ETHICS & CORPORATE

GOVERNANCE
BM055-3-2

Cadbury Committee

Learning Outcomes
1. Appreciate the relevance and practical
application of business and professional
ethics in the working world;
2. Explain how corporate social
responsibility and corporate governance
relate to ethics;
3. Highlight the main ethical issues
relating to the natural environment.
Module Code and Module Title

Title of Slides

 4. Recognise ethical issues and propose

solutions to these issues.
5. Convey an enhanced awareness of the
role of business and professional ethics in
financial reporting;

Module Code and Module Title

Title of Slides

Cadbury Report
The Cadbury Committee issued a range of
recommendations for good corporate
governance in a Code of Best Practice.
Many of these recommendations applied
to UK listed companies were aimed at
improving financial reporting, the
effectiveness of the board, the rights of
directors in getting information & their
accessibility to information particularly to
the services of the company secretary
Module Code and Module Title

Title of Slides

 The Code should be voluntary but

companies would be required to explian in
their annual reports and accounts the
extent to which they had complied with the
Code and the reasons for any noncompliance. It was also suggested that
external auditors should be asked to
review this statement of compliance as
part of their annual report to shareholders

Module Code and Module Title

Title of Slides

 London Stock Exchange introduced a

requirement into its listing rules that listed
companies should include such as
statement of compliance or noncompliance in their annual report and
accounts. Institutional investors and
investment banks also brought pressure
on companies to adopt the Cadbury Code
recommendations and many London
Stock Exchange companies changed their
conduct in compliance.
Module Code and Module Title

Title of Slides

Major provisions of the Cadbury

Code
BOD-that the control over the company
should be exercised collectively by the
board of directors as a whole. There
should be no domination of the board by
any single individual, such as the chief
executive officer, chairman or by a small
group of executive directors. It would be
necessary for the board to meet regularly

Module Code and Module Title

Title of Slides

 The Chief Executive and the Chairman

- separating the powers of the CEO & the
chairman of the board, the Code argued
the importance of separation of such
positions so that the same person did not
carry out the functions of chief executive
who is in charge of the executive mngt &
bus. operational matters. The chairman of
the board is responsible for leading the
board of directors in decision and policy
making.
Module Code and Module Title

Title of Slides

Independent Director
The Code made specific
recommendations that non-executive
directors should bring independent
judgment and experience to the
deliberation of the board that executive
directors on their own may lack.
Executive directors service contracts and
remuneration, the Code recommended
that this be disclosed in the annual reports
and accounts
Module Code and Module Title

Title of Slides

Enhancement of Audit Committee

communicate with both the internal audit
department and the external auditors on
issues pertaining to the review of the
interim and annual financial statements
before submission to the board for their
approval and tabling before shareholders
at the annual general meeting. The audit
committee should include at least three
non-executive directors and should have
written terms of reference and their
functions explicitly expressed.
Module Code and Module Title

Title of Slides

 the Cadbury Committee viewed that audit

committee is the key board committee that
should review Financial Reporting and Audit
The financial reports and statement of accounts
should be reviewed by the audit committee
which has the task of communicating with both
the internal and external auditors

Module Code and Module Title

Title of Slides

 The board is to be responsible to present

a balanced and understandable
assessment of the companys financial
position to the shareholders. And also to
include in the annual accounts and report
a statement about the companys ability to
continue as a going concern.

Module Code and Module Title

Title of Slides

 The Cadbury Committee also expressed

the view that the board should be
responsible for the entire system of
internal control in the company and
therefore accountable to the shareholders
for risk management generally, not just the
quality of financial reporting and financial
controls.

Module Code and Module Title

Title of Slides