corporate governance/CSR

Question 1

What is corporate governance

Answer 1

It relates to the mechanisms or methods that
are used to ensure that directors run
companies properly.

Question 2

Separation of Ownership and Control

Answer 2

The Great Depression of the late 1920’s was the first time
that the US government became concerned about the
issue of separation of ownership and control within large
companies.
 The US government commissioned Berle and Means to
investigate the problems.
 Berle and Means produced their report in 1932.

Question 3

Berle and Means

Answer 3

The work of Berle and Means was very significant as they
showed that vast sums of money were being invested in
companies by shareholders who were seeking a profit.
However, those shareholders were not exerting any control
over the running of those companies.
Following the report of Berle and Means in 1932, the US
Government established the Securities and Exchange
Commission.

Question 4

Various Corporate Scandals

Answer 4

Over the years there have been numerous
corporate scandals.
 Eg Enron and Worldcom

Question 5

Developments in the UK

Answer 5

n the UK a number of committees have
considered the best ways to ensure that
mechanisms are put in place to ensure that
directors conduct the affairs of companies
responsibly.
 Scandals of our own include Polly Peck
investors defrauding

Question 6

Cadbury Committee Recommendations

Answer 6

The Committee recommended that major
transactions should be conducted by the
board of directors rather than by a single
director.
 The role of the Managing Director and the
Chairman of the Board of Directors should not
be combined.
 The main board should have Non-Executive
Directors (NEDs)

Question 7

Greenbury Committee

Answer 7

1995 following scandals relating to corporate
directors’ pay.
 Recommended greater control and
accountability including better use of
remuneration committees.

Question 8

The Hampel Committee

Answer 8

This followed on from the work of the
Cadbury Committee.
 It led to further development of Non-
Executive Directors
 Its recommendations and those of the
Cadbury Committee became known as “The
Combined Code”

Question 9

The UK Corporate Governance Code

Answer 9

This was issued in 2010 by the FRC (Financial Reporting
Council)
 Newest Code: UK Corporate Governance Code 2018
 https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-
95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FI
NAL.pdf
 It applies to premium listed companies
 Although it is a “code” and not law, the listing rules require
that companies report on how they have complied with it.