AANKHI ANWESHA
AMBIKA AGARWAL
AYUSHI JAIN
The Cadbury Committee
The Greenbury Committee
The Hampel Committee
The Committee on the
Financial Aspects of
Corporate GovernanceThe Cadbury Committee
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 Established in May 1991 by the Financial Reporting Council,
the London Stock Exchange, and the accountancy profession.
 Chaired by Adrian Cadbury
 Sets out recommendations on the arrangement of company
boards and accounting systems to mitigate corporate
governance risks and failures.
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 Sir George Adrian Hayhurst Cadbury (15 April
1929 – 3 September 2015) was a British
Olympic rower and Chairman of Cadbury and
Cadbury Schweppes for 24 years.
 He was made a Knight Bachelor in 1977, thereafter
becoming Sir Adrian Cadbury.
 Given the Freedom of the City of Birmingham in
1982
 In 1995 the Royal Society of Arts awarded Sir
Adrian its Albert Medal
 Director of the Bank of England from 1970–94 and
of IBM from 1975–94
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Corporate Governance
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 2.5 Corporate governance is the system by which companies
are directed and controlled. Boards of directors are responsible
for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to
satisfy themselves that an appropriate governance structure is
in place . The responsibilities of the board include setting the
company’s strategic aims, providing the leadership to put them
into effect, supervising the management of the business and
reporting to shareholders on their stewardship. The board’s
actions are subject to laws, regulations and the shareholders in
general meeting.
 2.6 Within that overall framework, the specifically financial
aspects of corporate governance (ihe Committee’s remit) are
the way in which boards set financial policy and oversee its
implementation, including the use of financialcontrols , and the
process: whereby they report on the activities and progress of
the company to the shareholders
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Why?
The spur for the Committee's creation was
an increasing lack of investor confidence in
the honesty and accountability of listed
companies, occasioned in particular by the
sudden financial collapses of two
companies, wallpaper group Coloroll and
Asil Nadir's Polly Peck consortium: neither
of these sudden failures was at all
foreshadowed in their apparently healthy
published accounts.
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 Even as the Committee was getting down to
business, two further scandals shook the
financial world: the collapse of the Bank of
Credit and Commerce International and
exposure of its widespread criminal
practices, and the posthumous discovery of
Robert Maxwell's appropriation of £440m
from his companies' pension funds as the
Maxwell Group filed for bankruptcy in 1992.
 The shockwaves from these two incidents
only heightened the sense of urgency
behind the Committee's work, and ensured
that all eyes would be on its eventual report.
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Comply or explain
Belief that an approach 'based on
compliance with a voluntary code coupled
with disclosure, will prove more effective
than a statutory code'.
The provisions of the Code were given
statutory authority to the extent that the
London Stock Exchange required listed
companies to 'comply or explain'; that is, to
enumerate to what extent they conform to
the Code and, where they do not, state
exactly to what degree and why.

Cadbury Code:
Central Components
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 that there be a clear division of responsibilities at the top,
primarily that the position of Chairman of the Board be
separated from that of Chief Executive, or that there be a
strong independent element on the board;
 that the majority of the Board be comprised of outside
directors;
 that remuneration committees for Board members be
made up in the majority of non-executive directors; and
 that the Board should appoint an Audit Committee
including at least three non-executive directors.
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 The detail of this explanation, and the level of implied
censure on companies which do not adhere to the
Code, have both varied over time, but the basic
'comply or explain' principle has endured over the
intervening years and become the cornerstone of UK
corporate governance practice.
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Greenbury report
1995
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When was the report released?
 The Greenbury Report released in 1995 was the product of
a committee established by the United Kingdom
Confederation of Business and Industry on corporate
governance. It followed in the tradition of the Cadbury Report
and addressed a growing concern about the level of director
remuneration. The modern result of the report is found in the
UK Corporate Governance Code at section D.
Why was the report developed?
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 The Cadbury report reflected the considerable and growing concern regarding the
question of directors’ pay, not least since there are a number of well-recorded instances
where directors, particularly of former nationalized industries continuing to operate in a
virtual monopolistic situation, had awarded themselves substantially increased salaries
and benefits for doing essentially the same job – and lacking the exposure to risk of the
ordinary wealth-creating company. It may of course have been the case that the
previous levels of pay were inappropriate and the revised levels were commensurate
with changed responsibilities and liabilities, but the fact remains that the increases have
seldom been handled appropriately and/or with adequate explanation. I
 n one instance, British Gas announced a massive pay increase for the Managing
Director at the same time as it announced 2,000 redundancies.
 Whilst both decisions may have been correct, the juxtaposition of the announcements
must call into question the quality of management (let alone leadership) of the company
failing to anticipate the demotivation of the workforce as well as the outcry that followed.
 In the UK, like many Western democracies, ‘performers’ in the entertainment business
(including the sporting field) can command very large payments even though they have
relatively little responsibility. Compared with such earnings, the amounts paid to some of
those who control our profit-making companies and create the wealth on which society
depends, and who carry considerable and far greater responsibilities, as well as laying
themselves open to personal liabilities, may not be at all disproportionate. Nevertheless,
in the UK there seems to be a far wider gap between the earnings of those who direct
larger companies and those at the sharp end who carryout their instructions.
 It is not impossible to imagine a situation where a company could
adopt a multiplier which when applied to the earnings of the sharp
end employee would generate the suggested salary
of the Managing
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Director.
 Thus, if the average salary of the shop floor operative was £15,000
and the multiplier was 20, the maximum salary of the MD would be
£300,000. As the ‘worth’ of those on the shop floor rose as a result of
market pressures so too would that of the Managing Director.
 Such a concept need only be a guideline (and there might be some
recognition of the potential personal liabilities that apply to directors
only, which could create a supplement) but divergence from such a
norm would require explanation, which itself would force a greater
and objective justification of top people’s pay – thus satisfying the
principles of transparency and accountability inherent in CG. In the
absence of any such justification, and against the background of the
perceived ‘fat cats’ syndrome, the Government asked Sir Richard
Greenbury to consider rewards being paid to directors. Again, for
practical use, we have incorporated boxes so that the
recommendations of the Greenbury committee can be used as a
checklist. Those wedded to the concept of linking their directors
salaries to ‘world class companies’ might find that an inappropriate
criteria when China becomes the number 1 economy – as it is
expected to do within a generation. Chinese directors’ salaries are
only a fraction of their western counterparts!
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REMUNERATION COMMITTIES
Boards should:
1. Set up remuneration committees of non-executive directors to
determine the pay of executive directors. This committee should
report directly to the shareholders on such matters – by including
details in the Annual Report and by the Chairman of the
remuneration committee attending the AGM, and speaking at it (if
necessary amending the company’s Articles of Association to allow
this).
2. Only truly independent non-executive directors should sit on such
remuneration committees which should be charged with paying ‘the
right amount’. The ‘right amount’ rate of pay was perceived to be a
figure that could be related to comparable companies’ rates.
3. Adopt a balanced approach to incentives and bonus schemes (e.g.
executive share options should not be issued at a discount), which
should always be subject to shareholder approval.
4. Limit directors’ service contracts to one year’s duration. A robust
line should be taken if performance was poor.
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Disclosure and Approval
Provisions
1.
2.
3.
4.
The remuneration committee should report direct to the
members each year and this would be their main means of
accountability.
The Annual Report should set out the policy on remuneration
with details of the make-up of packages and inter-firm
comparisons.
The report should include full details of each element of the
directors’ remuneration packages including pension
(particularly if any incentives were to be treated as being
pensionable) and long term incentives.
Reasons for service contracts lasting more than one year
should be given.
The Remuneration and Contracts
Policy
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Remuneration committees are required to:
1. Set payments ‘just right’ (easy to state but perhaps anything but
easy to determine) when paced against other companies in similar
industries.
2. Ensure that directors’ pay rates are ‘sensitive’ both within the
company and outside. (Use of the multiplier referred to above
might satisfy this requirement.)
3. Ensure any performance-related elements in directors’ pay are
aligned with members’ interests.
4. Impose caps on very high bonus payments.
5. Remuneration, particularly incentive schemes, should be part of a
long term strategy with targets ‘stretching’ performance (i.e.
schemes that were not sinecures and would not automatically
guarantee large increases).
6.
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Phase in share option schemes and such like(c)rather
than awarding
them in a lump – and never at a discount.
7. Consider the pension implications of remuneration awards,
particularly to directors close to retirement.
8. Consider the effects of early termination of contracts, particularly
for unsatisfactory performance.
9. Award contracts of service ideally for one year or less, occasionally
for two years, seldom for longer.
10. Tailor the approach to early retirement to give principled award
11. Take a robust line when performance has been poor.
12. Where a contract has been terminated, ensure that compensation
is staged, rather than paid in one lump sum. It should also cease
once a new appointment has been gained
Why Hampel Committee was set up?
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The Hampel Report in 1998 was
designed to be a revision of the
corporate governance system in the
UK. The Report aimed to combine,
harmonize and clarify the Cadbury
and Greenbury recommendations.
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Corporate Governance
•The importance of corporate governance lies in
its contribution, both for business prosperity and
for accountability.
•Good governance ensures that constituencies
(stakeholders) with a relevant interest in the
company’s business are fully taken into account.
•Business prosperity cannot be commanded.
People, teamwork, leadership, enterprise,
experience and skills are what really produce
prosperity.
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The Board: Every listed company should
be headed by an effective board which
should lead and control the company.
Chairman and Chief Executive Officer:
There are two key tasks at the top of every
company - the running of the board and the
executive responsibility for the running of
the company’s business.
Board Balance: The board should include a
balance of executive directors and non-executive
directors.
Appointments to the Board: There should be a
formal and transparent procedure for the
appointment of new directors to the board.
Supply of Information: The board should be
supplied in timely fashion with information in a
form and of a quality appropriate to enable it to
discharge its duties.
Re-election: All directors should be required to
submit themselves for re-election at regular
intervals and at least every three years.
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 The Level and Make-up of Remuneration:
Levels of remuneration should be sufficient to attract and retain the
directors needed to run the company successfully. Remuneration
should be structured so as to link rewards to corporate and individual
performance.
 Procedure: Companies should establish a formal and
transparent procedure for developing policy executive remuneration
and for fixing the remuneration packages of individual executive
directors.
 Disclosure: The company’s annual report should contain
a statement of remuneration policy and details of
the remuneration of each director.
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 Shareholders have a responsibility to make considered use of their
votes.
 Companies and institutional shareholders should be ready, where to
enter into a dialogue based on the mutual understanding of
objectives.
 Companies should use the AGM to communicate with private
investors and encourage their participation.
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Duties: The basic legal duties of directors is to act in
good faith in the interests of the company and for a
purpose .These are derived from common law and
are common to all directors.
Supply of Information: Management has an
obligation to ensure an appropriate supply of
information. Chairman has a particular responsibility
to ensure that all directors are properly briefed on
issues arising at board meetings.
Training: Directors should receive training from time
to time on relevant new laws and regulations and
changing commercial risks.
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 Financial Reporting: The board should present a balanced and
understandable assessment of the company’s position and
prospects.
 Internal Control: The board should maintain a sound system of
internal control to safeguard shareholders investment and the
company’s assets.
 Relationship with the Auditors: The board should establish formal
and transparent arrangements for maintaining an appropriate
relationship with the company’s auditors.
 External Auditors: The external auditors should independently
report to shareholders in accordance with statutory and professional
requirements and independently assure the board on the discharge
of its responsibilities.