Compliance with the Cadbury Code and the reporting of corporate governance

When the Report of the Committee on the Financial Aspects of Corporate Governance (the Cadbury Report) was published in December 1992 it recommended that the boards of all listed companies registered in the UK should comply with a Code of Best Practice (‘the Code’). Other companies were encouraged to meet the Code's requirements. In order to provide information to shareholders on compliance with the Code, the Cadbury Report recommended that listed companies reporting in respect of years ending after 30 June 1993 should make a statement in their report and accounts about their compliance with the Code and identify and give reasons for any areas of non-compliance. It also recommended that this compliance statement should be reviewed by auditors. The publication of a compliance statement received by auditors was made mandatory for listed companies when the London Stock Exchange made this a continuing listing obligation. The Cadbury Committee relied on ‘market regulation’ to achieve compliance with the Code. Market regulation in the case of the Code has been analysed elsewhere and the listing obligation was shown to be crucial. This article presents the results of an investigation of the first year of operation of the listing obligation. This article addresses five major questions: (1) Has there been compliance with the listing obligation? The listing obligation only requires companies to make a statement about compliance with the Code, it does not require compliance with the Code. (2) Which companies have reported compliance with the Code itself? (3) How informative are the compliance statements? (4) How has audit work in this area been reported? (5) How has corporate governance reporting been developing over the period of the introduction of the Code and the listing obligation?