In 2001, newspaper publishing baron Robert Maxwell’s body was in the sea around Tenerife. The papers reported that apparently, he went overboard when cruising on his luxury yacht. BBC Home (Nov 1991) It was subsequently revealed however that he had withdrawn millions of pound of the pension funds in his own company to stabilize his company, Mirror Group’s shares. This was all done without prior authorisation and it took the efforts of Shearson Lehman, Goldman Sachs and the British government to replenish the funds but only partly. Pensions World (Oct 2011). Seven years later, it was the turn of one of the companies who helped clean up Maxwell’s mess. Lehman Brothers filed for bankruptcy and emergent details included malfeasance claims that apart from effects of the subprime mortgage crisis, they had been involved in shortselling and even practised accounting gimmicks to misrepresent the true state of their finances at the end of each quarter but especially in late 2007 & 2008 using a form of repurchase agreement (called a repo 105 deal) which altered their balance sheet by temporarily removing securities. Investors, employees and related dependent sectors lost. Trumbull (Mar 2010) Well publicized instances of poor management, financial impropriety and other unsavoury norms such as these and worse abound throughout financial history which led to stakeholder interests not being appropriately addressed and which became embarrassingly apparent in various scandals over the years. It was therefore imperative that a sustained ethical and holistic management regulation framework which possesses comprehensive checks and balances that safeguard the interest of all stakeholders be implemented, especially in quoted companies as the failings of the companies had far reaching consequences.
Definition and Principles
While there is no definition of corporate governance which is universally accepted, it was defined by OECD (2004) Principles of Corporate Governance as the system by which companies are directed and controlled. It was also defined as a framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency with all its stakeholders; financiers, customers, management, employees, government, and the community. BusinessDictionary (2011) There are various models and approaches in different countries with different codes adopted accordingly. In the UK improvements have been progressively made from the Cadbury Committee report (1992) which made fundamental insights and recommendations which include separation of roles, balancing the board composition etcetera to the Greenbury Report (1995) which recommended full disclosure of directors’ remuneration amongst other recommendations. There have also been some other Reports/Committee to further improve the codes and the UK uses a combined code of corporate governance which emphasised the safe and appropriate internal control methods for safeguarding the interests of shareholder through a liberal model of wealth creation
UK Corporate Governance Code
The UK is one of the original member countries of the Organisation for Economic Development (OECD) and is ranked number one in corporate governance with a 7.6 rating according to the Governance Metrics International 2010 global ratings.GMI 2010 (Sept 2010) As a recognition of the need to put things in context and prevent a stifling business environment which could undermine business growth and creativity, the UK Corporate Governance Code (which Reckitt Benckiser is governed by) is not a rigid set of rules but however requires that directors either comply with the provisions contained therein or explicitly explain the reasons why any particular aspects were not followed.FRC (June 2010). Amongst others, the following principles can be derived from it;
•Recognising and emphasizing the responsibilities of directors. •Creation of a level playing field for all...