NAME:- Deepali Nikale Roll No:- 1435 B

ADRIAN CADBURY REPORT

The origin of the report
The Committee on the Financial Aspects of Corporate Governance, forever after known as the Cadbury Committee, was established in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession. The spur for the Committee's creation was an increasing lack of investor confidence in the honesty and accountability of listed companies, occasioned in particular by the sudden financial collapses of two companies, wallpaper group Coloroll and Asil Nadir's Polly Peck consortium: neither of these sudden failures was at all foreshadowed in their apparently healthy published accounts. Even as the Committee was getting down to business, two further scandals shook the financial world: the collapse of the Bank of Credit and Commerce International and exposure of its widespread criminal practices, and the posthumous discovery of Robert Maxwell's appropriation of 440m from his companies' pension funds as the Maxwell Group filed for bankruptcy in 1992. The shockwaves from these two incidents only heightened the sense of urgency behind the Committee's work, and ensured that all eyes would be on its eventual report. The effect of these multiple blows to the perceived probity and integrity of UK financial institutions was such that many feared an overly heavy-handed response, perhaps even legislation mandating certain boardroom practices. This was not the strategy the Committee ultimately suggested, but even so the publication of their draft report in May 1992 met with a degree of criticism and hostility by institution which believed themselves to be under attack. Peter Morgan, Director General of the Institute of Directors, described their proposals as 'divisive', particularly language favouring a two-tier board structure, of executive directors on the one hand and of non-executives on the other.

 Features of the report Sir Adrian Cadbury was a visionary chairman who energetically
promoted the committee recommendations The committee reflected the main shareholders The investigation produced the draft report followed by an extensive process of consultation A final report was produced whose recommendations was widely accepted and adopted

Objective of the report

Uplift the low level of confidence Review the structure, rights and role Address various aspects of accountancy profession Raise the standard of corporate governance

The contents of the Report

The suggestions which met with such disfavour were considerably toned down come the publication of the final Report in December 1992, as were proposals that shareholders have the right to directly question the Chairs of audit and remuneration committees at AGMs, and that there be a Senior Non-Executive Director to represent shareholders' interests in the event that the positions of CEO and Chairman are combined. Nevertheless the broad substance of the Report remained intact, principally its belief that an approach 'based on compliance with a voluntary code coupled with disclosure, will prove more effective than a statutory code'. The central components of this voluntary code, the Cadbury Code, are:

that there be a clear division of responsibilities at the top, primarily that the position of Chairman of the Board be separated from that of Chief Executive, or that there be a strong independent element on the board; that the majority of the Board be comprised of outside directors;

that remuneration committees for Board members be made up in the majority of non-executive directors; and that the Board should appoint an Audit Committee including at least three non-executive directors.

The recommendations in the Cadbury code of best practices are:

Directors service contracts should not exceed three years without shareholders approval. There should be full and clear disclosure of their total emoluments and those of the Chairman and the highest-paid Directors, including pension contributions and stock options. Separate figures should be given for salary and performance-related 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. It is the Boards duty to present a balanced and understandable assessment of the companys position. 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. 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 companys system of internal control. The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary. The report created mixed feelings and with some more frauds emerging in UK, Governance came to mean the extension of Directors responsibility to all relevant control objectives including business risk assessment and minimizing the risk of fraud. The shareholders are surely entitled to ask, if all the significant risks had been reviewed and appropriate actions taken to mitigate them and why a wealth destroying event could not be anticipated and acted upon.

The one common denominator behind the corporate failures and frauds was the lack of effective risk management and the role of the Board of Directors. When it became clear that merely reviewing the internal processes of control were not enough and, therefore, risk management had to be embodied throughout the organization, an easy solution was found by passing on this responsibility to the internal audit.

REACTIONS TO THE CADBURY REPORT

Much of the initially adverse reaction to the draft of the Cadbury Report published in May 1992 was mollified by the mellowing of the language in the final report that December. The Reports fits firmly into the AngloAmerican corporate tradition of favouring checks and balances to the potentially heavy hand of regulation, and thus while its recommendations were widely welcomed, there was doubt as to how effective these provisions would prove when companies were under no obligation to enforce them. Sir Adrian Cadbury had two responses to these concerns. Firstly he declared that it was up to shareholders, as the owners of these companies, to exert the necessary pressure toward compliance. Added to this was the recommendation for a follow-up committee to evaluate implementation of the Report's findings, with the suggestion that if companies were not found to be complying, "it is probable that legislation and external regulation will be sought". This was not a strategy Sir Adrian relished, and he voiced worries that Adrian Higgs would be unable to resist pressures for legislative solutions in his 2003 report on the role and effectiveness of non-executive directors (worries that ultimately proved unfounded). The major legacy of the report is the widespread acceptance of the division of the roles of Chief Executive and Chairman: almost 90% of listed UK companies had separate individuals fulfilling these positions in 2007, while just over 50% of US companies did so according to a 2008 survey by the National Association of Corporate Directors. This has diminished the cult of personality surrounding such figures, and avoided the domination of boards and companies by individuals whose agendas all too easily went unchecked. Sir Stuart Rose at Marks and Spencers is one of the few prominent people to have recently combined the two, and despite his stellar performance M&S shareholders voted against him continuing in both jobs by margin of almost 38% at the 2009 AGM.

KUMAR MANGALAM REPORT

The origin of the report
It is almost a truism that the adequacy and the quality of corporate governance shape the growth and the future of any capital market and economy. The concept of corporate governance has been attracting public attention for quite some time in India. The topic is no longer confined to the halls of academia and is increasingly finding acceptance for its relevance and underlying importance in the industry and capital markets. Progressive firms in India have voluntarily put in place systems of good corporate governance. Studies of firms in India and abroad have shown that markets and investors take notice of well managed companies, respond positively to them, and reward such companies. Strong corporate governance is thus indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. It is the blood that fills the veins of transparent corporate disclosure and highquality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure. Without financial reporting premised on sound, honest numbers, capital markets will collapse upon themselves. Another important aspect of corporate governance relates to issues of insider trading. It is important that insiders, which include corporate insiders also, do not use their position of knowledge and access to inside information, to take unfair advantage over the uninformed stockholders and other investors transacting in the stock of the company. To achieve this, the corporate are expected to disseminate the material price sensitive information in a timely and proper manner and also ensure that till such information is made public, insiders abstain from transacting in the securities of the company.

 The Committee's recommendations look at corporate governance from the point of view of the stakeholders and in particular that of the shareholders, because they are the raison for corporate governance and also the prime constituency of SEBI. The control and reporting functions of boards, the roles of the various committees of the board, the role of management, all assume special significance when viewed from this perspective. The other way of looking at corporate governance is from the contribution of corporate governance to the efficiency of a business enterprise, to the creation of wealth and to the countrys economy. The Committee agreed that India had in place a basic system of corporate governance and SEBI has already taken a number of initiatives towards raising the existing standards. The Committee also recognised that the Confederation of Indian Industries had published a Desirable Code of Corporate Governance and was encouraged to note that some of the forward looking companies have already reviewed or are in the process of reviewing their board structures and have also reported in their 199899 annual reports the extent to which they have complied with the Code. The Committee felt that under the Indian conditions a statutory rather than a voluntary code would be far more purposive and meaningful. At the heart of the Committee's report is the set of recommendations which distinguishes the responsibilities and obligations of the boards and the management in instituting the systems for good corporate governance and restates the rights of shareholders in demanding corporate governance. A large part of the recommendations are mandatory and are intended to be the listed companies for initial and continuing disclosures in a phased manner within specified dates. The companies will be required to disclose separately in their annual reports, a report on corporate governance, delineating the steps they have taken to comply with the recommendations of the Committee. This will enable shareholders to know where the companies in which they have invested stand with respect to specific initiatives taken to ensure robust corporate governance. Companies above a particular size will be required to comply with the mandatory recommendations of the report by April 2000 and the remaining companies in the next year. For the non-mandatory recommendations the Committee felt that it would be desirable for companies to voluntarily follow these.

 Objectives of the report

To enhance the shareholders value and keeping in view the interest of other stakeholders To treat the code not as a mere structure but as the way of life Proactive initiatives taken by the companies themselves and not in the external measures

Relating to the director the recommendations are:

The Board should meet regularly, retain full and effective control over the company and monitor the executive management. There should be a clearly accepted division of responsibilities at the head of a company, which will ensure balance of power and authority, such that no individual has unfettered powers of decision. In companies where the Chairman is also the Chief Executive, it is essential that there should be a strong and independent element of the Board, with a recognized senior member. The Board should include nonexecutive Directors of sufficient caliber and number for their views to carry significant weight in the Boards decisions. The Board should have a formal schedule of matters specifically reserved to it for decisions to ensure that the direction and control of the company is firmly in its hands. There should be an agreed procedure for Directors in the furtherance of their duties to take independent professional advice if necessary, at the companys expense. 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 Company Secretary should be a matter for the board as a whole.

In India, the CII came out with its own views, but SEBI, as the custodian of millions of investors came out with its guidelines and Kumar Mangalam Committee recommendations became mandatory and, therefore, all the listed companies were obliged to comply in accordance with the listing agreement with these Stock Exchanges. The clean up of most companies has begun in a big way and the Section 49 of the SEBI Act has now almost become the hallmark of compliance in this country.

The mandatory recommendations of the Kumar Mangalam Committee include the constitution of Audit Committee and Remuneration Committee in all listed companies; appointment of one or more independent Directors; recognition of the leadership role of the Chairman of a company; enforcement of accounting standards; the obligation to make more disclosures in annual financial reports; effective use of the power and influence of institutional shareholders; and so on. The Committee also recommended a few provisions, which are non-mandatory. Some of the mandatory recommendations are;

The Board of a company should have an optimum combination of executive and non-executive Directors with not less than 50% of the Board comprising the nonexecutive Directors. The Board of a company should set up a qualified and an independent Audit Committee. The Audit Committee should have minimum three members, all being nonexecutive Directors, with the majority being independent, and with at least one Director having financial and accounting knowledge. The Chairman of the Audit Committee should be an independent Director. They are responsible for balance sheet compilation and clarificatory notes appearing thereto; and to ensure that sensitive information is not tucked away in small print.

Apart from these, the Kumar Mangalam Committee also made some recommendations that are nonmandatory in nature. Some of them are:

The Board should set up a Remuneration Committee to determine the companys policy on specific remuneration packages for Executive Directors. Half-yearly declaration of financial performance including summary of the significant events in the last six months should be sent to each shareholder. Non-executive chairman should be entitled to maintain a chairmans office at the companys expense. This will enable him to discharge the responsibilities effectively.

It will be interesting to note that Kumar Mangalam Committee while drafting its recommendations was faced with the dilemma of statutory v/s voluntary compliance. One may also be aware that the desirable code of Corporate Governance, which was drafted by CII was voluntary in nature and did not produce

the expected improvement in Corporate Governance. It is in this context that the Kumar Mangalam Committee felt that under the Indian conditions a statutory rather than a voluntary code would be far more purposive and meaningful. This led the Committee to decide between mandatory and non-mandatory provisions. The Committee felt that some of the recommendations are absolutely essential for the framework of Corporate Governance and virtually from its code, while others could be considered as desirable. Besides, some of the recommendations needed change of statute, such as the Companies Act for their enforcement. Faced with this difficulty, the Committee settled for two classes of recommendations. SEBI has given effect to the Kumar Managlam Committees recommendations by a direction to all the Stock Exchanges to amend their listing agreement with various companies in accordance with the mandatory\ part of the recommendations. For ensuring good corporate governance in a banking organization the importance of overseeing the various aspects of the corporate functioning needs to be properly understood, appreciated and implemented. There are four important forms of oversight that should be included in the organizational structure of any bank in order to ensure the appropriate checks and balances: oversight by the board of directors or supervisory board; oversight by individuals not involved in the day-today running of the various business areas; direct line supervision of different business areas; and independent risk management and audit functions. In addition to these, it is important that the key personnel are fit and proper for their jobs (this criterion also extends to selection of Directors).

Implementation of the recommendations of Birla committee

By introduction of clause 49 in the listing agreement with stock exchanges

Provisions of clause 49
composition of board - in case of full time chairman, 50% non-executive directors and 50% executive directors

constitution of audit committee with 3 independent directors with chairman having sound financial background. finance director and internal audit head to be special invitees and minimum 3 meetings to be convened. responsible for review of financial performance 0n half yearly/annually basis; appointment/ removal/remuneration of auditors; review of internal control systems and its adequacy

Requirements of clause 49

Remuneration of directors remuneration of non-executive directors to be decided by the board. details of remuneration package, stock options, performance incentives of directors to be disclosed

Board procedures atleast 4 meetings in a year. director not to be member of more than 10 committees and chairman of more than 5 committees across all companies

Management discussion & analysis report should include: industry structure & developments opportunities & threats segment wise or product wise performance

Outlook Risks & concerns Internal control systems & its adequacy Discussion on financial performance Disclosure by directors on material financial and commercial transactions with the company

shareholders/investors grievance committee under the chairmanship of independent director. minimum 2 meetings in a year

report on corporate governance and certificate from auditors on compliance of provisions of corporate governance as per clause 49 in the listing agreement

The Boards Role in Ensuring an Ethical Corporate Culture

by Josephson Institute on March 7, 2011 In June of 2010 the Markkula Center for Applied Ethics and the Silicon Valley Chapter of the National Association of Corporate Directors produced a great video on the role of board members in improving and maintaining the ethical culture of the organizations they serve. Michael Hackworth, Chairman of Cirrus Logic, says there are 4 parts to the role of the board of the directors : 1. Ensure there is an executable strategy to create shareholder value 2. Hire and fire C-level positions 3. Monitor strategy and hold management responsible 4. Ensure there is an ethical environment in the organization Watch the video for Hackworths discussion on the benefits of an ethical corporate culture and ways board members can improve the ethical culture of the organization they are involved in.

http://managementhelp.org/businessethics/index.htm

What is Business Ethics?

The concept has come to mean various things to various people, but generally it's coming to know what it right or wrong in the workplace and doing what's right -- this is in regard to effects of products/services and in relationships with stakeholders. Wallace and Pekel explain that attention to business ethics is critical during times of fundamental change -- times much like those faced now by businesses, both nonprofit or for-profit. In times of fundamental change, values that were previously taken for granted are now strongly questioned. Many of these values are no longer followed. Consequently, there is no clear moral compass to guide leaders through complex dilemmas about what is right or wrong. Attention to ethics in the workplace sensitizes leaders and staff to how they should act. Perhaps most important, attention to ethics in the workplaces helps ensure that when leaders and managers are struggling in times of crises and confusion, they retain a strong moral compass. However, attention to business ethics provides numerous other benefits, as well (these benefits are listed later in this document). Note that many people react that business ethics, with its continuing attention to "doing the right thing," only asserts the obvious ("be good," "don't lie," etc.), and so these people don't take business ethics seriously. For many of us, these principles of the obvious can go right out the door during times of stress. Consequently, business ethics can be strong preventative medicine. Anyway, there are many other benefits of managing ethics in the workplace. These benefits are explained later in this document. (Extracted from Complete (Practical) Guide to Managing Ethics in the Workplace.) Business Ethics (Wikipedia) What is Business Ethics? Values and Morals, Guidelines for Living Ethics at a Cross Roads Retaliation Soars When Managers Don't Do the Right Thing Ethics is More Than Compliance Taking the Ethical High Road Is Good for Business Ethics and Intentions 3 Sources of Moral Obligation The Best Ways to Discuss Ethics Students Teach Business Ethics Its Profitable to be Ethical Transparency is a key to performance

Managing Ethics in the Workplace

Managing Ethics Programs in the Workplace

Organizations can manage ethics in their workplaces by establishing an ethics management program. Brian Schrag, Executive Secretary of the Association for Practical and Professional Ethics, clarifies. "Typically, ethics programs convey corporate values, often using codes and policies to guide decisions and behavior, and can include extensive training and evaluating,

depending on the organization. They provide guidance in ethical dilemmas." Rarely are two programs alike. "All organizations have ethics programs, but most do not know that they do," wrote business ethics professor Stephen Brenner in the Journal of Business Ethics (1992, V11, pp. 391-399). "A corporate ethics program is made up of values, policies and activities which impact the propriety of organization behaviors." Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility, adds: "Balancing competing values and reconciling them is a basic purpose of an ethics management program. Business people need more practical tools and information to understand their values and how to manage them." (Extracted from Complete (Practical) Guide to Managing Ethics in the Workplace.) Ethics Management Programs: An Overview Is It Time for a Unified Approach to Business Ethics? 10 Benefits of Managing Ethics in the Workplace 8 Guidelines for Managing Ethics in the Workplace 6 Key Roles and Responsibilities in Ethics Management 12 Ethical Principles for Business Executives Responsibilities in the Employer-Employee Relationship Why Should Business Executives Be Concerned With Ethics? Organizational Character and Leadership Development Ten Steps to Designing a Comprehensive Ethics Program
Developing Codes of Ethics

According to Wallace, "A credo generally describes the highest values to which the company aspires to operate. It contains the `thou shalts.' A code of ethics specifies the ethical rules of operation. It's the `thou shalt nots." In the latter 1980s, The Conference Board, a leading business membership organization, found that 76% of corporations surveyed had codes of ethics. Some business ethicists disagree that codes have any value. Usually they explain that too much focus is put on the codes themselves, and that codes themselves are not influential in managing ethics in the workplace. Many ethicists note that it's the developing and continuing dialogue around the code's values that is most important. (Extracted from Complete (Practical) Guide to Managing Ethics in the Workplace.) Creating a Code of Ethics for Your Organization Can You Improve Your Code of Ethics?
Developing Codes of Conduct

If your organization is quite large, e.g., includes several large programs or departments, you may want to develop an overall corporate code of ethics and then a separate code to guide each of your programs or departments. Codes should not be developed out of the Human Resource or

Legal departments alone, as is too often done. Codes are insufficient if intended only to ensure that policies are legal. All staff must see the ethics program being driven by top management. Note that codes of ethics and codes of conduct may be the same in some organizations, depending on the organization's culture and operations and on the ultimate level of specificity in the code(s). (Extracted from Complete (Practical) Guide to Managing Ethics in the Workplace.) Effective Methods of Employee Code of Conduct Training Rethinking Codes of Conduct Establishing a Code of Business Ethics Codes of Conduct in Light of Sarbanes-Oxley 7 Rules for Avoiding Conflicts of Interest in a Family Business
Resolving Ethical Dilemmas and Making Ethical Decisions

Perhaps too often, business ethics is portrayed as a matter of resolving conflicts in which one option appears to be the clear choice. For example, case studies are often presented in which an employee is faced with whether or not to lie, steal, cheat, abuse another, break terms of a contract, etc. However, ethical dilemmas faced by managers are often more real-to-life and highly complex with no clear guidelines, whether in law or often in religion. As noted earlier in this document, Doug Wallace, Twin Cities-based consultant, explains that one knows when they have a significant ethical conflict when there is presence of a) significant value conflicts among differing interests, b) real alternatives that are equality justifiable, and c) significant consequences on "stakeholders" in the situation. An ethical dilemma exists when one is faced with having to make a choice among these alternatives. What's an Ethical Dilemma? Some Contemporary (Arguably) Ethical Issues General Resources Regarding Managing Ethics in the Workplace Social Responsibility (social responsibility is but one aspect of overall business ethics) General Resources Regarding Social Responsibility Making Ethical Decisions: Conscience Prodders Lessons in Ethics from Richard Branson Components of an Ethical Decision: Commitment, Consciousness, and Competency The Dirty Dozen: Twelve Common Rationalizations and Excuses to Avoid 12 Questions for Examining the Ethics of a Business Decision

Assessing and Cultivating Ethical Culture

Culture is comprised of the values, norms, folkways and behaviors of an organization. Ethics is about moral values, or values regarding right and wrong. Therefore, cultural assessments can be extremely valuable when assessing the moral values in an organization.

Assessing Corporate Culture - Part 1 Assessing Corporate Culture - Part 2 Guest Post: En Route to an Ethical Corporate Culture En Route to an Ethical Corporate Culture Establishing an Ethical Environment: Inspiration Creating an Ethical Workplace Culture Creating a Sustainable Ethical Culture The Board's Role in Ensuring an Ethical Corporate Culture Culture Saves Lives Also see Organizational Culture Organizational Assessments

Ethics Training
The ethics program is essentially useless unless all staff members are trained about what it is, how it works and their roles in it. The nature of the system may invite suspicion if not handled openly and honestly. In addition, no matter how fair and up-to-date is a set of policies, the legal system will often interpret employee behavior (rather than written policies) as de facto policy. Therefore, all staff must be aware of and act in full accordance with policies and procedures (this is true, whether policies and procedures are for ethics programs or personnel management). This full accordance requires training about policies and procedures. Establishing an Ethical Environment: Education and Training Do the Right Thing -- Ethics Training Programs Help Employees Deal With Ethical Dilemmas Establishing an Ethical Environment -- Education and Training Ethics Training and Development in the Military Does Your Ethics and Compliance Training Meet the Standard? Teaching Right and Wrong Ethics Training: New Needs, New Times

Some Contemporary (Arguably) Ethical Issues

Banana Logic Toyota Ethics: Questions to get to Answers OK, Mr. Blankfein, How are you going to put ethics first? Ethics Lessons in a New Era The Fragility of Transparency The Bloom is off the Tylenol Rose Why Leaders have Trouble Restoring Trust The Power of the Lowly Expense Report Why it's so Hard to get Safety Right Ethics Practices that Could Have Prevented the Shirley Sherrod Debacle Insignificance of Ethics in Leadership

Ethics of Whistleblowing J&J Accused of Ignoring Red Flags Business Case #1 -- Employee Reference J&J Dig Deeper! How not to change a safety culture Is Saying No to $12 million ethical, or unethical? The Cost of Values Employee References Charlie Sheen's Business Ethics Are companies responsible for how countries use their products? Is Free Really Free? Is News Corp Past the Tipping Point?

Business Ethics: The Board of Director's Role

29 February, 2012 10:00 AM EST [10:00], 04:00 PM CET [16:00], 03:00 PM GMT [15:00] | 01 hr Companies worldwide now acknowledged the need for Board of Director engagement and oversight with respect to company ethics issues and compliance programs. The Conference Boards first study on this subject Ethics Programs the Role of the Board (2004), sponsored by Microsoft, established that many companies have taken steps to formally involve their boards in their ethics programs. Since the release of that report the world economic crisis has given rise to a need to revisit these issues and raised additional questions about the effectiveness of director engagement in ethics issues. Join us for a review of the just released Deloitte sponsored project Business Ethics: The Board of Directors Role.

http://managementhelp.org/businessethics/index.htm