If you are unable to access an eBook, please see our Help and support advice or contact library icaew. Corporate governance - Hampel and Greenbury Guide to the duties of modern finance directors. Chapter 6 looks at corporate governance and summarises the Hampel and Greenbury reports. Corporate governance in the UK - Cadbury, Greenbury and Hampel An introduction to governance for directors and executives. Chapter 5 looks at corporate governance in the UK and summarises the Hampel and Greenbury reports Introduction and background Chapter 1 looks at the development of corporate governance and specifically the history of corporate governance in the UK.
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The group was set up in January this year, on the initiative of the Confederation of British Industry, in the wake of public concern about executive remuneration in some public limited companies. The Government supported the setting up of the group and we now welcome the publication of Its report.
We congratulate the group on a thorough, speedy and authoritative review of the issues. We welcome its recommendations in principle, and strongly support the emphasis that the group places on the need for pay to be justified by performance.
While the Government will give a considered response to both reports when Parliament resumes after the recess, the House will expect me to make some preliminary comments now, and I willingly do so. Pay in the private sector is a matter for companies and their shareholders. The Greenbury initiative demonstrates that companies and institutional investors recognise the level of concern on the issue and are determined to act. It will deliver more effective, speedier results than legislation could achieve.
The Greenbury report will be underpinned by action by the stock exchange. Its recommendations are addressed primarily to listed companies.
It is appropriate therefore that the stock exchange should enforce them through the listing rules. We do not begrudge top salaries for top performance. Our companies must compete at world level if our nation is to prosper. We must pay the rate for the job. Greenbury points out that although comparisons are difficult, total remuneration levels in the United Kingdom are well below American levels and broadly comparable with other European countries.
The fastest way to drive our best talent abroad—in any field, not just business—would be to impose restrictions on earnings. There has been particular concern about windfall gains arising from share option schemes in the privatised utilities.
Consequently, some share options have yielded substantial benefits to those who guided that success. But the huge achievements of the privatisation programme have also brought dramatic benefits for consumers in terms of lower prices, more choice, better consumer-focused service and more investment, as well as a large and growing flow of revenue to the Exchequer through taxation.
There are three recommendations for legislative action addressed to Government. My right hon. The withdrawal of the reliefs will take effect in relation to grants or the exercising of options on or after today. The Government will consider both recommendations carefully and quickly. We remain willing to consider other legislative back-up if experience shows that it is needed.
It is comprehensive and well judged. It will help to ensure that pay is based on performance. It tackles specific problem areas with firm, fair and practical proposals. Gentleman on his appointment as President of the Board of Trade.
Of course, he took over from the right hon. Member for Henley Mr. Heseltine , who has become a kind of Prime Minister-in-waiting. He is not here today, we notice; no doubt he is staking out No. If the right hon. Member for Henley had been half as successful in creating jobs for the British people as he has been with his personal job creation schemes, unemployment in Britain would be much lower than it is today.
We are, however, delighted to see the Chancellor of the Exchequer in his place. After all, it was he who, over many months, dismissed our calls for share options to be taxed as income. On 8 December last, the right hon. Friend the Member for Dunfermline, East Mr. Brown — on loopholes are undesirable changes in taxation on legitimate business. I have considered his proposal on executive share options many times". It is little wonder that the right hon. He has opposed these proposals for many months, but we are now led to believe that he is anxious and willing to introduce them.
Does not the President of the Board of Trade recognise that, had Labour not demanded action and had Labour not reflected the understandable anger of repeatedly exploited consumers, the Government would have done nothing, as the right hon. It stated that the President was loth to take action. That was the true position of the Government until the Greenbury report appeared.
They have in no sense reflected the public anger or the outcry that followed the many abuses. Before the right hon. Gentleman tries to fabricate Labour policy, let me say that we have always recognised that high performance merits high reward—[Laughter.
Indeed, as everyone knows, the gap between executive pay and lower pay is as wide as it has ever been. The Government have a curious philosophy that directors must be given much higher rewards to motivate them, but people on low and middle incomes must have their wages controlled to motivate them.
The Greenbury report has some welcome proposals. I believe that Sir Richard would have gone further, but members of the committee stopped him. The draft report was offered in traditional Marks and Spencer fashion—those who did not like it could take it back and change it, and they did repeatedly. Complete transparency on salaries and pensions is welcome, as is the relation of bonuses to performance criteria. It is right that the stock exchange must be obliged to enforce the code of practice, and its decision to do so is welcome.
However, does not the Minister recognise that the report ducks the crucial issue—the issue of abuses of private monopoly power, of the need for a truly independent member on each remuneration committee, the need for shareholders to have a legal right to vote on remuneration packages at annual meetings, the need for the abolition of all share options in privatised utility companies and the need for self-regulation to be changed, as it has clearly failed and not protected consumers from those many abuses in those privatised industries?
The Greenbury report ducks the crucial issue of share option rip-offs and huge salary hikes in exactly the industries where they have been the most outrageous. Greenbury recommends a voluntary review, which the Minister has welcomed; a voluntary review by those who made themselves millionaires at our expense in the first place. Does the right hon. Gentleman—does anyone in the House—believe that those guilty of those abuses of private monopoly power will confess? Are they likely to reduce their salaries and their share options?
It beggars belief that they will do so, so, frankly, the idea that self-regulation will end those abuses does not bear examination. Does not the right hon. Gentleman also recognise that privatisation has left consumers wide open to abuse, exposed to the exploitation of private monopoly power; that the weak regulatory regime has manifestly failed to protect consumers?
Does not he recognise that those abuses are set to continue and that those massive personal gains will continue, as the memorandum from his predecessor to No. It also confirms, in case he has not read it, that none of the options is related to performance either of the company or the individual. No notice has been taken at all by people in PowerGen, National Power or water companies of the public outrage that followed those abuses.
The evidence is there—they do not intend to change their practices, and the right hon. Gentleman knows it. Indeed, in the case of British Gas, total factor productivity has been stagnant for several years, but that did not prevent the chief executive officer from giving himself a 75 per cent. Is the right hon. Those issues will continue to infuriate consumers until the next general election.
Lang I thank the right hon. Member for Copeland Dr. Cunningham for his welcome to me in my new position. The right hon. Gentleman asked about the handling of share option schemes and why my right hon. The answer is perfectly simple. Share option schemes were introduced in for senior executives, with the tax arrangements that have just been changed, to provide a long-term incentive for senior executives to become involved in privatisation exercises and make them a success.
What is more, those schemes were introduced at a time when we had not completed the process of reducing the income tax levels that we inherited from Labour. We have now made considerable progress in that regard, and the privatisations are now mature and successful.
The value that attaches to share option schemes is a direct consequence of the substantial contribution made by senior executives to the successful operation of privatised companies. Gentleman said that he believes that pay should reward performance. I remind him that it is hardly credible for him to say that, when his party is committed to a windfall tax on excess profits of privatised utilities, a training tax on employers and the introduction of a minimum wage.
Gentleman would clearly also introduce a maximum wage. Labour is going step by step towards the introduction of a full wage policy at all levels. Gentleman talked about monopoly. He does not seem to realise that since the gas industry was privatised, it has moved from being a monopoly to an industry of 42 companies, and 44 companies are engaged in supplying electricity.
That competitive element in the provision of utilities has led to substantial advantages for the consumer—whom the right hon. Gentleman says we are not protecting. Perhaps the right hon. Member for Copeland is not aware that the right hon. Member for Sedgefield Mr. Blair travelled to the far ends of the world to make a speech to the News Corporation leadership conference in Hayman Island, Australia, when he said: Our parliamentary system is hopelessly outdated.
There is, believe it or not, still prejudice against success in trade and business. What a pity that the right hon. Member for Sedgefield, in e-mailing himself down the, Internet to Australia, forgot to fax a copy of his speech to members of his Front Bench at home. The fact is that Labour does not admire success, but is interested only in state control. That is not in the interests of consumers or shareholders.
GREENBURY REPORT PDF
Download the Turnbull Report updated version with revised guidance PDF These guidelines were put together by the Institute of Chartered Accountants at the request of the London Stock Exchange in order to inform directors of their obligations toward internal control as specified in the Combined Code. Review of the Role and Effectiveness of Non-Executive Directors Higgs Report - Download the Higgs Report PDF It was wondered, in the aftermath of the Cadbury Report, where the abundance of talented and conscientious non-executive directors that the system relied upon might come from, and this was still a subject of concern ten years later. The Higgs Report, commissioned by the UK Government to review the roles of independent directors and of audit committees, has a slightly different flavour from those preceding it, and while it too rejects "the brittleness and rigidity of legislation" it is certainly more prescriptive and firm in its recommendations, aiming to reinforce the stipulations of the Combined Code. Specifically the Report proposes that: at least half of a board excluding the Chair be comprised of non-executive directors; that those non-executives should meet at least once a year in isolation to discuss company performance a move away from the clear preference for unitary board structures displayed elsewhere ; that a senior independent director be nominated and made available for shareholders to express any concerns to; and that potential non-executive directors should satisfy themselves that they possess the knowledge, experience, skills and time to carry out their duties with due diligence. Elements of these recommendations were duly compiled by the Financial Reporting Council and released as Good Practice Suggestions from the Higgs Report PDF in June , but the bulk of the suggestions have not as yet been formally incorporated into the Combined Code though the suggested proportion of non-executive directors on the board was raised from "not less than a third" to half in the version. For more information about this archive or to enquire about access to original documents, please: Contact us.
Greenbury Report (Study Group on Directors' Remuneration)
The group was set up in January this year, on the initiative of the Confederation of British Industry, in the wake of public concern about executive remuneration in some public limited companies. The Government supported the setting up of the group and we now welcome the publication of Its report. We congratulate the group on a thorough, speedy and authoritative review of the issues. We welcome its recommendations in principle, and strongly support the emphasis that the group places on the need for pay to be justified by performance. While the Government will give a considered response to both reports when Parliament resumes after the recess, the House will expect me to make some preliminary comments now, and I willingly do so. Pay in the private sector is a matter for companies and their shareholders. The Greenbury initiative demonstrates that companies and institutional investors recognise the level of concern on the issue and are determined to act.
Further corporate governance reports
In the event this was but one of many that sought to lay down further guidelines for public and private companies, the most significant of which are the following:. Further corporate governance reports. This Committee was established in November by the Financial Reporting Council and sponsored in part by the London Stock Exchange, Confederation of British Industry, and Institute of Directors to review matters arising from the Cadbury and Greenbury Committees and evaluate implementation of their recommendations. Greenbury report It also proposed that more restraint be shown in awarding compensation to outgoing Chief Executives, especially that their performance and reasons for departing be taken into account.
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