The simplest and most concise definition of corporate governancewas provided by the Cadbury Report in 1992, which stated: “Corporate governance is the system by whichcompanies are directed and controlled.
” This definition explainsthe nature of corporate governance and the important role that organisationalleaders must play for implementing effective practices. These leaders are thedirectors, who decide the long term strategy of the business to achieve theinterests of the owners(shareholders) and in broader sense, stakeholders, suchas suppliers, customers, creditors, the society and regulators. Hence, boar ofdirectors are responsible for the gover The effectiveness of corporategovernance can be assessed through compliance of UK corporate governance codeand practices by a company. However, being fully compliant does not necessarilyguarantee that company is following sound core governance practices.
This canbe found through scandal of Bernie Madoff- Ponzie Investment schemes, Enronscandal and UK Cadbury report. Such fraud takes place because of concentrationof power in one person and improper board structure which leads to problems ofconflict of interest and information asymmetry. The Uk corporategovernance code says that; “The board and its committees should consist ofdirectors with the appropriate balance of skills, knowledge, independence andexperience of the company to enable it to discharge its duties and responsibilitieseffectively”. In context of this, theprovision states that the board should be formed of both executive andnon-executive directors so that no individual or small group can dominate itsdecision-taking.
At least half of the borax excluding the chairman should beindependent non-executive directors. For example, a board ofnine, should have at least four independent non-executive directors to balancefour executives, with the ninth director being chairman. However, for smallercompanies ( a company outside the FTSE 350) are recommended to have at leasttwo independent non-executive directors.
But, these provisions andprinciples are only for guidance; a company requires to provide explanation ifthey want to exclude non-executive directors from their board of directorscommittee, as per the UK code. Moreover, executive and non-executive andchairman are all members of the single decision making board of a UK company.The UK corporate governance code still follows the unitary board. Conflict of Interest: