Cadbury report

'The Cadbury Report, titled Financial Aspects of Corporate Governance, is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992. The report's recommendations have been adopted in varying degree by the Europian Union, the United States, the World Bank, and others.' This is the definition that Wikipedia gave which I don't understand a single bit.



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The Cadbury Report, is a report, which gives a recommendation on the arrangement of company boards and accounting systems, to reduce corporate governance risks and failures. It is titled Financial Aspects of Corporate Governance and was published in 1992. Many large organizations such as the Europian Union, the United States and the World Bank has made use of some of the recommendations.

The committee, chaired by Sir Adrian Cadbury, to write the report, was established in response to the occurrence of financial scandals in the 1980’s involving UK listed Companies, which led to a fall in investor confidence in the quality of company’s financial reporting. Their aims were to investigate the British corporate governance system and to suggest improvements to restore investor confidence in the system.

The Committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession. The report embodied recommendations based on practical experiences and with an eye on the US experience, further elaborated after a process of consultation and widely accepted. The final report was released in December 1992 and then applied to listed companies reporting their accounts after 30th June 1993.

As such the Committee addressed the financial aspects of corporate governance and subsequently produced a Code of Best Practice which all boards of UK listed companies should follow. They recommended that listed companies should incorporate a formal statement into their Report and Accounts outlining whether or not they complied with each of the Code’s provisions. A reason is to be given if they do not comply. The Report also recommended that the compliance statements made by the companies be reviewed by auditors before releasing their Annual Report.

The key focus of the provisions of the Code of Best Practice relates to the composition of the Board of Director’s, the appointment and independence of non-executive directors, the service contracts and remuneration of executive directors, and company’s financial reporting and controls.

Some of the main recommendations made are as follows:
• The majority of non-executive directors should be independent of management and free from any business or other relationship;
• non-executive directors should be appointed for specified terms;
• service contracts should not exceed three years;
• executive remuneration should be subject to the recommendations of a Remuneration Committee made up entirely or mainly of non-executive directors; and
• an Audit Committee, comprising of at least three non-executive’s, should be established.

Following publication of the Code, the London Stock Exchange introduced a requirement into the Listing Rules requesting all companies to include a statement of compliance, or non-compliance, with the provisions, in their annual Report and Accounts. Furthermore, institutional investors and Investment banks urged those listed companies for which they provided sponsorship and advice to adopt the provisions. As a result many companies changed their governance procedures and conduct accordingly.