It is remarkable to think that the catalyst for modern corporate governance was, a mere 14 years ago, just a committee charged with coming up with some ideas. This was the Cadbury Committee. And although its appointment smacked of political expediency, it came at exactly the right time.
It was set up in the aftermath of a great string of corporate scandals, most of them being the effect of rogues, acting as though they alone were the company, the shareholders and the only person who mattered in the business. It was an ugly time. English culture is not good at knowing how to stand in the way of a bully and bring their activities to a halt.
Needless to say, the auditors were deemed to be the fall guys. They had, most obviously, failed the system. So had the banks, the lawyers and the City generally, but it was the accountants upon whom the onus fell. So the accountancy bodies, to head off this criticism, looked for what one of them described as a ‘magic bullet’. And they found it in the appointment of the Cadbury Committee.
The rest is history. And if you want to marvel at the effect that the resulting corporate governance revolution has had – not just in the UK but around the globe – then you should read a recently published survey compiled by Jonathan Charkham.
In it he underlines how fortuitous the timing of Cadbury was. It hit corporate thinking at just the right time. Liberalisation of capital flows and cross-border investment was taking off. The shift from command-style to market economies was finally tilting decisively towards markets. The whole trend towards globalisation in both thought and deed was accel-erating. The creation of a practical corporate governance code, which could be adapted easily to these great shifts in corporate behaviour and corporate structures – with hindsight – was truly inspired.
The whole corporate world has changed totally in the post-Cadbury years. Companies, with good reason, can complain that they are beset with more regulators than ever before. The real change is not the myriad measures, from Sarbanes-Oxley to Combined Codes, but the overall transformation in the nature of corporate thought.
By that I do not mean that directors were taking their eyes off the ball of enterprise and instead focusing on box-ticking. The transformation is in the idea that in the long-term, the behaviour of a company is the most important part of both its reputation and its ability to grow its business. That is at the heart of the thinking of the board of any company. And it is not there as a paste-on mission statement. It is no longer debated. It is just there. That is the real corporate governance revolution.
But the real Cadbury legacy may be in the change that it is bringing in the US. For many years, shareholder value was the only mantra. There was no perceived danger in having a joint chief executive and chairman – after all, the top man should have the most power.
Board meetings lasted for too short a time and external auditors simply waited for management who were rewarded with lucrative contracts. But now this is changing, thanks to governance. Slowly, maybe, but definitely surely.
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