Cadbury& Hampel Report - 8

CORPORATE GOVERNANCE
Cadbury Report, 1992

Hampel Report, 1998
Sarbanes- Oxley (SOX) Act, 2002
DR. POONAM KAUSHAL

A S S I S TA N T P R O F E S S O R
I C FA I B U S I N E S S S C H O O L
Cadbury committee Report
The Cadbury Committee was set-up in May 1991 by the Financial

Reporting Council of the London Stock Exchange.
The committee published its report in December 1992.
Sir Adrian Cadbury the chairman of the Cadbury committee.
The report sets out recommendations on the arrangement of

company boards and accounting systems to mitigate corporate
governance risks and failures.
CADBURY COMMITTEE REPORT
 The report was mainly divided into three parts:-

1. Reviewing the structure and responsibilities of Boards of Directors
and recommending a Code of Best Practice
2. Considering the role of Auditors and addressing a number of

recommendations to the Accountancy Profession
3. Dealing with the Rights and Responsibilities of Shareholders

• Reviewing the structure and responsibilities of Boards of Directors

and recommending a Code of Best Practice
• 1. Board of directors:
meet regularly, retain full and effective control over the company and
monitor the executive management
balance of power and authority
• 2. Non-Executive Directors
independent judgment
independent of management and free from any business
• 3. Executive Directors
full and clear disclosure of directors’ total emoluments
• 4. Financial Reporting and Controls

a balanced and understandable assessment of their company’s position
should ensure that an objective and professional relationship is maintained with the
auditors
• Considering the role of Auditors and addressing a number of

recommendations to the Accountancy Profession
 external and objective check
 professional and objective relationship between the board of directors
and auditors should be maintained
 regular rotation of audit partners to prevent unhealthy relationship
• Accountancy Profession should take the lead in:-

(i) developing a set of criteria for assessing effectiveness;
(ii) developing guidance for companies on the form in which directors
should report; and
(iii)developing guidance for auditors on relevant audit procedures and the
form in which auditors should report.
Dealing with the Rights and Responsibilities of Shareholders

• elect the directors to run the business on their behalf
• appoint the auditors to provide an external check
• Committee's report places particular emphasis on the need for fair
and accurate reporting of a company's progress to its shareholders
• to make greater use of their voting rights and take positive interest in
the board functioning
• effectiveness of general meetings could be increased
⦿ A single person should not be vested with the decision
making power.
⦿ The Non-executive directors should act

independently.
⦿ A majority of directors should be independent non-

executive directors.
⦿ The term of the Directors can be extended beyond three

years only after the prior approval of the shareholders.
⦿ A remuneration committee with majority of non- executive
directors should decide on the pay of the executive directors.
⦿ The interim company report should give the balance sheet

information and reviewed by the auditor.
⦿ The information regarding the audit fee should be made public

and there should be regular rotation of the auditors.
⦿ An objective and professional relationship with the auditors must
be ensured.
⦿ It must be reported that a business is a growing concern.

CADBURY REPORT, 1992 (CONT.)
• The report covered three areas
– Directors
• It defined the composition of the board, its responsibilities, and the
responsibilities of the chairman, and the audit and remuneration
committees.
– Auditing
– Shareholders ‘Fat cats’

GREENBURY REPORT, 1995
• ‘Fat cats’
– Continued public concern over several incidences of exorbitant
directors’ remuneration
• ‘Especially to departing directors and to the directors of privatised utilities,
at a time when prices were rising, pay was being restrained and staff made
redundant’ Steele, 1999
• Particularly, British Gas, 1995
• Objective to set up a Code of Practice for directors’
remuneration
HAMPEL REPORT, 1998 The bank collapsed
in 1995 after
• Continued public concern over corporate suffering losses of
£827 million (£1.6
failures billion in 2020)[2]
– Notably that of Barings Bank, 1995 resulting from
fraudulent
• The Hampel Committee investments,
primarily in
– The intention was to ‘combine, harmonise and futures contracts,
clarify’ the Cadbury and Greenbury conducted by its
employee Nick
recommendations and create an overall code of Leeson, working at
corporate governance its office in
Singapore
• Issue of a revised and extended ‘Combined
Code’, 1998
HAMPEL REPORT, 1998 (CONT.)
• More extensive, covering…
– Board performance
– Disclosure of information
– Remuneration
– Role of the audit committee
– Training
– Role of the nomination committee
– Conduct of AGM’s
– Role of the remuneration committee
– Roles of chairman and chief executive
– Directors’ contracts
• Key elements incorporated in the Stock Exchange Rules (1998)
Hampel Report, 1998 (cont.)
• It also underlined the voluntary, ‘principles- based’

approach as a key element
• Refocused the emphasis on accountability primarily to
the shareholders, then to other stakeholders
HAMPEL REPORT, 1998 (CONT.)
• The report covered two areas
1. Principles
– Directors
– Directors’ remuneration
– Relations with shareholders
– Accountability and audit
2. Institutional shareholder provisions
• The ‘Codes’ issued after Hampel’s are mainly
modifications of the basic Cadbury- Greebury-Hampel
model

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CORPORATE GOVERNANCE

Cadbury Report, 1992

DR. POONAM KAUSHAL

The Cadbury Committee was set-up in May 1991 by the Financial

Sir Adrian Cadbury the chairman of the Cadbury committee.

The report sets out recommendations on the arrangement of

 The report was mainly divided into three parts:-

2. Considering the role of Auditors and addressing a number of

3. Dealing with the Rights and Responsibilities of Shareholders

• Reviewing the structure and responsibilities of Boards of Directors

• 4. Financial Reporting and Controls

• Considering the role of Auditors and addressing a number of

• Accountancy Profession should take the lead in:-

Dealing with the Rights and Responsibilities of Shareholders

⦿ The Non-executive directors should act

⦿ A majority of directors should be independent non-

⦿ The term of the Directors can be extended beyond three

⦿ The interim company report should give the balance sheet

⦿ The information regarding the audit fee should be made public

⦿ It must be reported that a business is a growing concern.

– Shareholders ‘Fat cats’

• It also underlined the voluntary, ‘principles- based’

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