Corporate governance - Essay Example

Many efforts were made to facilitate governance mechanisms. These are introduced by the law “relating to directors’ duties, supervision via non-executive directors, executive compensation agreements, managerial labour markets that respond to past performance, the market for corporate control, discipline exercised by creditors, and competitive product markets”. (Armour, Deakin & Konzelmann, 2003) The mutual result of the Report of Cadbury Committee (1992), the Greenbury Committee (1995) and the Hampel Committee (1997) was the Combined Code.

The Code is voluntary. However companies are required to report compliance with the code or explain the reason why this compliance is not possible. The Code includes a number of principles which serve the ground for the measurement of governance practices of companies. The principles highlight the importance of non-executive directors and independent directors for supervision of executives. Other principle recommendations are separation of chairman and CEO positions with the board chairman monitoring the performance of management; functioning of audit committee with each board.

(Black et.al., 1994) Along with these principles the code highlighted the importance of automatic re-election of directors at least every three years, remuneration and audit with a major role in each case for non-executive and independent directors and the disclosure to shareholders of policy concerning remuneration and of service contracts. (Armour, Deakin & Konzelmann, 2003) Committees recommendations are supported by key institutions - the Bank of England, the Confederation of British Industry, and the London Stock Exchange.

That’s why the Combined Code proved to be effective in provision of high level of compliance. For example, in 1999 PIRC found that 87% of their sample of listed UK companies had separated the roles of Chairman and CEO, and 93% had