Corporate Governance in the UK: Now and Then

Running head: CORPORATE GOVERNANCE IN THE UK: NOW AND THEN
Corporate Governance in the UK: Now and Then
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1CORPORATE GOVERNANCE IN THE UK: NOW AND THEN
Introduction
The word ‘corporate governance’ barely existed 30 years back in the United Kingdom. It
is regarded as the overall framework in which a company work. It is considered as the aspect of a
business that holds the balance between the social and economic aim of a corporation. The
corporate government structure helps to promote the appropriate utilization of the resources and
the optimum results from such resources1. The aim is to align the factors of the resources, like
the human resource, corporation and the society, and derive the benefits from them. The present
UK Corporate Governance Code is not still not regarded as a proper legislation, alike the
previous Combined Code for it was not enacted by the Parliament. The Financial Reporting
Council, which is the committees that represent business and financial interests, passed it. The
Corporate Governance Code is invoked to the companies that are listed on the London Stock
Exchange so that the companies can follow a definite code of conduct for their governance. The
failure to comply with the guidelines of the Code would bring consequences to the enlisted
companies, as they would be show-caused for their non-compliance. The standard of governance
have risen since in its inception in the early 1990s. The paper strives to analyse the evolution of
Corporate Governance and its present effectiveness in the UK.
Development of Corporate Governance in the UK
The concept of Corporate Governance arose in the United Kingdom in the early 1990s
and faced scandalous events that led to its collapse as well. The series of regulatory failures led
Sir Adrian Cadbury form a committee who aimed to review the failed British Corporate
1 Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA, 2015.

2CORPORATE GOVERNANCE IN THE UK: NOW AND THEN
governance system and recommend improvements and changes that would reinstate the
confidence and faith of the investors and financers on the British companies. Sir Adrian Cadbury
put forwarded a foreword to Stijn Claessens’ paper, ‘Corporate Governance and Development’
describing that corporate governance require to ‘align’ the interest of the individuals,
corporations and society; a definition that appropriately resonates in present world of corporate
governance2. The failure of the then corporate governance started in the early 1990s along with
the critical report of Sir Adrian Cadbury, comprising of the financial aspects of what corporate
governance ought to be. The report or the ‘Cadbury Code’ aimed at the companies that were
enlisted under the London Stock Exchange and their corporate ethics and conduct was accepted
by the Stock Exchange and was developed into the Combined Code of Corporate Governance in
1988.
Cadbury Committee
The Cadbury Committee included the Stock Exchange, Accountancy profession and the
Financial Reporting Council. This committee was formed due to the Maxwell scandal where Mr.
Maxwell, the director was held to be insufficient or incapable for the position. When in 1971,
Mr. Maxwell was assigned the position, he did not have a legislation to follow and carry out the
director’s duty or a regulation that would dismiss from the director’s position. The
mismanagement led to the missing for 550 million pounds. Subsequently in the Hampel Report
and the Greenbury Report, the issues of the corporate governance was raised and the committee
placed certain recommendations by citing principles of better governance and not just mere
regulations and guidelines. In 1988, the Cadbury, Hampel and Greenbury Committee reports
altogether formed the backbone of the Combined Code of Corporate Governance. By the year
2 Claessens, Stijn, and Burcin Yurtoglu. Corporate governance and development: an update. World Bank, 2012.

3CORPORATE GOVERNANCE IN THE UK: NOW AND THEN
2003, provisions on payments, internal management, and risk control and auditing was added to
the Combined Code3. The Company Act was enacted around this time, which allowed the
companies to be more flexible for choosing their way of operation. Written directives approved
by the shareholders now acts as an alternative to holding general meetings as earlier, saves time.
Companies could make use of electronic method keep record of its transactions. Sharing and
circulation of resolutions and directives have been easier by way of electronic mail or website,
with the permission of the shareholder.
Walker Report
The banking crisis and the nationalization of certain banks in 2008 made the government
ask Sir David Walker for investing in a separate corporate governance, which made the Financial
Reporting Council revise and amend the Combined Code. They came out with a new version of
the corporate governance regulation and guideline known as the UK Corporate Governance
Code. The Walker Report made 39 recommendations for the new corporate governance code.
Some of which were finally approved to get their place among the Financial Report Council’s
2010 Code of Corporate Governance while the others are still referred to as good example of
better corporate governance. This was a conscious effort to improve and enhance the pre-existing
code for providing a better guideline for the participants of the affairs of the company.
The Polly Peck Scandal
Different board and committee structures were formed, improved internal management
and other effective way to perfect the policies of good governance for the listed public liability
companies. Different individuals, having different job roles, occupied the position of the
3 Spira, Laura F., and Judy Slinn. The cadbury committee: A history. Oxford University Press, 2013.