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Cadbury Report on Corporate Governance

Below is a summary of the Cadbury’s Corporate Governance Report

  1. The Cadbury Committee was set-up in May 1991 by the Financial Reporting Council of the London Stock Exchange.  The committee published its report in December 1992.  Adrian Cadbury the chairman of the Cadbury committee.
  2. Role of Board of Directors, duties of the board and its compositions.  Role of Non-Executive Directors.  Dealing with their Remunerations.  Addressing questions of financial reporting and financial controls.
  3. The board should meet regularly, retain full and effective control over the company and monitor the executive management.  The board should include non-executive directors of sufficient caliber and number for their views to carry significant weight in the board’s decisions.  All directors should have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are followed and that applicable rules and regulations are complied with. Any question of the removal of the company secretary should be a matter for the board as a whole.
  4. Non-executive directors should bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct.  Non-executive directors should be appointed for specified terms and reappointment should not be automatic.  Non-executive directors should be selected through a formal process and both this process and their appointment should be a matter for the board as a whole.
  5. We recommend that future service contracts should not exceed three years without shareholders’ approval and that the Companies Act should be amended inline with this recommendation.  Shareholders require that the remuneration of directors should be both fair and competitive.  The Annual General Meeting provides the opportunity for shareholders to make their views on such matters as director’s benefit known to their boards.
  6. It is the board’s duty to present a balanced and understandable assessment of the company’s position.  The board should ensure that an objective and professional relationship is maintained with the auditors.  The board should establish an audit committee of at least three non-executive directors with written terms of reference which deal clearly with its authority and duties.
  7. The directors should explain their responsibility for preparing the accounts next to a statement by the auditors about their reporting responsibilities.  The directors should report on the effectiveness of the company’s system of internal control.  The directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary.
  8. A single person should not be vested with the decision making power. i.e., the role of chairman and chief executive should be separated clearly.  The Non-executive directors should act independently while giving their judgment on issue of strategy, performance, allocation of resources, and designing the code of conduct.  A majority of directors should be independent non- executive directors, i.e., they should not have any financial Interests in the company.
  9. The term of the Directors can be extended beyond three years only after the prior approval of the shareholders.  A remuneration committee with majority of non- executive directors should decide on the pay of the executive directors.  The interim company report should give the balance sheet information and reviewed by the auditor.  The information regarding the audit fee should be made public and there should be regular rotation of the auditors.
  10. An objective and professional relationship with the auditors must be ensured.  It must be reported that a business is a growing concern.

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