Preventing corporate failure: the Cadbury Committee’s corporate governance report

Abstract

Describes the 19‐point code of corporate governance produced in 1991 by the Cadbury Committee, which was set up by the Stock Exchange, the Financial Reporting Council and the accounting profession; the aim was to improve the standard of corporate governance in Britain. Outlines its narrow terms of reference, which were to spread the boardroom practices of the best run companies to the rest, rather than to reform practice; the main issues covered were board responsibilities, directors’ qualifications, audit rotation, audit committee and auditor liability. Lists the Confederation of British Industry’s reasons for rejecting some of its proposals, proposals rejected by the Committee itself, general criticisms of the report, and Canadian reaction to it as expressed in the Toronto Stock Exchange committee report. Concludes that the Code, though voluntary and lacking enforcement power, is likely to impact on auditors, upon whom it relies as watchdogs to alert the public, especially as it criticises them for charging high consultancy fees.