Governance Glossary

Board Effectiveness Assessment

A periodic review of the board's composition, processes, and performance — typically combining self-evaluation, peer feedback, and an external perspective to identify strengths and areas for improvement.

Business Judgment Rule

A legal presumption that directors acted in good faith, on an informed basis, and in the honest belief the decision was in the best interests of the corporation. Courts generally defer to informed, disinterested decisions made in good faith, even when the outcome is disappointing.

Caremark Standard

The duty of oversight established by Delaware courts requiring directors to make a good-faith effort to implement board-level reporting and monitoring systems and to respond when warning signs appear. Named after In re Caremark International Inc. Derivative Litigation (Del. Ch. 1996).

Conflict of Interest

A situation in which a director's personal, financial, professional, or affiliated interests could improperly influence their judgment or loyalty to the corporation. Conflicts are not automatically a breach; the duty is to disclose and manage them.

Unanimous Consent (General Consent)

The standard parliamentary procedure for adopting routine board business without individual discussion. The chair asks: "Are there any requests to remove an item from the consent agenda?" If no items are pulled, the chair states: "Hearing no objections, the consent agenda is adopted." Though no verbal "aye" or "nay" is called, this functions as a binding, unanimous formal action — freeing meeting time for strategic and oversight matters.

D&O Insurance (Directors and Officers Insurance)

Insurance that protects directors and officers from personal liability for decisions made in their corporate capacity, subject to policy terms and exclusions. Boards should review coverage with qualified counsel.

Duty of Care

The fiduciary obligation to make decisions with reasonable diligence and prudence — preparing, understanding material facts, testing assumptions, and exercising independent judgment before voting.

Duty of Loyalty

The fiduciary obligation to place the interests of the corporation ahead of personal, financial, professional, or affiliated interests, including the duty to disclose and manage conflicts.

Duty of Oversight

The fiduciary obligation to establish board-level reporting and monitoring systems for mission-critical risks and to respond appropriately when warning signs appear. See Caremark Standard.

ESOP (Employee Stock Ownership Plan)

A qualified retirement plan that invests primarily in employer stock, allowing employees to acquire ownership over time. An ESOP is both a financing vehicle and a governance decision, with an ongoing repurchase liability that must be continually planned for.

Executive Session

A portion of a board meeting reserved for directors only, without management present. Regular executive sessions support independent oversight and candid discussion.

Fiduciary Duty

A legal obligation to act in the best interests of another party. For corporate directors, fiduciary duty comprises the duty of care, the duty of loyalty, and the duty of oversight.

Indemnification

A contractual or statutory obligation by the corporation to cover legal costs and liabilities incurred by directors in their corporate capacity, subject to governing documents and applicable law.

Independent Director

A director who does not have a material relationship with the corporation that could impair their objectivity. Independence standards vary by exchange, jurisdiction, and governing documents.

This glossary is educational and does not constitute legal advice. Corporate law varies by jurisdiction, entity type, governing documents, and circumstance. Directors should consult qualified counsel about specific obligations and decisions.