Chapter 5: Governance Factors

Question 1

EGM

Answer 1

Extraordinary General Meeting, a formal gathering of shareholders to conduct official business of a company. The shareholders have the right to make some decisions about the future of the company, and these meetings are the occasions when those decisions are made. The agendas very much depend on the law of the state or country of the company’s incorporation. (See also AGM)

Question 2

Materiality

Answer 2

A core consideration in ESG investing; a factor is material if it will drive long-term financial value in a particular business. Not every ESG factor is material at every company all the time. A core challenge for ESG investors is to identify the factors that are material to a business at a particular time.

Question 3

Pre-emptive rights

Answer 3

A pre-emptive right is a right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. The right is meant to protect current shareholders from dilution in value or control. Pre-emptive rights ensure that investors, including institutional investors, can avoid dilution of their interest in a company by a dominant shareholder seeking to gain more control. Both related-party transactions and dual-class share structures are disadvantageous to minority shareholders such as institutional investors, as they can enable dominant shareholders to siphon resources from the company or maintain disproportionate control of voting rights, respectively.

Question 4

Principal committee

Answer 4

The nominations committee, the audit committee, and the remuneration committee are the principal committees on most public company boards.

Question 5

Nominations committee

Answer 5

The Nominations Committee (in some markets, this is called the Corporate Governance Committee or some combination of these terms) aims to ensure that the board overall is balanced and effective, ensuring that management is accountable.