Cadbury Report Essay
Initial corporate governance developments in the UK began in the late 1980s and early 1990s in the wake of corporate scandals. Cadbury Report (1992) defines ‘Corporate Governance as An Act of governing by the board of Directors”. Financial reporting irregularities led to the establishment of the ‘Financial Aspects of Corporate Governance Committee’ led by Sir Adrian Cadbury. The resulting Cadbury Report published in 1992 outlined a number of recommendations around the separation of the role of an organisation’s chief executive and chairman, balanced composition of the board, selection processes for non-executive directors, transparency of financial reporting and the need for good internal controls. The Cadbury Report included what is termed as “The Code of Best Practice” and its recommendations were incorporated into the Listing Rules of the London Stock Exchange.
The Code was initially directed to the board of directors of all listed companies registered in the UK, but it is was not limited to only the listed companies as it also encouraged many other companies as possible to aim at meeting their requirements. Bringing greater clarity to the respective responsibilities of directors, shareholders and auditors will also strengthen trust in the corporate system. Companies whose standards of corporate governance are high are the more likely to gain the confidence of investors and support for the development of their businesses. According to Cadbury Report (1992) By Law, all directors are responsible for the stewardship of the company’s assets.
Conclusion and Recommendations
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.
Cadbury, A. (2002). Corporate Governance and Chairmanship: A Personal View. New York, Oxford University Press Cadbury, A. (1990) .The Company Director, London: Director Books. Cadbury, A. (2000).‘The Corporate Governance Agenda’, Corporate Governance, Vol.8 (1), pp.7-15.