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Investors and the public at large are driving policy change in the wake of the global financial crisis which has revealed far too many shortcomings in corporate governance practice. This article examines the development of corporate governance policy in the UK and Ireland which has, until recently, been closely aligned, and explores the way forward which sees a divergence in approach to ensuring good governance.
Almost twenty years ago, Sir Adrian Cadbury (1992) defined corporate governance as 'the system by which companies are directed and controlled'.1 As such corporate governance is typically found to be wanting when corporations fail. Corporate governance problems are not new; they have been experienced by many companies since companies were first formed and ownership and control was separated.
The term 'corporate governance' came into vogue in the UK after Sir Adrian Cadbury investigated the governing practices within public quoted companies in 1991/2. This investigation was commissioned by the London Stock Exchange (LSE) after Robert Maxwell's alleged misappropriation of funds from the Mirror Group's Pension Fund (of over £400 million). The LSE was rightly concerned as one of its aims is to provide a secure trading platform for traders. Stock exchanges make their profits from trades. Investors will undertake more trades if they are more confident about the management, financial standing and quality of reporting of the companies that are listed. However, even after all the recommendations suggested by Cadbury (1992) had been reported as implemented by listed companies, failures continued. High-profile unexpected failures were occurring across the globe and included the collapse of Barings Bank (1995), Enron (2001), Nortel (2001), Worldcom (2002) and Parmalat (2003).
Pre-financial crisis corporate failures
UK response
The failures led to a flurry of investigation and scrutiny of corporate governance practices funded by the LSE, the accounting bodies and the British Government. The findings were typically published in reports and, though not legally binding, compames were advised to comply with them. Indeed, the LSE requires listed companies (on the Main Market) to disclose compliance with the Governance Recommendations and where this does not occur they are required to provide an explanation.
Published reports on corporate governance include:
* The Rutteman Report (1994);
* The Greenbury Report (1995);
* The Hampel Report (1998);
* The...