Corporate Governance Reform in the UK., Lecture notes of Law

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Corporate Governance Reform in the UK Corporate Governance Reform in the UK (Lecture 4) - The Reports The UK is a leading example of good corporate governance - reform has been underway for over 20 years. Part of the reforms process has been an attempt at aligning managers interests with shareholders, shareholder activism and imposing greater fiduciary duties on the directors of the company. Cadbury Report 1992 After the fraudulent dealings from Robert Maxwell the government was tasked to investigate and make recommendations on how corp gov could be improved to prevent future cases of fraudulent behaviour. Sir Adrian Cadbury formed a committee - he had high ethical standards and gave a gold standard for corp gov recommendations and codes. The main features of the report were that British companies were already practising good corp gov and that the recommendations were principle based rather than prescriptive. This meant that companies either had to comply with the report or explain why they weren't. Cadbury saw three main areas of the company’s governance : the directors, auditing and the shareholders. Cadbury also noted a major change in the investing and shareholding landscape which saw the beginnings of corporate social responsibility. ‘The Greenery Report 1995 This committee was established to deal with concerns expressed by the public and shareholders who were concemed with excessive executive remuneration. The attempt of this report was to align pay with performance and not necessarily reduce pay. The report recognised a problem rather than offer a solution for a problem. Improvements were alignment of pay with the performance of work. Hampel Report This report consolidates the two previous reports into a combined code. It set out the applicable code of best corp gov practise for UK. companies. It reinforced the need for Uk companies to apply common sense and a flexible approach rather than tick boxes. The report was ctisiised as being more in the interest of the directors rather than the shareholders, The areas of CSR and corporate accountability were reduced - Hampel’s main priority was profit, the boards first responsibility should always be profit first. It states that corp gov reform is important for all companies regardless of size. One benefit from the report was that the Pension Fund Trustees were identified as being less than serious about their corp gov responsibilities. This was to separate the label of institutional investors into a much more accurate picture. Pension funds were and still are the largest investors in stock, so its important they understood the need for long term strategy over short term gains. Between the Cadbury, Greenery and Hampel reports another corp gov scandal occurred in 1995 with the collapse of bearings Bank - this scandal showed a nced for greater risk management and internal control. ‘Tumbull Report 1999 Barings case 1995 fraudulent dealings saw a need for improvement in corp gov for greater risk management. Directors reporting on internal control mechanisms about:blank