Cadbury Report 1992 2 example essay topic

"Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The aim is to align, as nearly as possible, the interest of the individuals, corporations and society" Sir Adrian Cadbury 1999 The UK's economy depends on the drive and efficiency of its companies. The companies must be free to drive forward, but exercise that freedom of situating a system of effective accountability. This is the essence of any system of good 'Corporate Governance'. Corporate Governance is the system by which companies are directed and controlled.

Board of Directors are responsible for the governance of their companies. The shareholders' role in governance is to appoint governance structure is in place. In 1992, Sir Adrian and his committee introduced a report outlining the need for better corporate governance. This was the response to a number of scandals that occurred in the late 1980's and early 1990's that had people in doubt on the ways companies were run. This resulted in scandalous collapse of UK companies such as Polly peck International PLC, Bank Of Credit and Commerce International (a. k. a BCCI) and Maxwell Communication Corporation. The reasons for these failures were due to weak governance systems, lax board oversight, and the authority of control in the hands of a single top executive.

The Financial Times (May 28, 1992) mentioned, "The downfall of powerful figures such as A sil Nadir or the late Robert Maxwell (who was accused of stealing lb 700 million from employee pension funds to support his failing publishing company, the Mirror Group), whose personal control over their companies raised fears about the concentration power". However, collapse of UK companies was not the only reason on why there was a demand for better corporate governance, another reason is that in publicly-traded UK corporations, the positions of the 'Chairman' and 'Chief Executive' were held by one person which doesn't enhance a broad oversight of the company. An example of this was printed in the Financial Times in 1988 where it stated, "For 349 of the Fortune 500 companies and for 328 of the FTSE 500 companies, a single individual jointly held the positions of Chairman and CEO". This was a concern to many companies after the downfall of some powerful figures (as mentioned earlier).

In 1991, the Conservative Government Of the United Kingdom met together to "address the financial aspects of corporate governance" (Report of The Committee on The Financial Aspects of Corporate Governance (Section 1.8), December 1992). The Conservative Government depends on its country's economy, the UK has a strong economy and in order to maintain this strength companies need to be more efficient. In May 1991 The Cadbury Committee was appointed by the Conservative Government, a year later the Cadbury Report was introduced as a response to drive companies forward in being efficient, keeping The UK's economy strong and to respond to the scandals that have occurred. In December 1992, the Cadbury Committee published the 'Code Of Best Practice', which was directed to all boards of directors of all listed companies registered in the UK. In the code, the committee recommended that boards of publicly-trade UK corporations include at least three outside directors (non-executive directors), the positions of the chairman and chief executive must not be held by a single individual as they used to be in previous years. The chairman's role is to watch out for the interest of shareholders and prevent the kind of mischief that brought down Maxwell's empire and -- hardly possible if the CEO and chairman are the same.

Prosser, a board member at GlaxoSmithKline and BP, says: "The opportunity to observe such subtleties as body language among executives is much easier when there are more board members present". The Cadbury Report sought to end the rubber-stamp board by making sure that the role of non-executive directors was no longer without care for the chairman's friends. The key purpose was to limit the power of business leader such as Robert Maxwell who might press his board into disastrous situations. Since 1992, directors in the UK have access to all top managers. This may sound of little value, but it can provide early warning signs. The Cadbury report also spelled out Britain's preference for an accounting system based on true and fair disclosure -- telling investors what they need to know rather than merely meeting a legal checklist.

However, the success of the Cadbury Report and other reports doesn't mean that there weren't any disadvantages because Corporate Governance is never going to be perfect. In January 1995, a survey by Pensions Investment Research Consultants (PIC) found that 53% of the top 190 companies do not fully comply with the Cadbury Code in key areas such as the composition of the audit committee, independence among the non-executive directors and the separation of powers between the chairman and chief executive. The Cadbury Code didn't prevent the collapse of Brings in 1995 and it can't stop a boss from committing outright fraud. Cadbury himself admitted that his panel's work "might not have stopped Maxwell from being Maxwell, but it would certainly have brought it to the public attention sooner". The introduction of the Cadbury Report in 1992 was a step in making corporate governance better but it should have been introduced earlier, to try and prevent the scandals that happened.

The way forward now for trying to make corporate governance even better is to say what the punishment is if one is found guilty of fraud, this point was not mentioned in the Cadbury Code but only stated that there would be serious consequences if one was found guilty. Any companies that do not fully comply with the Cadbury Code must be punished, e.g. 53% of the top 190 companies did not comply with the Cadbury Code those companies must be punished otherwise if no action is taken place then the rest of the companies might do the same. Also, more investigation should take place to try and reduce the chances of fraud happening, if so then harsher codes should be introduced. The Financial Times, June 2, 1992 said that "The Committees' recommendations are steps in the right direction.

But if the government is to address the problems, which led to Maxwell, Polly Peck and other recent scandals, then new rules in a legal framework are required... Shareholders, investors and creditors will have been disappointed that just when the corporate failures of recent years cried out for bold and imaginative legal return, the body from which so much had been expected came up with a little, tinkering and a voluntary code". 1. Cadbury Report 1992 2. Forbes Magazine 1992 3. Forbes Magazine 1995 4.

Hamper Report 1998 5. Financial Times, May 28, 1992 6. Financial Times 1988 7. Report Of The Committee on the Financial Aspects of Corporate Governance, December 1992 8. web 9. Financial Times, June 2, 1992.