Effective Governance
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Governance Glossary

Introduction

The words and phrases listed are in common use in the board room. This is not intended to be a definitive reference.

The word "member" is used throughout this list to refer to all board room participants; other names commonly used are director, councillor, trustee, authority member, Commissioner, or board member, etc., depending on the entity.

References have been included to Best Practice Statements from the Institute of Directors in New Zealand, i.e. (IoD BP 1998/7)

Ad hoc committee
A committee set up for a particular purpose, for a specified short period of time.

Advisory trustees
Are responsible for giving advice to the responsible trustees. They are not responsible for administering the trust. All trusts have a responsible trustee, but they do not have to have custodian or advisory trustees. (Refer section 224 of the Te Ture Whenua Act)

Annual Report
A requirement, often by law or constitution, to report to beneficial owners, shareholders, or shareholding Ministers. It covers financial results, auditors report, governance arrangements and operations over the period.

Accountability
Explaining to key people what you are doing, to owners, beneficiaries, shareholders, etc. The CEO is accountable to the board. The board is accountable to the shareholders or beneficial owners. They must advise in advance what they intend to do and achieve, and regularly report on and be held responsible for what they have done and achieved.

Agenda
The list of items to be discussed at the meeting. Every meeting requires careful planning to ensure that objectives are met. The agenda is prepared, usually by the Chair in consultation with the CEO, and sent out to members prior to the meeting date. If other key staff or consultants may add another dimension and knowledge to any agenda items, they should be invited in advance to attend the meeting for that item only. A well-prepared agenda will set a sound framework for the minutes. (IoD BP 1998/7)

Allowances and expenses

If expenses are to be reimbursed, agreement is necessary in advance. Generally members are reimbursed for all direct expenses such as toll calls, accommodation and travelling expenses reasonably and properly incurred. (IoD BP 1997/1)

In the case of government appointments the Responsible Minister prescribes fees and allowances. (Refer http://www.ssc.govt.nz/documents/Board_Appointment_Guidelines.htm)

Audit
An opinion about whether the financial statements present a "true and fair view". It is provided by an independent external auditor to give protection to all members and management. Financial statements are given an unqualified (or clean) opinion, or a qualified opinion (which indicates some serious disagreement about the way the accounts have been prepared or presented).

Internal audits can also be carried out to determine breakdowns in internal control systems or fraud, but these are separate from the annual audit opinion. The external auditor has a statutory responsibility to report on the truth and fairness of the accounts. The Auditor-General is the auditor of every public entity and reports to Parliament and to Select Committees. (Refer http://www.oag.govt.nz)

Audit committee
A sub committee of the board, which meets usually three times year, to advise the board on the accuracy of the financial statements and that they comply with all relevant legal requirements and accounting standards. Key roles are over-viewing the external financial reporting procedures, and the entity's internal financial systems and controls. (IoD BP 1996/4)

Auditor
The person who checks and examines accounts. The external auditor is usually selected by the board at the annual meeting. An internal auditor is an employee of the company.

Body corporate status
An organisation which has been incorporated as a company, a cooperative company, an incorporated society or a charitable trust.

Casting vote
A way of resolving a tied vote. When a board or committee votes on an issue and equal numbers vote for and against, the rules or constitution of the body may provide for the Chairman to have a "casting vote" to determine the resolution. The "casting vote" is distinguished from the chair's right to a "deliberative vote" i.e. his or her vote as an ordinary member of the board.

Chief Executive
Chief Executive (CE) or Chief Executive Officer (CEO). A key role of the board is to appoint the Chief Executive Officer and to ensure the CEO manages the organisation in accordance with the agreed objectives (strategic plan or other accountability documents). The Chief Executive is answerable to the board. When a Chief Executive becomes a director of the board, and can therefore take part in voting, they are called a Managing-Director or M-D. Other names for the operational head of an entity may be Secretary, Director-General, Principal, or Vice Chancellor.

Chairman
Means the chairman of the board and is used in a gender neutral sense. Some bodies prefer to use 'Chair' or 'Chairperson'.

Charter
A set of principles that form the constitution of an organisation. The Institute of Directors provides an example of a charter for a board. (IoD BP 2001/3)

Civil Action
Legal proceedings brought by an individual or organisation, including for the recovery of debt or damages for breaches of a private or civil wrong, or breach of contract.

Code of Conduct
A set of rules to provide guidelines for entities covering ethical and legal duties and obligations. The Institute of Directors in New Zealand provides a Code Of Proper Practice for Directors. (Refer http://www.iod.org.nz)

Compliance
Action in accordance with request or legislation or regulations. Members are liable if they do not comply with the legislation governing their particular entity and sector. (Refer further The Companies Act 1993). Members of bodies not registered under the Companies Act may not necessarily be liable depending on the provision of their legislation.

Conflict of interest
If you think you or a relative will benefit from the board's decision you must declare a conflict of interest. The benefit might be, for example, gaining a contract which has not been openly tendered, or access to information which might influence your own business decisions.

Members must act in good faith, in the interests of the company or entity in which they serve. There is always potential for the member's own personal interests to conflict with the entity's interests, for example, the use by members of confidential information received in their capacity as members, in order to benefit financially. This is particularly relevant if a member has an interest in a product or service which is required by the organisation.

Procedures are clearly set out for participating in board decisions in which members have a personal interest. If members are unsure whether a conflict of interest exists they should discuss this with their chairman. Unless the conflict is material and ongoing, declaring the interest will not prevent the member from continuing to serve on that board. (IoD BP 1996/3) Also see Annex Two on the State Services Commission website (http://www.ssc.govt.nz/documents/Board_Appointment_Guidelines.htm)

Constituency
A body or class of people affected by the decisions of that entity; often voters who have elected a representative member to Parliament or a local government body or beneficial owners who have selected their representative to serve on a trust board.

Constitution
Provides the rules and regulations for the entity, meeting procedures, annual reporting, terms and conditions of appointment, etc., and includes such requirements as general meetings of shareholders, voting, and shares.

Contract
An agreement between two parties that is intended to be enforceable at law. Contracts are usually written and signed by all parties but a spoken agreement can also be a contract.

Corporate governance
OECD: System by which business organisations are directed and controlled.
KPMG: System by which corporate entities, exercising accountability to shareholders and responsibilities to stakeholders are directed and controlled to achieve sustainable improvements in shareholder prosperity.
WORLD BANK: About promoting corporate fairness, transparency and accountability.

A global term encompassing all the issues facing a board of directors or board of trustees in directing and controlling the activities of an organisation. This includes issues such as interaction with management and with stakeholders such as owners/shareholders/beneficiaries, employees, bankers, suppliers, purchasers, auditors, corporate regulators, the community at large and, in the government sector, the shareholding Ministers. Corporate governance comprises many elements: strategic direction, policy formulation, CEO selection, ensuring sufficient resources to operate, risk management and control, legislative compliance, monitoring performance, etc. (Refer Toolkit for the Company Director in New Zealand, KPMG)

Corpus
The land of Māori incorporation, at the time it is established, plus any land acquired later that is declared by the court to form the main part of the incorporation. Land that is not declared as corpus is called an investment land.

Crown
Refers to Her Majesty the Queen who is head of state of New Zealand. Crown-owned land is in effect, state-owned land. The Crown also refers to all Ministers of Parliament and their departments.

Custodian trustees
Are responsible for:

Custodian trustees are not responsible for administering the trust - the responsible trustees are. The assets of the trust are vested in the custodian trustee where one is appointed. (Refer section 225 of the Te Ture Whenua Māori Act)

Deliberative vote
A chair's vote as an ordinary member of the board or committee compared with a casting vote if the voting is equal.

Dissenting vote
A vote cast against a particular proposition; e.g. a vote against an increase of fees.

Dividend
A payment made to shareholders. When a company makes a trading surplus, the board will determine to invest some of the surplus in the further development of the company and return some to the owners/shareholders by way of dividend as a return on funds invested in the business. Directors must find a balance with maximising both the long-term value growth of the company, as well a providing the shareholder with an adequate return on their investment.

Due diligence
A process to look closely at the operations of an entity either prior to sale or purchase or to consider an appointment to the board.

During a sale and purchase process, or merger or acquisition, the prospective purchaser is often permitted to investigate the records, financial and legal, to assist in determining a valuation for purchase. Due diligence can also refer to when a member is considering an appointment and the process of due diligence will determine whether the member is willing to commit to the company and whether the rest of the board is willing to proceed with the invitation to the member to join the board. (IoD BP 1998/6)

Evaluation
Formal board evaluation is important to ensure an effective board and also:

There are different approaches but the evaluation should cover the chair, the individual member and the board as a whole. Some boards choose an external consultant; other boards choose a process and do it themselves.

Executive Director
Member of a board who also carries out executive or management functions within the organisation (usually a company). An example would be the CEO, managing director and/or finance director.

Fiduciary
A relationship characterised by the reliance of one party upon another based on trust.

GAAP (Generally Accepted Accounting Practice)
Generally Accepted Accounting Practice (GAAP) is the term used to describe the basis on which financial reports are normally prepared. The term encompasses:
(a) specific rules, practices, and procedures relating to particular circumstances; and
(b) broad concepts and principles of general application

Financial reporting standards are the primary indicators of generally accepted accounting practice. Conformity with generally accepted accounting practice means:
(a) compliance with all financial reporting standards applicable to the entity; and
(b) in relation to matters for which no provision is made in financial reporting standards and that are not subject to any applicable rule of law, adopting accounting policies that:
(i) are appropriate to the circumstances of the entity; and
(ii) have authoritative support within the accounting profession in New Zealand.

(Source: Institute of Chartered Accountants of New Zealand, Explanatory Forward to General Purpose Financial Reporting, 1995)

GAAP also has a specific legal meaning and is defined in the Financial Reporting Act 1993. Entities subject to the Financial Reporting Act must comply with GAAP as defined in this Act.

Governance
Governance in its widest sense refers to how any organisation, including a nation, is run. It includes all the processes, systems, and controls that are used to safeguard and grow assets.

On this website, we are concerned with the governance of organisations that have some kind of commercial operation, whether or not they are run for profit. "Governance" when it is applied to commercial organisations such as companies, is often called "corporate governance".

Overall, governance involves systems and practices that promote enterprise and ensure accountability.

There are many definitions of governance including:

OECD: System by which business organisations are directed and controlled.

KPMG: System by which corporate entities, exercising accountability to shareholders and responsibilities to stakeholders are directed and controlled to achieve sustainable improvement in shareholder prosperity.

World Bank: Systems that promote corporate fairness, transparency and accountability.

Governance & Appointments, TPK
Te Puni Kōkiri maintains a database of Māori who may be available for nomination to various boards and organisations. Te Puni Kōkiri need people with a variety of skills and experience to provide strategic direction on these boards and organisations.

Te Puni Kōkiri use this database to provide names of suitable candidates to Ministers, Government departments and agencies, and private sector organisations. (http://www.tpk.govt.nz/government/nominations/default.asp)

Hapu
A sub-tribe or kin group that is linked by a common ancestor.

Income
Money that is derived from assets held and earnings (such as rent and interest or sale of products or services) but not money resulting from, for example, the purchase of land - land converted into money.

Indemnity
Security against damage or loss, legal exemption from penalties, etc. incurred. A member may be indemnified or insured by the entity in certain circumstances but not in case of negligence or a criminal act.

Independent Non-Executive Director
Member of a board who is independent and has no involvement in the day to day operations of the organisation. An independent director has limited or no financial interest in the organisation or any interests that might want to influence the organisation.

Induction
A program prepared to introduce a new board member to key staff and facilities and board processes and protocol; the formal introduction of newly appointed members to their new position, providing comprehensive information on the structure, functions, philosophy, facilities etc of the body they have been appointed to, and the duties and responsibilities of a board member. Continuing training and development of skills and knowledge is an obligation of every member to ensure they continue to add value around the board table.

Insolvent
A situation in which a person or business is unable to pay off their debts even if all their assets are liquidated.

Insurance
Appointees should consider whether Directors' Liability Insurance is necessary and, if appropriate, seek confirmation that it is available through the entity during the due diligence process.

Intellectual property rights
The right to own and to exploit ideas or inventions, or literary or other works. Sometimes intellectual property rights are given a monetary value in financial statements, e.g. ownership of a patent to manufacture battery lawn mowers, or ownership of the score and text of a musical.

Iwi
The traditional Māori tribal hierarchy and social order made up of hapu (kin groups) and whanau (family groups) having a founding ancestor and territorial (tribal) authorities.

Kai tiaki
A trustee/guardian.

Key Performance Indicators (KPI)
Key Performance Indicators are the goals or targets set by an entity in their strategic plan. Also known as KRAs (Key Result Areas).

Key Result Areas (KRA)
Key Result Areas are the goals or targets set by an entity in their strategic plan. Also known as KPIs (Key Performance Indicators).

Law of Trusts
The body of law that governs the rights and responsibilities of those involved in a Trust, including the person who created the trust, the trustees and the beneficiaries.

Legal owner
The owner of the legal tile to land. When trustees are appointed they become the legal owners of the land. The names of trustees not the beneficiaries will appear on the title.

Legislation
The rules legislated by Parliament. A key role of the board is to ensure that the entity is complying with all relevant legislation.

New Zealand has over 7000 acts and while a trustee or board member can not be aware of all acts they should have a basic knowledge of which acts are particularly relevant to the entity on which they serve. The legislation impacting on entities is wide ranging, for example, the Employment Relations Act, Companies Act, Financial Reporting Act, Building Act, Commerce Act, Health and Safety in Employment Act, the Resource Management Act, Human Rights Act, Privacy Act. It is essential that members are aware of their legal duties and responsibilities and that the entity has appropriate processes in place to ensure effective compliance at all levels.

Liability
Members are legally bound and answerable for the decisions they take. Members have rights to receive indemnity and insurance covering members or employees against all liabilities, defence costs and settlement costs with some exceptions. It is important to seek professional advice.

Making of an order
An order made by a court considering a particular issue, e.g. a court order preventing someone from removing a tree.

Mandate
Judicial or legal responsibilities defined by Parliament or any other person in authority.

Māori Community Purposes
The promotion and support of initiatives through financial aid, loans and grants. Initiatives include health, social and cultural and economic welfare, educational and vocational training. (For full definition of Māori Community Purposes refer to section 218 of the Te Tue Whenua Māori Act 1993).

Māori Incorporation Shares
Shares held in a Māori incorporation.

Māori Land Court
Deals with applications for new trusts, replacement trustees, variations to trusts and formal complaints. The Māori Land Court also regularly reviews trusts, as required by the Act, and receives trust reports and financial accounts. It does not administer trusts.

Māori Land Trust
In Māori Land Court terms a trust is a management structure, set up by owners to administer and look after land or shares in land. A trustee is someone who has been given the legal responsibility of looking after someone else's assets and liabilities for that other person's benefit. A trust is the obligation that the trustee has. (http://www.courts.govt.nz/Māorilandcourt)

Ministry of Māori Development
See Te Puni Kōkiri.

Non-Executive Director
Member of a board who does not carry out any day-to-day operations of the organisation. This means that they can take a detached look at the way in which the organisation is run. A non-Executive Director can be a stakeholder in the organisation.

Non-judicial function
An activity that is not related to the administration of the law.

Parent company
A company that has established fully owned subsidiaries. A subsidiary is a legal entity in its own right quite separate, except in very limited circumstances, from its parent organisation. (IoD BP 2000/1)

Perpetuity
Lasting forever without a termination date, but in some cases the law imposes a finite period, e.g the Rule Against Perpetuities in relation to some trusts.

Presiding Chair/person
Whoever happens to be chairing the meeting.

Probity
Uprightness, honesty, integrity, crucial characteristics for appointees. Candidates for any board appointment must consider whether there is anything in their personal histories that may make their candidacy for the board inappropriate. This could be described to candidates as a test of probity, and is necessary to save the board from potential future embarrassment.

Proxy
The authority given by an owner of an interest in land or in company to another person to vote on their behalf. For example, often people, give their proxy to the chairman to vote on their behalf at an annual general meeting.

Quasi-judicial
As if done by a court of law, person exercising judge-like powers, including examining evidence on oath before making a decision affecting rights, powers or interests.

Quorum
The minimum number of members that must be present at a meeting to make proceedings valid. The quorum is usually specified in the constitution and is often a majority of members. If members do not turn up the agenda can still be discussed but any decisions will only be binding when endorsed at another meeting when the minimum number making up the quorum are present.

Regulatory board
A body whose key role is to apply or make and apply rules and to ensure with the relevant regulations. For example, The Takeovers Panel, Commerce Commission, Securities Commission

Remuneration and Fees
Fees vary for each entity. The payment might be per meeting or an annual fee depending on the entity. The fee usually reflects the size of the entity, the degree of risk, the complexity of the core business and the expertise required, etc.

A chair could receive approximately 200% of a member's base fee and a Deputy chair 125%. The base fee is set to attract, motivate and retain persons having the high standards of ability and character necessary to carry out the duties of the appointment, taking into account level of hourly rates for each profession, hours spent in travel and preparation, size and performance of the company or entity etc.

Responsible trustees
Are responsible for:

Refer to section 223 of the Te Ture Whenua Māori Act.

Resolution
A procedural step taken by a group to record agreement for (or against) a particular proposal, passed by a simple majority.

Revenue
Cash coming in to the entity through trading or providing services.

Shareholders
The owners of the company or beneficiary owners of a trust; for State-Owned enterprises the Responsible Minster and the Finance Minster are the two shareholders for publicly listed companies the shareholders exchange their shares of the company through the Stock Exchange.

The Solvency Test
Under the Companies Act 1993, the test must be satisfied in the view of the company's members before the company can enter into certain transactions, and, even more importantly, make any form of distribution to shareholders including distributions by way of dividend. The test does not require the members to be satisfied that the company is solvent every day it trades but only when certain actions are proposed. (IoD BP 1998/3).

Solvent
The state of a company which is able to meet all its debts as they fall due.

Special resolution
A resolution which must be described as a special resolution passed by 75% of the people present and voting to be valid.

Stakeholders
People who have an interest in the organisation at any level, or at any distance both internal and external, e.g. customers, shareholders, clients, employees, landlords, board members, suppliers, contractors.

Standing committee
A continuing committee set up by the board with general authority to consider issues which fall within a particular area as they arise from time to time e.g. Audit Committee, Nominations Committee.

Statutory board or authority
A body set up under legislation; it is not necessarily a government entity, for example, the New Zealand Medical Council.

Succession planning
In referring to a board or an organisation, it is to ensure that people are identified and prepared to replace key players as their terms expire, recognised as good practice in considering the appointment of new members to ensure continuity and appropriate skills are maintained for the entity as its role evolves.

Succession also refers to the process of transferring the assets of a deceased person to the persons entitled to receive those assets.

Sunset clause or Sunset provision
A provision for an agency or program to be disbanded or terminated at the end of a fixed period unless it is formally renewed.

Sustainable development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. For a company to be sustainable over the long term, it must be financially secure, environmentally responsible (e.g. no pollution) and conform to society's expectations.

This concept was made current by the Brundtland Commission in its 1987 report, Our Common Future. Further defined by principles and guidelines contained in the Rio Declaration and Agenda 21 - key outcomes of the 1992 Rio Earth Summit.

Te Puni Kōkiri (Ministry of Māori Development)
The vision of Te Puni Kōkiri expresses a future where Māori - whanau, hapu, iwi, Māori communities and Māori organisations - are realising their hopes and expectations. It is a future in which the Māori world, in all its diversity, is standing nobly.

The purpose of Te Puni Kōkiri is to assist the Minister of Māori Affairs, the Associate Ministers of Māori Affairs and the Government to accelerate Māori development.

Te Ture Whenua Māori Act 1993
This Act replaced the Māori Affairs Act 1953. The kaupapa of the Act is to promote the retention of Māori land in the hands of its owners and their whanau and hapu and to facilitate the occupation, development and utilisation of that land for the benefit of the owners and their whanau and hapu.

Term
The period of appointment will vary depending on the purpose of the trust, statutory body or company. Government appointments are usually for a set duration. Company board appointments are usually not more that two terms of three years. Board members are only appointed to a second term if the skills are still relevant and their performance is sound. The appointment is usually at the discretion of the beneficiary owners, or, shareholding Minister, or other appointing authority, and may be terminated without notice at any time.

Tikanga Māori
Māori custom.

Tipuna/tupuna
Ancestor.

Title
The legal ownership of property and the legal evidence of a person's ownership rights.

Triple Bottom Line
Developed by UK based management consultant John Elkington. Refers to the practice of being accountable for three results:

  1. Financial results, i.e. profitability, a traditional measure
  2. Impact on the environment, i.e. minimise negative environmental effects, measurement tends to be scientific or technical
  3. Social impact i.e. conform to society's expectations and behave as a socially responsible corporate citizen with regard to education, health cover, human rights, equal opportunities etc.

Trust, Māori Land
The legal definition of a trust is an equitable obligation binding a person, the trustee, to deal with property over which he or she has control (the trust property) for the benefit of certain persons (the beneficiaries, any one of whom may enforce the obligation). The trustee may also be a beneficiary. In Māori Land Court terms a trust is a management structure, set up by owners to administer and look after land or shares in land. A trustee is someone who has been given the legal responsibility of looking after someone else's assets and liabilities for that other person's benefit. A trust is the obligation that the trustee has. (http://www.courts.govt.nz/Māorilandcourt)

Undivided interest
Māori land is often collectively owned. Each owners share is described as an undivided interest where that share is not partitioned as a separate title. Each co-owner has an interest in all of the land in the title.

Vest/Vested
A change of ownership or land gives the recipient of that interest the ownership and its associated rights. Land may be vested in a trustee or shares may be vested in another person.

Warrant
An authorisation from a statutory authority.

 

 

 


Page last updated: Thu, 12 May 2005