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.
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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
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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
directors remuneration scheme should
not be issued at a discount;
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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
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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
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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.
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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;
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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 companys 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 companys assets.
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