ETHICS & CORPORATE GOVERNANCE BM055-3-2

Greenbury Committee & Turnbull Directions

Learning Outcomes • 1. Appreciate the relevance and practical application of business and professional ethics in the working world; • 2. Explain how corporate social responsibility and corporate governance relate to ethics; • 3. Highlight the main ethical issues relating to the natural environment. Module Code and Module Title

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• 4. Recognise ethical issues and propose solutions to these issues. • 5. Convey an enhanced awareness of the role of business and professional ethics in financial reporting; •

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The Greenbury Report • issued the Greenbury Report in 1995, focused mainly on directors' remuneration. • At the time, the UK press was condemning “fat cat” directors, particularly those in newly privatised companies. • The Greenbury Report issued a Code of Best Practice on establishing remuneration committees, for disclosures of much more information about the remuneration of directors and remuneration policy Module Code and Module Title

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General Recommendation • Executive pay should not be excessive, but sufficient to attract, retain and motivate individuals of the required quality; • The performance related elements of remuneration should create a link between the interests of the director with those of the shareholders. • Share options granted as part of the director’s remuneration scheme should not be issued at a discount; Module Code and Module Title

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• Share options should be granted in phased amounts over time rather than single large awards; • Consideration of compensation payments to directors for loss of office should be taken with a firm line especially directors dismissed for unsatisfactory performance.

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The Report also recommended a greater disclosure about the remuneration of individual directors by disclosing for each named directors the elements that make up the remuneration such as salaries, fees, annual bonus, deferred bonuses and compensation for loss of office including share options and other longterm incentive scheme.

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The Report also recommended a greater disclosure about the remuneration of individual directors by disclosing for each named directors the elements that make up the remuneration such as salaries, fees, annual bonuses, deferred bonuses and compensation for loss of office including share options and other longterm incentive scheme.

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Hampel Report • A Committee on Corporate Governance, chaired by Sir Ronald Hampel, - 1996 to review the recommendations of the Cadbury and Greenbury Committees. The final report of the Hampel Committee was published in 1998. Its Report covered a number of governance issues, such as the composition of the board and role of directors, directors' remuneration, the role of shareholders Module Code and Module Title

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• (particularly institutional shareholders), communications between the company and its shareholders, and financial reporting, auditing and internal controls. The Hampel Report also suggested that its recommendations should be combined with those of the Cadbury and Greenbury Committees into a single code of corporate governance

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• (particularly institutional shareholders), communications between the company and its shareholders, and financial reporting, auditing and internal controls. The Hampel Report also suggested that its recommendations should be combined with those of the Cadbury and Greenbury Committees into a single code of corporate governance Module Code and Module Title

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Recommendations • (i)To adopt a ‘considered policy’ on voting their shares; • (ii) To have dialogue between company based on mutual understanding of objectives; • (iii) Evaluate corporate governance disclosures by the company and give “due weight” to all relevant factors drawn to their attention; • (iv) To encourage more participation at the annual general meeting. Module Code and Module Title

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The Turnbull Guidelines • (a) The require the board of directors to look forward & not just consider past performance; • (b) They encourage companies to keep their shareholders informed about risks; • (c) They require directors to think strategically and to be aware that the company must continually adapt to its changing environment; Module Code and Module Title

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• (d) Risks factors should be reviewed regularly; and • (e) The risk control procedure should evolve as the business and its environment change.

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• The Turnbull Report highlighted the importance of internal control and risk management in relation to the principles established by the Combined Code stating that a company’s system of internal control has a key role in the management of risks that are significant to the fulfilment of its business objectives. A sound system of internal control contributes to safeguarding the shareholders’ investment and the company’s assets. Module Code and Module Title

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