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Reasons for Cadbury Code When the company is doing well, the investors usually do not spend much time thinking about corporate procedures. However, in the bad times everyone wonders how they could have ignored commonsense checks and balances. The Committee on the Financial Aspects of Corporate Governance, chaired by Sir Adrian Cadbury, carried out a code which will help to increase the efficiency of the companies with the proposals advising how to contribute positively to the promotion of good corporate governance (i. e. , system by which companies are directed and controlled) as a whole. By adhering to the Code, listed companies will strengthen their control over their businesses, clarify responsibilities of directors and therefore their public accountability. The London Stock Exchange requires that all listed companies registered in UK to state whether they are complying with the Code and give reasons if not.
This will enable the shareholders to know where the companies stand in relation to the Code. The Committee's recommendations All parties concerned with corporate governance should use their influence to encourage compliance with the Code Role of directors (i) Board of Directors The board of directors should meet regularly, retain control over the company and monitor the executive management. The responsibilities should be divided, which will ensure a balance of power and authority, such that no one has unfettered power of decision. Where the chairman is also the chief executive, it is essential that there should be a strong and independent element on board, with a recognized senior member.
The board should include non-executive directors for their views, it should have a formal schedule of matters to ensure that the direction and control of the company is done. 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 expense. All directors should be able to get advice from the company secretary, who is responsible to the board for ensuring that board procedures are followed and rules and regulations are complied with. Removal of secretary should be a matter for the board as a whole. (ii) Non-Executive Directors Non-executive directors should bring independent judgment of strategy, performance, resources, etc.
The majority should be independent of management and business or other relationship which could interfere with the judgment. Their fees should reflect the time which they commit to the company. Non-executive directors should be appointed for specified terms and reappointment should not be automatic. They should be selected formally by a board. (iii) Executive Directors Directors should report on the effectiveness of their system of internal control, the directors's ervice contracts should not exceed three years without shareholders' approval. There should be full and clear disclosure of directors' pay and those of the chairman and highest-paid UK director, including pension contributions and stock options. Separate figures should be given for salary and performance elements and the basis on which performance is measured should be explained.
Executive directors' pay should be subject to the recommendations of a remuneration committee made up wholly or mainly of non-executive directors. (iv) Reporting and Controls Directors should state in the report and accounts that the business is a going concern, with supporting assumptions or qualifications as necessary, and the auditors should report on this statement. The question of legislation to support the recommendations on additional reports on internal control systems and going concern should be decided in the light of experience. The balanced and understandable assessment of the company's position should be presented. The board should ensure that an objective and professional relationship is maintained with the auditors and establish an audit committee of at least 3 non-executive directors. The directors should explain their responsibility for preparing the accounts next to a statement by the auditors about their reporting responsibilities. They should report on the effectiveness of the company's system of internal control.
Role of Auditors There is the obligation set by the London Stock Exchange that listed companies should make statement of compliance and have it reviewed by the auditors before publication. The review should cover only those parts of the compliance statement which relate to provisions of the Code where compliance can be objectively verified. The auditors should not be required to report if they are satisfied, however, if they identify an area of non-compliance, they should comment on it in their report on the financial statement. The recommendation is that the Auditing Practices Board should consider guidance for auditors accordingly. Companies should include also balance sheet in their interim reports. These reports should be reviewed by the auditors and the Auditing Practices Board should develop appropriate guidance and clarify the accounting rules which companies should follow.
The inclusion of cash flow should be considered. The code recommends that all listed companies should establish an Audit Committee membership should be confined to non-executive directors a majority of who should be independent. It is emphasized however that the ultimate responsibility of the board for reviewing and approving the annual report and accounts and the half-year accounts remains undiminished by the appointment of an Audit Committee. Fees paid to audit firms for non-audit work should be fully disclosed.
The disclosure should enable the assessment of the company's audit and non-audit fees. The 1991 Regulations under the Companies Act should be reviewed. Auditors should have the possibility to freely report reasonable suspicion of fraud (government legislation). There are problems with ensuring objectivity and effectiveness of auditors and also lack of understanding of the auditors role.
However steps have been taken to strengthen the audit system through the Financial Reporting Council and its associated bodies. All auditors should satisfy a supervisory body and be subject to regular monitoring. The Audit Committee is responsible for: Reviewing and advising the Council's Accounting Officer, and through him, the Board on: i. The procedures and processes for ensuring the effectiveness of the financial and other control systems - including those for ensuring the proper protection of assets - within the Council itself and institutions. ii.
The scope and effectiveness of the work carried out by the Council's Audit Service, including value for money studies. In this respect the committee will be concerned with the planning, operation and follow-up work arising from the Council Audit Service's annual report. iii. The criteria for the selection and appointment of the Council's audit service, including assessing the adequacy of the resources available for the work required.
iv. Any reports from the National Audit Office and the DfEE Audit Service, including the response to any Management Letters. v. The remuneration of the National Audit Office for the audit work undertaken on the Council's annual accounts. Providing advice to the Board on such financial issues as the Board requests from time to time. Providing an annual report of the Committee's work to the Board.
The Audit Committee is authorized by the Board to: Investigate any activity within its terms of reference. It is authorized to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. b. Obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. Marks & Spencer Corporate Governance As per the annual report of 2001 Marks & Spencer is committed to high standards of corporate governance and has applied the Combined Code principles. The Board of Directors comprises of 12 directors, from that 7 are non-executive. (Note: Accomplished the Code requirement of at least 3 non-executives in the board).
Since September 2000 Mr. Luc Vandevelde has he...
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Research essay sample on Marks And Spencer Compliance With The Cadbury Code
