Two Cadbury quotes – and some commentary

Two Cadbury quotes – and some commentary

In honour of the contribution of Sir Adrian Cadbury to the field, and foundations of, corporate governance it is pertinent to share one of his most well know quotes and definitions of corporate governance.

Cadbury defined corporate governance as ‘the systems by which companies are directed and controlled.’ (Cadbury Committee, 1992). The Cadbury Report went on to state that “Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.” (Sir Adrian Cadbury, UK, Commission Report: Corporate Governance 1992)

A few comments;

  • The purpose of governance – systems that direct and control – implies the involvement of people – those who direct and control. While obvious too often corporate governance is de-personalised and ‘the system’ is seen as everything. People, properly appointed and mandated, however, remain the most important thing in governance, then and now. In business people do all the deciding and all the acting – the company, on its own, cannot do either.
  • ‘Balance of interests’. By definition, there will always be competing interests in companies. By default these competing interests tend to revolve around some key areas in business – money, power and influence – and between, as identified by Cadbury, the individual and the group. Balancing interests is a significant role of governance since it is all about being accountable for how one has (decided and) acted in a particular context. Corporate governance systems are not to be judged by whether the impact of a decision was right or wrong, good or bad, but rather with how the decision that led to the action (that led to the impact). The most important thing in corporate governance is decision making since it is at the point of decision-making that conflicted, muddled, mixed interests exert the most influence.
  • Again by definition resources in business are limited. The allocation of resources, in the context of conflicting interests, becomes one of the most important aspects of governance in companies. The allocation of resources is a continual balancing act for those who direct and control companies – the source of the greatest positive impact but also potentially the greatest harm and ‘leakage’. The people who allocate resources through deciding everything from the company’s strategy, its structure and also who is involved and entrusted with which parts of the company are those that governance puts squarely in the spotlight.

 

In conclusion, it is directors of companies who are those deciders, the ‘allocators’ of resources, those who are held accountable for balancing the competing interests and those who have to design, build and work within the systems by which they seek to direct and control their companies. A challenging yet, if done right, very fulfilling and significant role in business and in society.

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