Combined Code
and corporate
governance
467
Managerial Law
Vol. 48 No. 5, 2006
pp. 467-478
# Emerald Group Publishing Limited
0309-0558
DOI 10.1108/03090550610715963
The revised Combined Code and
corporate governance
An empirical survey of 50 large UK companies
Christopher Pass
School of Management, Bradford University, Bradford, UK
Abstract
Purpose – The purpose of this paper is to investigate the extent to which a sample of large UK
companies comply with the main provisions of the revised 2003 Combined Code on corporate
governance. The new Code incorporates a number of key principles of compliance with regard to the
roles of a company’s chairperson and chief executive, the composition of its Board of Directors and
the composition of the Board’s three main committees – the Nominations, Remuneration and Audit
Committees. Companies are expected to fully comply with the provisions of the Code or proffer an
‘‘acceptable’’ explanation as to why they have not done so under the Code’s ‘‘comply or explain’’
philosophy. The Code gives greater prominence to the role of non-executive directors in a company’s
corporate governance structures and decision-making processes and emphasizes the importance of
non-executive directors being ‘‘independent’’.
Design/methodology/approach – The paper looks at the extent of compliance in respect of the
governance provisions referred to above presenting a survey of 50 large UK companies reporting in
2005 drawn (at random) from the FTSE-250 listing.
Findings – A total of 17 companies fully complied throughout their reporting year. Twenty-two
companies took action to comply or proffered ‘‘acceptable’’ explanations as to why not during their
reporting year. Eleven companies, however, remained in breach of the Code on one or more counts.
Practical implications – The paper discusses some of the issues which have arisen concerning the
effectiveness of non-executive directors and addresses the controversial matter of what constitutes
‘‘independency’’.
Originality/value – This is one of the first papers to present an empirical study of the initial impact
of the new Code.
Keywords Corporate governance, United Kingdom, Organizations
Paper type Research paper
Introduction
Corporate governance is concerned with the duties and responsibilities of a company’s
Board of Directors in managing the company and their relationship with the
shareholders of the company. In recent years concern has arisen at the way some
companies have been managed (or, often, mismanaged!) and the neglect of shareholders
interests. ‘‘Principal-agent’’ theory, in particular draws attention to the potential
for salaried professional executives (as ‘‘agents’’) appointed by the company’s
shareholders (as owners/‘‘principals’’) to become all-powerful and pursue their own
self-interests often to the detriment of value creation for shareholders (Jensen and
Meckling, 1976).
This concern has led to a number of reports (prompted by the financial authorities
and the government) into corporate affairs (Cadbury Committee Report, 1992;
Greenbury Committee Report, 1995; Hempel, 1998; Turnbull Report, 1999; Smith
Report, 2003; Higgs Report, 2003) resulting in the introduction of ‘‘Codes’’ of good
corporate governance whose main provisions have been incorporated into the listing
rules for companies quoted on the London Stock Exchange.
The Cadbury Report led to the first of such Codes – the Code of Best Practice and
following the Hempel Report: Principles of Good Governance Code the two were
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