Background, Code of best practices and major recommmendations

1. BY:
121170 –
JASKIRAT SINGH
121178-
DEVYANI JAIN

3. To look into the financial aspects of corporate
governance , in 1991, THE BANK OF ENGLAND and
the LONDON STOCK EXCHANGE constituted a
committee under the chairmanship of
SIR ADRIAN CADBURY

4. SIR ADRIAN CADBURY
 SIR GEORGE ADRIAN HAYHURST
CADBURY is a former British
Olympic rower
 Chairman of Cadbury and Cadbury
Schweppes for 24 years.
 He was a Director of the Bank of
England from 1970–94 and
of IBM from 1975–94.
 In recognition of his contribution to
commerce, corporate governance
and public life, Sir Adrian has
received honorary degrees from
many universities.
 He has also been conferred with
various awards including ALBERT
MEDAL and INTERNATIONAL
CORPORATE GOVERNANCE AWARDS.

5. ‘CODE OF BEST PRACTICE’
 The committee’s focus was on control and reporting functions of the
board of directors.
 Committee published its report in December 1992, which contained a
code of corporate governance.
 This code was known as :
THE BOARD
OF
DIRECTORS
NON-
EXECUTIVE
DIRECTORS
EXECUTIVE
DIRECTORS
REPORTING
AND
CONTROLS

6. • The board should meet regularly, retain full and effective
control over the company and monitor the executive
management.
Regular meetings and full control.
• There should be a clearly accepted division of
responsibilities at the head of company, which will ensure a
balance of power and authority, such that no one individual
has unfettered powers of decision.
Clearly accepted division of
responsibilities
• The board should include non- executive directors of
sufficient calibre and number for their view to carry
significant weight in the board’s decisions.
Include non-executive directors

7. • The board should have a formal schedule of matters specifically
reserved to it for decisions to ensure that the direction and control
of the company is firmly in its hands.
Formal schedule of matters specifically reserved to it
• There should be an agreed procedure for directors in the
furtherance of their duties to take independent professional advice
if necessary, at the company’s expenses.
Agreed procedure for directors to take independent
professional advice
• All directors should have access to ‘the advice and services of the
company secretary, who is responsible to the board for ensuring that
board procedures are followed and that applicable rules and
regulations are complied with.
• Any question of the removal of the company secretary should be a
matter for the board as a whole.
Access to the advice and services of the company
secretary

8. •Non-executive directors should bring an independent judgement
to bear on issues of strategy, performance, resources, including
key appointments, and standards of conduct.
Independent
judgement
•The majority should be independent of management and free
from any business or other relationship which could materially
interfere with the exercise of their independent judgement,
apart from their fees and shareholding.
•Their fees should reflect the time which they commit to the
company.
Independent of
management and
free from business
relationship
•Non-executive directors should be appointed for specific term.
•Reappointment should not be automatic.Specific term

9. • Non-executive directors should be
selected through a formal process and
both this process and their
appointment should be a matter for the
board as a whole.
Selection
through
formal
process

10. • They should not exceed three years without the shareholders’
approval.
Director’s Service Contracts
• The salary or fees of the directors should be properly disclosed
including pension contribution and those of the chairman as well.
Full and Clear disclosure of emoluments
• The pay of the executive directors’ should be subject to the
recommendations of the remuneration committee made up of
non-executive directors.
Pay subject to remuneration committee

11. Duty to present a balanced and understandable assessment of company’s
position.
Ensure objective and professional relationship with the auditors.
Establish a audit committee which deal clearly with its authority and duties.
Explaining responsibility by directors next to the auditor’s statement of their
reporting responsibilities.
Report on the effectiveness of the ccompany’s internal control system by the
directors.
Report with supporting assumptions about the business going concern.

13.  Single person should not be vested with all the powers
 Majority of non-executive directors should be independent
of management i.e. they should not have any financial
interests.
 Non-executive directors should be appointed for specified
terms.
 Service contracts should not exceed 3 years.
 A remuneration committee comprising majorly of non-
executive directors should decide on the pay of executive
directors.
 The interim company report should give the balance sheet
information and reviewed by the auditor.
 Regular rotation of auditors.