Corporate governance is a set of rules and regulations for the companies that how companies should be run and managed. It is a model by which board of directors ensures accountability and transparency to the stakeholders of the company. It gives a process for solving the issues like conflict of interests of stakeholders in accordance with their responsibility in the company. Corporate governance provides a system of fair management and proper control where authority and responsibility are with separate departments and it can be called as a system of checks and balances.
A number of corporate scandals which took place in 1980s made the world think about how companies should be regulated to avoid such unethical activities. The history of corporate governance revolves around the scandals of US companies. Big Scandals which occurred due to the unethical and inadequate behavior in the companies. Thus, the formation of corporate governance first started in United States of America. Further, this system of corporate governance was introduced in United Kingdom with the Cadbury Report in 1992. The report was the result of corporate collapses such as BCCI Bank and Robert Maxwell pension funds scandal in 1991.
DEVELOPMENT OF CORPORATE GOVERNANCE IN UK
A committee “Financial Aspect of Corporate Governance Committee” chaired by Adrian Cadbury was formed to give suggestions for making the financial reporting system more transparent and avoid such scandal in future. The committee made up a report called Cadbury Report which gave a number of proposals and consisted of proper code of conduct for the organization. Proposals were also included in the rules of London Stock Exchange. The suggestions were about making the role of chief executive and chairman separate, board should be much organised, non-executive directors must be properly selected, salaries and packages of directors, internal power and control should be good. More over, transparency and...