Low Carbon Transition Rating
Corporate Governance Glossary
Key Issues and Indicators
Board/Management Quality and Integrity
Key Question: Does the board’s experience, track record and behavior demonstrate its ability to provide strategic leadership and oversight?
Industry experience of nonexecutive directors and Chairman; linkage of experience to company strategy.
|Director Track Record|
Association of directors with governance and performance failures; excessive board service.
Linkages among directors; connections of outside directors to CEO/Chairman.
|Related Party Transactions|
RPT approval and evaluation process; existence of material RPTs with board/insiders.
|Director Stock Ownership|
Proportion of directors with stock ownership; comparison against relevant market practice.
Controversies reflecting on integrity of executives or board members.
|Business Practices Controversies||Controversies reflecting on business ethics.|
Controversies reflecting on compliance and governance culture.
|Stakeholder Engagement and Responsiveness|
Response to votes opposing directors or board proposals, or management proposals more broadly; engagement policy; absence of shareholder
Key question: Does the board's organization and structure provide sufficient oversight, representation and accountability to shareholders?
Independence/separation of chairman and CEO roles; Chairman’s status as founder/family member or affiliate/former executive; succession planning.
Proportion of board with long tenure & representation on main board committees; retirement, term limits, and other refreshment policies.
Level of board independence, computed ratio and comparison to market practice; affiliations of outside directors with CEO/insiders.
Nominating committee independence; role of insiders/Chair on committee; disclosure of nomination process.
Level of disclosure of board biographies and directors’ remuneration (individual/ aggregate).
Majority/plurality voting standards; resignation policies; proxy access; cumulative voting.
Directors not Elected by Shareholders
Presence and affiliations of designated directors; presence of directors not elected by shareholders.
Presence of board-level risk oversight function; disclosure of industry-specific risks under their responsibility; level of disclosure of the work of risk oversight function.
|Board Diversity||Gender diversity on board; quality of diversity policy.|
Ownership and Shareholder Rights
Key question: Does the constitution of the company and its ownership structures respect the right of outside shareholders relative to the board, management, and major holders?
Director Appointment and Removal
Board classification and elections; ability of shareholders to remove directors; ability of board to change its size.
Proportionality – One Share/One Vote
Dual-class shares; voting limitations/caps based on duration and size; golden shares; other proportionality violations.
Presence of controlling/significant block-holders; is control achieved through disproportionate voting rights.
Capital Issuance Risks
Excessive issuance authorities; excessive buyback authorities; abusive or potentially abusive capital issuances.
Rights to call special meeting/act by written consent.
Poison Pill & Takeover Defences
Shareholder rights plans, including evaluation of shareholder-friendly provisions; quality of the market’s takeover regime.
Supermajority provisions for charter/bylaw amendment and/or M&A transactions; in context of presence of controlling shareholder.
Key Question: Do the company’s remuneration policies and practices provide appropriate incentives for management to build value?
Quality and granularity of disclosure of CEO and other executive pay.
Independence of remuneration committee; presence of executives/ insiders on committee.
Say on Pay
Ability of shareholders to approve or advise on remuneration policy, report, and equity compensation.
Controversies related to pay, including negative votes.
STI Performance Metrics
Quality of performance metrics for the annual bonus; degree of discretion.
LTI Performance Metrics
Quality of performance metrics for the long-term/equity incentives.
CEO pay relative to regional and sector norms; dilution concerns related to equity awards.
|Pay for Performance|
Alignment of pay with long-term financial performance; qualitative assessment of remuneration program features.
|Pay for Failure|
Excessive golden parachutes, and sign-on awards without performance conditions that presage excessive payouts.
|CEO Termination Scenarios|
Vesting provisions for equity pay under various CEO termination scenarios.
|Internal Pay Equity||CEO pay relative to other employees.|
Presence of recoupment policy; requirements for malfeasance.
Audit and Financial Reporting
Key Question: Are the company’s financial reports reliable and subject to appropriate oversight?
Audit Committee Structure
Audit committee independence relative to market standards; presence of insiders on committee.
Audit Committee Effectiveness
Audit committee meetings; financial and industry expertise of committee members.
Level of non-audit fees relative to audit fees.
Audit Rotation Policy
Presence of rotation and retendering policies; relative to market practice.
Change in auditor; reasons for change.
Material restatements, adverse auditor opinions, going concern issues.
Key Question: Does the company’s management of extra financial risks and broader stakeholder relationships raise concerns regarding its governance of long-term value creation?
Level of oversight of ESG-specific issues - by the board, management, or other bodies.
ESG Reporting Standards
Adoption of ESG reporting standards.
Verification of ESG
External validation of the depth of ESG reporting and monitoring.
Global Compact Signatory
Public commitment to principles of corporate responsibility as through the UN Global Compact.
ESG Performance Targets
Incentives for ESG performance; board attention to ESG considerations.
Political Involvement Policy
Policy regarding political involvement and contributions.
Lobbying and Political
Level of lobbying and political expenses.
Bribery & Corruption Policy
Policy on bribery and corruption.
Environmental policy as a framework for oversight of material risks.
Company-wide whistleblower programme; structures to oversee and process reports; risk oversight and mitigation initiatives.
Transparency regarding taxes paid; possible use of tax shelters.
Policy on discrimination; commitment to ensure equal opportunity.
Scope of Social Supplier Standards
Policies or codes of conduct for expectations of working conditions at contractors and suppliers.
GHG Reduction Program
Initiatives to manage and reduce GHG emissions.
Green Procurement Policy
Degree of incorporating environmental aspects in procurement decisions.