Tutorial week 3

The UK Corporate Governance Code

 • The Bank of Credit and Commerce International (BCCI) in
1991 investigations revealed that it was involved in massive
The 1990s: A money laundering and other financial crimes. Customs and
bank regulators in seven countries raided and locked down
storm is records of its branch offices
• Polly Peck International (PPI) was a British company which
brewing in the expanded rapidly in the 1980s and became a constituent of
the FTSE100 Index before collapsing in 1991 with debts of
City of £1.3bn, eventually leading to the flight of its CEO.
• Robert Maxwell, the owner of huge media and publishing
London! empire, was blamed for a fraudulent misappropriation of the
Mirror Group pension funds. After his death in 1991, huge
discrepancies in his companies' finances were revealed. The
Maxwell companies applied for bankruptcy protection in 1992.
• City of London investors called for a regulatory action aimed at
improving governance of UK companies.
• The Government needed to act, but what needs to be
done???
 Commissioned to, and produced by, Sir Adrian Cadbury, CEO of
Cadbury Schweppes

Cadbury was established in England in 1824, by John Cadbury, a

Quaker

The 1992 Developed the Bournville estate, a model village designed to give
the company's workers improved living conditions.
Cadbury
Key suggestions of the report:
Report
• the CEO and Chairman of companies should be separated ensuring a balance of
power
• boards should have at least three non-executive directors, two of whom should
have no financial or personal ties to executives
• each board should have an audit committee composed of non-executive
directors

The first ever CG Code was born!

 In 1994, the Cadbury Report’s principles were appended to the LSE’s
Listing Rules, and it was stipulated that companies need not comply
with the principles but had to explain to the stock market why not if
they did not.
The UK Code
of “Good In July 1995 the Greenbury (Chair of M&S) Report was published
focused on executive remuneration. This recommended some
further changes to the existing principles in the Cadbury Code:
Corporate
• each board should have a remuneration committee composed without executive
Governance” directors
• directors should have long term performance related pay, which should be disclosed
in the company accounts and contracts renewable each year

1998 Hampel (Chair of ICI) Report suggested that all the Cadbury
and Greenbury principles be consolidated into a "Combined Code". It
also added that

• institutional investors should consider voting the shares they held at meetings
• all kinds of remuneration including pensions should be disclosed.
The UK Code is still very
much work in progress!
Task for What are the key foundations of
Tutorial an “effective corporate
governance framework”?
Week 3:
The UK
Corporate Why and how interests of
Governance stakeholders should be recognised
in an “effective corporate
Code governance framework”?