In the late 1980s and early 1990s there were a series of scandalous collapse of several prominent UK companies. The reasons being weak control and governance over the working of the management board and the main reason was the power and authority vested in the hands of a single person. In December 1992, the Cadbury Committee published the Code of Best Practice(hereafter, the Code) which recommended that Boards of publicly-traded UK corporations include at least three outside directors and that the positions of the Chairman and Chief executive Officer not to be held by a single individual. The purpose of this kind of separation is to enhance corporate performance and to avoid misuse of power and authority. In this essay the author discusses the effects of the Cadbury Committee on Corporate Governance and whether the split in the roles of CEO and Chairman according the Committee recommendations has increased or decreased the efficiency of companies.
1. It is mentioned in various research reports that the Code has definitely increased the general awareness of good corporate governance and it has caused several changes in the governance of companies. Mainly, the presence of independent directors on the Board has definitely increased the performance of a company.
3. Another effect is that it has induced the turnover of top level managers in companies after the recommendations were implemented. In a study by Jay Dahya and John J. McConnell, it is evident that the implementation of the recommendations of the committee has increased the turnover of top level executives in companies in UK. This turnover of top-level executives can be voluntary and forced. But the turnover of the executives and the performance of the company shows a direct correlation. This study is very significant to show how the composition of the Board of Directors can cause a change in the performance of a company.
4. Mostly the Code mentions only recommendations voluntary measures. It is upto the necessity and discretion of the companies to implement the recommendations. But the London Stock Exchange has made it mandatory for all the Companies to comply with the Code. This step by the London stock exchange is an evidence about the credibility of the recommendations in itself. These recommendations when implemented by all the listed companies will definitely have a change in corporate governance across UK.
5. Generally, the quality of corporate governance can be measured by the flow of information inside the company. When outsiders are more in the Board of management and the CEO and the Chairmen posts are held by two different people, then there are more chances that information will be available to the shareholders. This availability of information is a cyclic process in improving the efficiency of an organization. If information is available freely the shareholders will have better idea about what is happening inside the Board. This information can play
Corporate governance is the way in which the affairs of a company are regulated and governed. It plays a very vital role in a span of activities from setting of corporate objectives to running day to day operations. It is very significant in increasing the value of the shareholders' investment and safeguarding the interests of the stakeholders…
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8 pages (2000 words)Essay
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