failing to comply with obligations
usually of a legal or regulatory nature.
17

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 employees action,
see Lister v Hall [2002] 1 AC 215 (HL).
Management

For more information see ICSA Corporate Administration 5th edition.


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).

18

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.

Member

For more information see the ICSA Meetings and Minutes Handbook. Also
ICSA/Charity Commission Best Practice Guide to charity meetings
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 charitys annual general
meeting and who meets all other criteria for a member as set out in the
charitys governing document. Trustees, directors and any other person
who is on the governing body are excluded from this definition of a
19

member.
For more information see www.charity-comission.gov.uk
NHS foundation trust members Specific information on membership
will be outlined in an organisations 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.

Memorandum of
Association
Mergers
Minutes

For more information please see ICSA Best practice Guide: NHS
Foundation Trusts.
See Governing Document.
See Acquisition.
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.

Monitor
Monitoring

Motion
NHS Trust

For more information see ICSA One stop Company Secretary Fifth Edition.
The independent regulator of NHS Foundation Trusts.
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.
See Proposals.
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

20

NHS Foundation Trust


NHS primary care trust
(PCT)
Nolan: Seven Principles
of Public Life
Nomination
Non-Executive
Directors (NEDs)
Notice
Operational Risk
Particular Risk
Patent
Poll
Pre-emption right
Procedures
Product liability
Proposals

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.
See NHS Trust.
See NHS Trust.
See Corporate social Responsibility (CSR).
The naming of a person put forward for appointment to a post or
office.
See Director.
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.
See Risk.
See Risk.
See Intellectual Property Rights.
See Voting.
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).
Chronological sequence of actions. Established or specified method of
dealing with or processing a particular issue or process.
See Liability
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.

Proxy
Public liability
Public meeting

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.
See Voting.
See Liability.
See Meeting.
21

Pure Risk
Quorum
Remuneration
Committee
Resolution

See Risk.
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.
See Committee.
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)).

Risk

For more information see ICSA Corporate Secretaryship 5th edition.


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

22

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

Scrutiny

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.
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.

Secretary

For more information see


www.idea.gov.uk/idk/core/page.do?pageId=76099
Chartered Secretary A Chartered Secretary is a person who has obtained
the requisite professional qualification of the Institute of Chartered

23

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
charitys 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 companys 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 companys 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
Seven Principles of
Public Life
Shadow Director
Share Capital

See Director.
See CSR.
See Director.
The companys ownership, which has been divided into shares and can

24

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 founders 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)

Show of hands
Smith Report

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.
See Voting.
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

25

Socially Responsible
Investment
SORP

Special committee
Special resolution
Stakeholders

Standing Committee
Standing Orders
Statutory
Sub-committee
Takeover
Terms of Reference
Trademark
Trust

Trust Secretary
Trustee

Turnbull Report

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
See Corporate Social Responsibility.
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.
See Committee.
See Resolution.
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.
A permanent committee that meets regularly. Oxford English Dictionary
See Governing Document.
Legal requirement placed upon an organisation or individual.
See Committee.
See acquisition.
Clear guidance as to the purpose, composition, tenure and means by
which a committee or project team undertakes its responsibilities.
See Intellectual Property Rights.
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
See Secretary.
A person who holds the legal title to property but who is not its
beneficial owner, (ie who holds property on someone elses 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.
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
companys assets are safeguarded.
The report was revised and updated in 2005.
26

Vicarious liability
Vote
Voting

For more information see


www.frc.org.uk/corporate/internalcontrol.cfm
See Liability
See 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 Chairmans
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

27

abstention. See ICSA Guidance Note Abstentions.

Whistleblowing

For more information see ICSA Guidance Note: Voting at General


Meetings.
ICSA Guidance Note: Disclosing Proxy Votes.
ICSA Guidance Note: Proxy Instructions Abstentions.
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.

28