Question :
Using the Cadbury Report, 1992, as a base. Discuss the main principles of sound corporate governance in the United Kingdom. Would these principles work better if they were mandatory?

Introduction and background
Establish the Context and Importance of the Topic
Following a breakdown of governance procedures in a number of the UK’s key corporate businesses in the early 1990’s the Cadbury Committee was set up in May 1991 by the Financial Reporting Council (FRC) and the London Stock Exchange (LSE).
The objective of the Cadbury Committee was to review the UKs Corporate Governance processes and where applicable suggest changes with the intention of restoring both institutional and private shareholder confidence.
The report states its aim – “to help raise the standards of corporation-governance and the level of confidence in financial reporting and auditing by setting out clearly what it sees as the respective responsibilities of those involved and what it believes is expected of them”.
From a reporting perspective the Code put a responsibility on companies to outline where they complied with the Code, any areas where they did not the onus was put on the company to give reasons for its non-compliance. The Financial Times reporter William Kay shortly after the Code was introduced referred to the system as “comply-or-explain”. Subsequently this the UK Code has had critical acclaim and the system has been adapted and introduced worldwide in over 50 countries.

Let’s keep ‘comply-or-explain’ in corporate governance burning bright

Having concluded its investigation’s the Cadbury Committee published its final report in December 1992. It put forward a number of guidelines which were compiled into the “Code of Best Practice” and it made 19 recommendations for the Directors both execuitive and non- executive, and managers with authority for reporting.
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In the 26 years since the Cadbury report was published there have been improvements in a number odf subsequent reports, with an emphasis on keeping the “Code of Best Practice” current, up to date and relevant to the modern business operations. Mention below
Complete Thesis Statement
The importance of Corporate Governance
The importance of Corporate Governance cannot be understated as it impacts all parts of the company covering the key strategic activity areas of communication, decision making and leadership. However from a Corporate Governance perspective it primarially affects the board of directors and specifically how they discharge their duties both as individuals and as a board.
The challenge for Corporate Governance regulators is to pitch and balance their guidelines and controls at the right level so as not to constrict company growth and prosperity.
When it comes to sub standard financial reporting, unintentional or otherwise, the example of the giant US power company Enron demonstrates the argument for the exsistence of strong Corporate Governance systems and controls.
As Enron went bankrupt it caused the loss of 4000 jobs and the melt down of the companie’s shareholder value. Arthur Andersen the firm’s auditor’s announced that “the profits posted by Enron before the 30th day of June in 2001 were overstated by almost $600 million or 16 per cent. After the release of the official statement of the firm regarding the fraudulent financial activities, its stock value decreased from $83.13 to $0.10.”
Control of the key activities of corporate enteties is required for two main reasons, firstly it places legal accountability on the Directors name others here and how they operate. Secondly where corporate governance is embedded and permeates throughout the company it serves as a preventative early warning system, identifying any potential business or operational disasters from happening.
In the UK in 2018 compliance with the “Code of Best Practice” is increasing however more than one third of corporate companies are not meeting its requirements
Those companies who have embraced their responsibilities are publishing detailed annual reports which outline all aspects of their activivies a good example of a company which is adhering to the guidelines can be found in the 2014 Annual Report of British Petreoleum, it gives a good overview of how the companies Corporate Governance is structured, and details all stakeholders their titles, responsibilities, career biopics and Board and committee meetings attendances for each member. It also gives a breakdown of the Major institutional Shareholders. The section on shareholders engagement page 62 documents the companies investor relations and it also holds separate events for its private investors for example in conjunction with the UK Shareholders Association (UKSA). The section on UK Corporate Governance Code compliance at poits B3.2, and D2.2 reference the areas where there were exceptions by the company where they did not meet the provisions of the UK Corporate Governance Code and the reasons for these two exceptions.
The principles of sound corporate governance
The UK corporate governance code is based on five underlying principles of good governance: they are “accountability, transparency, probity and focus on the sustainable success of an entity over the long term”. It is recognoised that while the Code has been enduring over time its fitness for purpose in constantly changing economic and business situations which demands that the Code requires regular reviews to ensure that its provisions and guidelines remain relevant to the current and up to date economic business environment.
The overaching challenge for the Board is to lead the company in these principles ensuring that its business is transacted in a fully transparent way while at the same time satisfying its shareholders investors and other interested parties that the company fully compliant with all of its corporate governance responsibilities.
From Shareholders viewpoint

From Directors viewpoint
There are many factors which affect the function of company directors both Executive directors and non executive directors
One of the findings in the Cadbury report was that shareholders were viewed as being as uninvolved or passive in the affairs of the company. This point was noted in relation to companies which had dispersed ownership, meaning that managers within the organisation had greater influence and control over shareholders where no single shareholder held a majority of shares.
This charesteric changed after the publication of the Cadbury report from then on the shareholders became more hands on as Solomon states “investors are now in a prime position to monitor company management and help to align the interests of management with those of their shareholders” (Solomon, Jill and Aris, 2004). This led to increased levels of “shareholder activism” using their rights as a shareholder to achieve change to or for the company.
Example required

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Higgs Report 2003
This study was commissioned by the UK government to review the role and performance of company non executive directors and audit committees, its objective was to revise and update the Combined Code where necessary. The main driver for this study was the business scandals which took place in the US involving Enron.

While Higgs supported the comply or explain methodology he also advised that more exacting regulatory benchmarks should be added to the Combined Code for the appraisal or assessment of independent directors, he felt that these was discretion

Higgs viewed the earlier scandals, which led to the Cadbury Report could have been avoided had a Code been in place. The Robert Maxwell debacle could have been avoided in his view because many firms already refused to deal with him, and disclosure of his company’s governance practices would have led to more pressure for change.

Higgs in his report also pointed out that investors had a role in monitoring corporate governance “15.20 Investors can, and I believe should, play their part in ensuring that nonexecutive directors play an effective role on boards by questioning them on
corporate governance matters”.

Mandotory aspects of auditing

United Kingdom Code (Governance 2016)
The Financial Reporting Council (FRC) produced the United Kingdom Corporate Governance code, “it sets standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.”
In addition to these standards it is a requirement for all companies that have a premium listing of shares in the UK to report in their end of year accounts how they have enforced the code in their business activities.

In addition to
Follow on reports Turnbull / Higgs
1.1.1 Outcome A
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Shareholder activism

Would these principles work better if they were mandatory?
Mandatory versus self reporting here
Opinion Interpretation of the question not the subject itself is usually a single sentence near the beginning of your paper (most often, at the end of the first paragraph) that presents your argument to the reader. The rest of the paper, the body of the essay, gathers and organizes evidence that will persuade the reader of the logic of your interpretation.
Bibliography and Webography
(Solomon, Jill and Aris, 2004)


Reasons (for and against)
If Necessary
Additional Background
Clarification of Basic Issues

• Cons (From strongest to weakest)
? Self Congradulatory statements
? Globally there is an inconsistency in corporate governance regulation which adds operational complications to multinational companies
? Seperation of control and ownership (agency problems)

• Pros (From strongest to weakest)
? Companies are aware of the need to have efficient corporate governance process in place, they recognise that having clear governance systems has a healthy effect on the companie’s performance
? Independent Directors

Diff between SR and MR
The UK Corporate Governance Code gives directon to companies it states that “the board sets the values of the company” the destinction being that these values are different from the daily operation of the business.

Importance of corporate governance in an organisation

Corporate governance is intended to increase the accountability of your company and to avoid massive disasters before they occur. Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for the importance of solid corporate governance. Well-executed corporate governance should be similar to a police department’s internal affairs unit, weeding out and eliminating problems with extreme prejudice. A company can also hold meetings with internal members, such as shareholders and debtholders – as well as suppliers, customers and community leaders, to address the request and needs of the affected parties.

Restatement of your Thesis
• (Possibly)
? Your Assumption
? Any Unanswered Questions
? Further Qualifications of your Thesis or Concessions
Since the Cadbury report was published in 1992 a number of subsequents studies have been commissioned with the aim of reviewing corporate governance and the level of compliance within the United Kingdoms corporate sector. There have been some notable reports for example the Hampel Report (January 1998) which was set up to identify if any revisions were required to the United Kingdoms corporate governance structure. Its findings were clear it found that there was no need for any major changes to corporate governance system. The Report aimed to combine, harmonise and clarify the Cadbury and Greenbury recommendations.

there have been a number of followup Following reports which consolidated the findings of Cadbury The in 1998 was designed to be a revision of the corporate governance system in the UK. The remit of the committee was to review the Code laid down by the Cadbury Report (now found in the Combined Code). It asked whether the code’s original purpose was being achieved. Hampel found that there was no need for a revolution in the UK corporate governance system. The Report aimed to combine, harmonise and clarify the Cadbury and Greenbury recommendations.
• Relevance of your Thesis to Related or Larger Issues