Initial business governance developments in the UK began in the late 1980s and early 1990s in the wake of business scandals. Cadbury Report (1992) specifies ‘Corporate Governance as An Act of governing by the board of Directors”. Financial reporting irregularities resulted in the establishment of the ‘Monetary Elements of Corporate Governance Committee’ led by Sir Adrian Cadbury. The resulting Cadbury Report published in 1992 detailed a number of recommendations around the separation of the role of an organisation’s president and chairman, well balanced composition of the board, choice processes for non-executive directors, openness of monetary reporting and the requirement for great internal controls.
The Cadbury Report included what is described as “The Code of Best Practice” and its suggestions were included into the Listing Guidelines of the London Stock Market.
The Code was initially directed to the board of directors of all listed business signed up in the UK, but it is was not restricted to only the listed companies as it also encouraged many other business as possible to target at fulfilling their requirements.
Bringing greater clarity to the particular obligations of directors, investors and auditors will likewise reinforce rely on the business system. Business whose standards of corporate governance are high are the more likely to acquire the self-confidence of financiers and support for the development of their companies. According to Cadbury Report (1992) By Law, all directors are accountable for the stewardship of the business’s assets.
The Cadbury Report was followed by three more major reports: Greenbury (1995), Hampel (1998) and Turnbull (1999).
The Greenbury Report responded to the concerns about the level of executive pay rises, especially in the privatised utilities. The Hampel Report reviewed the progress of companies in responding to the Cadbury and Greenbury Reports and made some suggestions for improvement. The Turnbull Report addressed the important issue of how to implement best practice systems of internal control. The Report had set a deadline of 30 June 1993 for the beginning of reporting compliance with the Code. By this time 54 out of 66 reporting FTSE100 companies had complied with the reporting requirement. The percentage of companies with combined CEO and Chairman of the board had declined from 25% to 15%. Within a year the percentage of FTSE350 companies with remuneration and audit committees had doubled and the percentage with nomination committees was rising. The result of all this activities is that UK corporate governance ranks as the most open and transparent system of any in the leading industrialised countries. The UK is now ranked ahead of the US in terms of the quality of the environment facing investors on the basis of the governance practices of the firms they are most likely to invest in. Compliance with the Code of best Practise was not enforced and it was not mandatory many firms subjected. Many firms conformed because they did not want to fall victim to the destructive consequences resulting from the disregard of corporate governance.