There are a number of key sources of guidance for good corporate governance, including reports commissioned by government departments, regulatory bodies and standards institutes.
Our research showed that a third of UK organisations are ignoring all such information, but almost all of our sample were aware that such guidance is available.
HIGGS REPORT
January 2003
The 120-page Higgs report, Review of the role and effectiveness of non-executive directors, was compiled by independent business adviser Derek Higgs at the request of chancellor Gordon Brown and secretary of state for trade and industry Patricia Hewitt. It sets out measures designed to improve the structure and accountability of boardrooms in the UK. It argues that boards should be free to criticise company management, and suggests limiting the number of directors that hold managerial positions to no more than half the board.
COMBINED CODE ON CORPORATE GOVERNANCE
July 2003
The Higgs report proved controversial and Higgs has since admitted that his recommendations were too harsh. The Financial Reporting Council has drawn up revised guidelines that were published in July as part of its Combined Code on Corporate Governance. The Code is underpinned by a Financial Services Authority rule that requires listed companies to state how they have complied with its provisions - or to explain why they have not done so - in their annual report .
TURNBULL REPORT
September 1999
The 18-page Turnbull report, Internal Control: Guidance for Directors on the Combined Code, was compiled by a working party of the Institute of Chartered Accountants in England and Wales (ICAEW), led by Nigel Turnbull.
It offers guidance on how directors should comply with corporate governance, focusing on internal controls and risk management.
The report emphasises the importance of good internal and external reporting: "This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the organisation," it states. The report also notes the key role that IT plays in creating internal controls and in accurately assessing the risks faced by an organisation.
CADBURY REPORT
December 1992
The UK went through its own Enron-style crisis of confidence in company management more than a decade ago. Scandals such as the Maxwell pension debacle, coupled with the sudden and catastrophic collapses of BCCI and Polly Peck, gave ample reason to improve accountability and transparency.
Sir Adrian Cadbury, former chairman of the Cadbury chocolate company, was charged with creating a list of recommended changes. His 90-page report, The Financial Aspects of Corporate Governance, outlined a code of conduct for listed companies that attempted to address ethical as well as legal questions.
The more recent Higgs report covers much of the same ground explored by the Cadbury report.
US SARBANES-OXLEY ACT
Enacted July 2002
The Sarbanes Oxley-Act was instigated as a direct result of the WorldCom, Enron and other accounting scandals in the US. It does not affect UK companies unless they are subsidiaries of US firms or are listed on US stock exchanges.
The act combines bills originally drafted by US senator Paul Sarbanes and congressman Michael Oxley. It is designed to enforce corporate accountability through new requirements, backed by stiff penalties. Under the act, chief executives and chief financial officers must personally certify the accuracy of financial statements, with a maximum penalty of 20 years in jail and a $5m fine for false statements.
BS7799
Revised September 2002
The current British Standard for Data Security, BS7799, is a code of best practice describing how an organisation should evaluate, manage and control risks. It takes an holistic approach to safeguarding information: filing cabinets are considered alongside databases, and staffing issues are considered alongside technologies. It lays down a process for establishing security, beginning with a formal evaluation exercise called an Information Security Risk Assessment.
