In 1992 the Cadbury Committee produced the very first version of corporate governance. Corporate governance is a system which helps control and direct companies. It establishes a key relationship between the board of directors and shareholders. Corporate governance aims is to look after the interests of shareholders and not directors, and also enhance the value of those interests. It’s believed the UK Code is cheap for businesses to adopt given the long term growth and success they will experience in return. A report by the Governance Metrics International ranks the UK Code second place which should urge businesses to make use of it for the expected positive outcomes. Furthermore, the UK approach is very flexible because it allows companies to adopt their own approach of corporate governance appropriate to their circumstance. Companies use the ‘comply or explain’ principle whereby companies comply with rules set out in the code and if not, they explain to shareholders why they haven’t complied with principles. This requirement applies to all the large companies on the LSE however; it would be invalid to smaller companies below the FTSE 350. Shareholders have effective voting rights and rights to information. Shareholders have the opportunity to express any enquires or concerns. Corporate governance is based on a legal system which enforces a set of responsibilities to shareholders and directors. It also uses a self regulatory framework which is basically codes of conduct derived from a series of reports which are collectively known as the Combined Code. Using corporate governance protects companies against fraud, scandals and criminal liability. The company earns a good reputation because corporate governance is usually an indication that businesses are capable of being responsible of shareholders capital. The series of corporate scandals during the 1980/90s led to the emergence of corporate governance. Most of these scandals are related to the remuneration...
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