Glossary

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Glossary Entries
Word(s)	Definition	Image	Caption	Link	Source
“enlightened” stakeholder theory	A theory that corporate value cannot be maximized unless the corporation concerns itself with all its constituent stakeholders, with the specification that maximizing the corporation’s long-term market value is the right goal.
acquisition	The purchase of one company by another.
agency theory	A theory that attempts to reconcile the relationship between shareholders and the agent of the shareholders (for example, the corporation’s managers).
apprentice model	A model of making a corporation’s chief executive officer the chairman of the board while promoting a second individual, from inside or outside the company, to the position of CEO.
Asset or liability restructuring	A target company’s purchasing of assets that the bidder does not want or that will create antitrust problems for the bidder. A target company may sell off a specific aspect of their company (the “crown jewel”) that the bidder regards as highly valuable. Also referred to as liability restructuring.
audit committee	A committee charged with assisting a corporation’s board of directors in oversight of various aspects of a corporation’s functioning, including the company’s financial statements, internal controls, compliance with legal and regulatory requirements, and ethical standards and policies.
best practices	Methods or techniques of running a corporation or business to realize superior results.
board of directors	An elected group of business individuals who have overall responsibility for the business of the corporation.
broad constructionists	Directors who recognize and are willing to act on responsibilities to constituencies other than shareholders.
Business Judgment Rule	A rule that protects directors from liability if they act on an informed basis in good faith and in a manner they reasonably believe to be in the best interests of the corporation’s shareholders. This does not apply in cases of fraud, bad faith, or self-dealing.
capital	Money or property that represents the value of goods or an investment.
CEO compensation	Pay for services to a corporation’s CEO that is determined by the board of directors through the compensation committee.
chairman of the board	The chief officer of a corporation, typically elected by the corporation’s board of directors.
Civil society activism	The activity of “civil society” organizations oriented to social and environmental causes that generates pressure on corporations to support their causes.
code of ethics	A code of conduct, a statement of business practice, or a set of business principles that establish and articulate a company’s values, responsibilities, obligations, and ethical ambitions.
code of ethics	A code of conduct, a statement of business practice, or a set of business principles that establish and articulate a company’s values, responsibilities, obligations, and ethical ambitions.
compensation committee	A committee charged with overseeing human resources policies and procedures, employee benefit plans, and compensation.
compensation committee	A committee charged with overseeing human resources policies and procedures, employee benefit plans, and compensation.
Convergence	The global aligning of corporate governance systems and practices to generate trust in the investment community.
Convergence	The global aligning of corporate governance systems and practices to generate trust in the investment community.
corporate governance	A set of fiduciary and managerial responsibilities that bind a company’s management, shareholders, and the board within a larger societal context that is defined by legal, regulatory, competitive, economic, democratic, ethical, and other societal forces.
corporate governance	A set of fiduciary and managerial responsibilities that bind a company’s management, shareholders, and the board within a larger societal context that is defined by legal, regulatory, competitive, economic, democratic, ethical, and other societal forces.
corporate social responsibility (CSR)	The pressure on a board of directors in which those directors are forced into new governance by stakeholders other than shareholders.
corporate social responsibility (CSR)	The pressure on a board of directors in which those directors are forced into new governance by stakeholders other than shareholders.
credit rating agencies	Companies that issue credit ratings for those that issue debt obligations. They provide investors with objective data about companies and countries that issue securities.
credit rating agencies	Companies that issue credit ratings for those that issue debt obligations. They provide investors with objective data about companies and countries that issue securities.
Director independence	The absence of any conflicts of interest through personal or professional ties with a corporation or its management.
Director independence	The absence of any conflicts of interest through personal or professional ties with a corporation or its management.
due diligence	Reasonable care exercised by an individual or a corporation to prevent harm or as preparation for a business action.
due diligence	Reasonable care exercised by an individual or a corporation to prevent harm or as preparation for a business action.
Enterprise Risk Management (ERM)	A risk management approach that is more structured and strategic than traditional risk management. ERM is aimed at enhancing and protecting a company’s tangible and intangible assets on an enterprise-wide basis.
Enterprise Risk Management (ERM)	A risk management approach that is more structured and strategic than traditional risk management. ERM is aimed at enhancing and protecting a company’s tangible and intangible assets on an enterprise-wide basis.
equity-compensation plan	A plan or other arrangement that provides for the delivery of equity securities, including options, of the listed company to any service provider as compensation for services.
equity-compensation plan	A plan or other arrangement that provides for the delivery of equity securities, including options, of the listed company to any service provider as compensation for services.
ethics and compliance officer	A senior executive within a corporation who is charged with ensuring that the company and the individuals it employs behave ethically and in ways that help the company succeed.
ethics and compliance officer	A senior executive within a corporation who is charged with ensuring that the company and the individuals it employs behave ethically and in ways that help the company succeed.
executive committee	A committee of key directors and other designated officers of a company that has the power to act for the full board in case of emergencies. With advances in technology, this committee is rarely used.
executive committee	A committee of key directors and other designated officers of a company that has the power to act for the full board in case of emergencies. With advances in technology, this committee is rarely used.
fiduciary capitalism	An economic system in which shareholders, especially large shareholders acting on behalf of smaller shareholders, influence the actions of a corporation.
fiduciary capitalism	An economic system in which shareholders, especially large shareholders acting on behalf of smaller shareholders, influence the actions of a corporation.
financial statements	The certification of a financial statement through the audit and sign off of an accountant.
financial statements	The certification of a financial statement through the audit and sign off of an accountant.
fraud	An act of deceit typically carried out to gain some advantage.
fraud	An act of deceit typically carried out to gain some advantage.
golden parachute	An agreement that provides key executives with generous severance pay and other benefits in the event that their employment is terminated as a result of a change of company ownership; also referred to as a change-of-control agreement.
golden parachute	An agreement that provides key executives with generous severance pay and other benefits in the event that their employment is terminated as a result of a change of company ownership; also referred to as a change-of-control agreement.
institutional investors	An organization that pools large financial resources to invest in stock or bond markets, such as mutual funds or pension plans.
institutional investors	An organization that pools large financial resources to invest in stock or bond markets, such as mutual funds or pension plans.
integration plan	The process of uniting or blending either a merged or an acquired company into another.
integration plan	The process of uniting or blending either a merged or an acquired company into another.
internal control report	A rule within Sarbanes-Oxley that requires registered companies to include in their annual reports a report on the company’s internal control over financial reporting.
internal control report	A rule within Sarbanes-Oxley that requires registered companies to include in their annual reports a report on the company’s internal control over financial reporting.
International Institute of Finance (IIF)	A grouping of the world’s most prominent financial institutions.
International Institute of Finance (IIF)	A grouping of the world’s most prominent financial institutions.
lead director	A nonexecutive who acts as a link between a corporation’s chairman-CEO and its outside directors.
lead director	A nonexecutive who acts as a link between a corporation’s chairman-CEO and its outside directors.
Leadership effectiveness	The successful actions of a CEO in carrying out his or her responsibilities, and the quality of those actions.
Leadership effectiveness	The successful actions of a CEO in carrying out his or her responsibilities, and the quality of those actions.
leverage	A high percentage of debt relative to common equity.
leverage	A high percentage of debt relative to common equity.
leveraged buyouts (LBOs)	Acquisitions of other companies with a large amount of borrowed monies. Typically, the assets of both the acquired company and the company doing the acquiring are used as collateral in the purchasing.
leveraged buyouts (LBOs)	Acquisitions of other companies with a large amount of borrowed monies. Typically, the assets of both the acquired company and the company doing the acquiring are used as collateral in the purchasing.
Liability	The state of being legally responsible for causing harm.
Liability	The state of being legally responsible for causing harm.
limited liability	A type of liability in which shareholders’ liability is limited to the value of their investment in the corporation.
limited liability	A type of liability in which shareholders’ liability is limited to the value of their investment in the corporation.
majority voting	A type of director elections in which a nominee must get a majority of the votes cast.
majority voting	A type of director elections in which a nominee must get a majority of the votes cast.
management	Executives who act in a trustee manner toward a corporation’s nonshareholders, including labor, consumers, and the environment.
management	Executives who act in a trustee manner toward a corporation’s nonshareholders, including labor, consumers, and the environment.
metrics	In business, typically the measurements of a company’s finances or performance.
metrics	In business, typically the measurements of a company’s finances or performance.
NASDAQ	An American stock exchange that originally stood for “National Association of Securities Dealers Automated Quotations.” It is the second-largest stock exchange in the world.
NASDAQ	An American stock exchange that originally stood for “National Association of Securities Dealers Automated Quotations.” It is the second-largest stock exchange in the world.
Organization for Economic Cooperation and Development (OECD)	An international organization that helps governments with the economic, social, and governance challenges of being part of a democratic and global market economy.
Organization for Economic Cooperation and Development (OECD)	An international organization that helps governments with the economic, social, and governance challenges of being part of a democratic and global market economy.
oversight	Regulatory review, monitoring, and supervision used in reporting and monitoring internal controls.
oversight	Regulatory review, monitoring, and supervision used in reporting and monitoring internal controls.
poison pill	A defensive step taken by a board to thwart a takeover once the process has begun. It can take the form of anything the target company does to make itself less valuable or less desirable as an acquisition.
poison pill	A defensive step taken by a board to thwart a takeover once the process has begun. It can take the form of anything the target company does to make itself less valuable or less desirable as an acquisition.
private equity	Equity capital that is not publicly traded. Equity capital is money invested in a company in exchange for part ownership of the company.
private equity	Equity capital that is not publicly traded. Equity capital is money invested in a company in exchange for part ownership of the company.
proxy access	A type of voting in which director candidates nominated by the nominating and governance boards are then voted on by shareholders on a piece of paper called a “proxy,“ which is mailed to all shareholders. Shareholders usually receive one vote for every share they own.
proxy access	A type of voting in which director candidates nominated by the nominating and governance boards are then voted on by shareholders on a piece of paper called a “proxy,“ which is mailed to all shareholders. Shareholders usually receive one vote for every share they own.
proxy fight	The result of a board’s sending out its proxy statement in which it seeks shareholder approval for a variety of actions.
proxy fight	The result of a board’s sending out its proxy statement in which it seeks shareholder approval for a variety of actions.
Public Company Accounting Oversight Board (PCAOB)	A private-sector, nonprofit corporation created by Sarbanes-Oxley to oversee accounting professionals who provide independent audit reports for publicly traded companies.
Public Company Accounting Oversight Board (PCAOB)	A private-sector, nonprofit corporation created by Sarbanes-Oxley to oversee accounting professionals who provide independent audit reports for publicly traded companies.
rationalizers	Directors who recognize the tensions that occur in the interests among different constituencies but who nevertheless act primarily for the sake of shareholders.
rationalizers	Directors who recognize the tensions that occur in the interests among different constituencies but who nevertheless act primarily for the sake of shareholders.
regulations	A set of laws or rules set forth by a governing body.
regulations	A set of laws or rules set forth by a governing body.
Sarbanes-Oxley Act	An act passed by the U.S. Congress in 2002 that provides additional rules and enforcement policies to protect investors from the potential for fraudulent activities.
Sarbanes-Oxley Act	An act passed by the U.S. Congress in 2002 that provides additional rules and enforcement policies to protect investors from the potential for fraudulent activities.
scorecards	Less sophisticated predecessors of dashboards.
scorecards	Less sophisticated predecessors of dashboards.
security analysts	Individuals whose expertise is in evaluating stocks and bonds.
security analysts	Individuals whose expertise is in evaluating stocks and bonds.
shareholder activism	Activism on the part of shareholders that encourages corporate changes or even turnaround in social and environmental policies.
shareholder activism	Activism on the part of shareholders that encourages corporate changes or even turnaround in social and environmental policies.
shareholder value	The value of profit that a corporation earns for employees, suppliers, and other creditors.
shareholder value	The value of profit that a corporation earns for employees, suppliers, and other creditors.
shareholder value maximization	A doctrine that holds that a company’s ultimate success can be measured by the extent to which shareholders’ wealth and stock value are increased.
shareholder value maximization	A doctrine that holds that a company’s ultimate success can be measured by the extent to which shareholders’ wealth and stock value are increased.
shareholders	Individuals or groups who own or hold shares or stock in a company. They legally own but do not run the company.
shareholders	Individuals or groups who own or hold shares or stock in a company. They legally own but do not run the company.
shark repellent	Built-in defensive measures that make a company difficult to take over.
shark repellent	Built-in defensive measures that make a company difficult to take over.
small (minority) investors	Individuals or groups who hold only a small portion of a corporation’s outstanding shares and who have little power to influence the corporation’s board of directors.
small (minority) investors	Individuals or groups who hold only a small portion of a corporation’s outstanding shares and who have little power to influence the corporation’s board of directors.
Spring loading	An illegal act that involves granting of stock options right before a company announces news that guarantees driving up the share price.
Spring loading	An illegal act that involves granting of stock options right before a company announces news that guarantees driving up the share price.
Stakeholder capitalism	An economic system of capitalism that holds that companies balance the interests of shareholders with those of other stakeholders, primarily employees but also suppliers, distributors, customers, and the community at large. This system holds the view that companies have a broader obligation than shareholder capitalism.
Stakeholder capitalism	An economic system of capitalism that holds that companies balance the interests of shareholders with those of other stakeholders, primarily employees but also suppliers, distributors, customers, and the community at large. This system holds the view that companies have a broader obligation than shareholder capitalism.
stakeholder theory	A theory that corporate value cannot be maximized unless the corporation concerns itself with all its constituent stakeholders.
stakeholder theory	A theory that corporate value cannot be maximized unless the corporation concerns itself with all its constituent stakeholders.
stakeholders	Nonshareholder individuals or groups who are involved in or affected by the company’s actions. They include suppliers, creditors, tax authorities, and the community in which the corporation operates.
stakeholders	Nonshareholder individuals or groups who are involved in or affected by the company’s actions. They include suppliers, creditors, tax authorities, and the community in which the corporation operates.
stock option	A right to buy a company’s shares at a particular price at some future date.
stock option	A right to buy a company’s shares at a particular price at some future date.
strategy	A method for guiding management’s choices about where to compete--which customers to serve, with what products and services, and how to deliver those products to customers effectively and profitably.
strategy	A method for guiding management’s choices about where to compete--which customers to serve, with what products and services, and how to deliver those products to customers effectively and profitably.
strategy development	The process of a board’s setting the direction for the corporation; reviewing, assessing, and approving strategic directions and initiative; and assessing and understanding the issues, forces, and risks that define and drive the company’s long-term performance.
strategy development	The process of a board’s setting the direction for the corporation; reviewing, assessing, and approving strategic directions and initiative; and assessing and understanding the issues, forces, and risks that define and drive the company’s long-term performance.
succession planning	Ideally, a process of continuous leadership ’optimization” with the goal to identify and develop a pool of talent with the skills, attributes, and experiences to fill key leadership positions. This process should include plans for coaching a chosen candidate, as well as how the chosen candidate will be evaluated in the future.
succession planning	Ideally, a process of continuous leadership ’optimization” with the goal to identify and develop a pool of talent with the skills, attributes, and experiences to fill key leadership positions. This process should include plans for coaching a chosen candidate, as well as how the chosen candidate will be evaluated in the future.
supermajority	A type of “shark repellent” defense that requires that 70% or 80% of shareholders approve of an acquisition.
supermajority	A type of “shark repellent” defense that requires that 70% or 80% of shareholders approve of an acquisition.
takeovers	The act of seizing or taking control of, as in a corporate acquisition.
takeovers	The act of seizing or taking control of, as in a corporate acquisition.
tender offer	An offer to buy stock of a firm targeted for acquisition either directly from the firm’s shareholders or through a secondary market.
tender offer	An offer to buy stock of a firm targeted for acquisition either directly from the firm’s shareholders or through a secondary market.
Traditionalists	Directors who see themselves as being accountable only to shareholders.
Traditionalists	Directors who see themselves as being accountable only to shareholders.
U.S. Financial Accounting Standards Board (FASB)	A private-sector U.S. organization that sets standards for financial accounting and reporting.
U.S. Financial Accounting Standards Board (FASB)	A private-sector U.S. organization that sets standards for financial accounting and reporting.
Value maximization	The maximization of a corporation’s common stock by increasing the wealth of that corporation’s shareholders.
Value maximization	The maximization of a corporation’s common stock by increasing the wealth of that corporation’s shareholders.