Over the years there have been a number of Government-inspired reviews on corporate governance. In 1992 Sir Adrian Cadbury’s report and Code of Best Practice stated that the role of the chairman and chief executive should be split and called for a greater role for NEDs following concern about standards of financial reporting and accountability heightened by the Maxwell scandal and controversy over director’s pay. The Cadbury report states UK companies must be free to drive their companies forward, but exercise that freedom within a framework of effective accountability. This is the essence of any system of good corporate governance.
The report defines corporate governance as the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.
Three years on, a review by Sir Richard Greenbury concluded that companies need to be more open on executive pay. The purpose of the report was to set out best practice in determining and accounting for directors’ remuneration. It recommended all listed companies comply with the code to the fullest extent practicable and include a statement about their compliance in the annual reports to shareholders by their remuneration committee.
Sir Ronnie Hampel’s Combined Code of Corporate Governance, published in 1998 combined Cadbury’s and Greenbury’s reports and is the point of reference currently under review today by the DTI and former investment banker Derek Higgs. In addition, the Financial Services Authority has commenced a review of listings rules in the UK to take account of developments in the US and Europe.