Corporate Governance

Cadbury Report to Higgs Review

Source-Ian Jones Paper
Centre for Business Research
University of Cambridge
Prepared by Anjana Grewal
 United Kingdom
 UK Initiatives to improve Corporate Governance
 Cadbury Report- 1992
 Greenbury Report- 1995
 Hampel Report- 1998
 Turnbull Report-1999
 Company Law Review- 2001
 Higgs Review- 2003

 Jones & Politt – Comparison of Cadbury Report and Higgs

Review
 Approach
 Setting up of a committee
 Background is important
 Stakeholders
 Stakeholders as Influencers

 Influencers
– Business
– Authorities
– Public Opinion
– Exogenous Factors
 Influencers- Jones/ Politt
 Business- Corporates, Non- Financial stakeholders- such
as trade unions, Financial Stakeholders – such as
Shareholding Institiutions, Professionals- accountants and
lawyers. Trade bodies- Institiute of CA, Confederation of
Industry…
 Authorities- Government officials, Regulatory Bodies,
-Bank of England, Stock Exchange…..
 Public Opinion- Media, NGOs
 Exogenous Factors- High Profile Events
 Type Influencers/ Type B Influencers
 Influencer Types
 Type A: Those who initiate a Debate
-NGOs
-Media
-Politicaians

 Type B: Those who respond to the Debate

– Government
– Regulators
– Professional Bodies
– Investment Analysts
– Institutions
 Phases
 Intiate Interest and a Debate
 Formation of a Committee
 Terms of Reference for the Committee
 Deliberation of the Committee
 Investigation
 Report Compilation
 Presentation of Findings
 Follow Up Debatae
 Implementation Plan
 Phases
 Awareness- Type A Influencers

 Education

 Implementation- Type B Influencers

 Cadbury Report
 High Quality Investigation
 Seminal Pieces in Corporate Governance Development
 It originated – Self Regulation
 Reporting of Compliance- Listing Requirement
 Cadbury- Background
 Sir Adrian Cadbury- Chairman of Cadbury Schweppes-
1965-1989
 Director of the Bank of England- 1970-1994
 Terms of Reference
 Financial Reporting and Accounts
 Responsibilities of Executive Directors and Non-Executive
Directors for reviewing and reporting on performance to
shareholders and other financially interested parties ,
frequency, clarity and form of information.
 Audit Committees composition and role
 Responsibilities of Auditors and value of Audit
 Links between shareholders , boards and auditors
 Cadbury Report
 The Board as the focal point

 Board – Sub – Committees

 Remuneration, Audit, Nomination

 Independent- Executive Directors

 Separation of the Chairman from the CEO Position
 Incorporated in all CG Codes
 Cadbury Report
 Division of responsibilities of Chair and CEO
 No one individual has the power of decision
 Non Executive Directors to be independent
 3 Non- Executive Directors on the Audit Committee
 Majority non- executive directors on Remuneration
Committee
 Non Executive Directors should be selected by Board
 Company Law Review
 Changed the Law towards Corporate Governance in the
UK

 Operating and Financial Report

 Include CG and Social Responsibility Compliance

Information
 Higgs Review
 In 2001- Enron, Worldcom, Tyco
 Need for a review
 Intergovernmental discussion
 Derek Higgs
 Background- ED- Prudential plc
 Non-ED- Allied British Bank
 Non ED- British Land Company, Jones Land La Salle
 Senior Advisor- UBS Warburg Grp
 Chairmen of Parnerships- UK
 Various Bodies
 Derek Higgs….
 Build and publish the actual picture of the status quo
 Lead a debate in business and financial circles
 Make Recommendations
 Terms of Reference

 Determine Non-Eds who are they, how are they appointed,

how can they be widened
 Their independence
 Their effectiveness
 Accountability- their relationship- actual and potential
with institutional investors
 Non- Ed remuneration
 Role of the combined code
 What could be done by individual boards, institutional
investors, strengthen the functioning of executive
directors….
 Additional Review
 Co-ordinating Group on Audit and Accounting Issues-
CGAA to review the UK Audit and Accounting Regime

 Chaired by Sir Robert Smith

 Higgs Review- Process
 3 Researches
 Detailed Study of 2200 UK Listed firms- Size ,
composition and membership of the board and the
committees

 Age/ Gender of Directors

 Data- Hemscott Group

 Higgs- Review Process
 Second- 605 Executive Directors/ Non Executive Directors
and Chairmen were surveyed- Opinion Poll

 Third- Academics from Leeds and the University of

Cambridge – Indepth interviews with 40 directors
representing 350 boards

 Behaviour inside and outside the boardroom

 Consultation Exercise done by Higgs- 250
 Boards are underperforming
 Higgs Recommendation
 Structure of the Board
 Role and Other Commitments of the Chair
 Role of Non- Executive Directors
 Recruitment and Appointment procedures to the board
 Induction and Development of Directors
 Board Tenure
 Remuneration
 Resignation Audit and Remuneration Committees
 Board Liability
 Relationship With Shareholders
 Progress
 Debate / Discussion/ Disagreement……

 Financial Reporting Council- Revised

Draft…….

 Implementation- Nov 2003