Corporate Governance – The Evolution

Concerned with the mechanisms by which owners have some form of control over managers.

The Combined Code was introduced based on the recommendations of the following reports:

The Cadbury Report 1992

Recommended a ‘Code of Best Practice’
This was a voluntary code and its main proposals were related to:
The composition of company boards
The length of directors contracts
Disclosure of remuneration packages
Auditing matters

Greenbury Report 1995
Reinforced the ‘Code of Best Practice’ recommended by Cadbury and made further recommendations regarding matters relating to directors’ remuneration.

Hampel Report 1998
‘Fine tuned’ the above reports.
In particular, the points that:
The roles of Chairman and Chief Executive should be separate
Directors’ contracts should be for one year or less
Remuneration committee should be made up of independent non-executive directors
Non-executive directors may be paid in company shares although this not recommended
A senior non-executive director should be nominated to deal with shareholders’ concerns
Directors should be trained

The Code proposes principles and code provisions under five headings:
Directors
Directors’ remuneration
Relations with shareholders
Accountability and audit
Institutional shareholders

Further guidance on accountability and audit is contained in the Turnbull Committee Report (1999) ‘Internal Control: Guidance for Directors of Listed Companies incorporated in the United Kingdom’
Corporate Governance – a brief history of the Cadbury Report

The Cadbury Committee was set up in May 1991 largely as a result of highly public scandals such as ‘Guinness’ and ‘Blue Arrow’. The stated objective of the committee was to:

‘help to raise the standards of corporate governance and the level of confidence in financial reporting and auditing by