Corporate Governance and Strategic Leadership

Evaluation of Sir Adrian Cadbury’s key legacy of a "comply or explain" approach to corporate governance

Essay, 2018

8 Pages, Grade: 75

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Corporate Governance and Strategic Leadership

Drawing on relevant academic literature, first, explain the role that corporate governance plays in strategic management, the factors it enables and the nature of the relationship between owners and managers. Second, discuss and evaluate Sir Adrian Cadbury’s key legacy of a “comply or explain” approach to corporate governance with a specific focus on the development of corporate governance in a country or countries of your choosing. Illustrate your explanation and discussion with corporate examples. Third, what conclusions can be drawn for good governance and strategic leadership in organisations?


Increasing business complexities, tightening regulatory frameworks, maturing organisational structures, disseminating digitised information, growing rights, shrinking diversity, inevitable societal participation, decision-making independence, conflicts of interest, and the changing nature of business transactions have certainly amplified the worldwide focus on transparent and honest corporate governance to win shareholders’ confidence. Contrarily, lack of dispersed ownership, uncertain institutional integrity, leadership self-interests, deficient accountability, incompetent executives, multiple directorships, selective rewards, misalignment of objectives, ineffective monitoring and the poor risk management are causing corporate frauds and governance failures. Indisputably, improving corporate governance systems, and complying with reputed financial-institutional principles and codes of conducts are the secrets to effective and ethical decision-making for sustainable growth and boost investors’ confidence.


Corporate governance empowers businesses which is the driving force for the effectiveness of robust governance mechanism (Mishra, 2018) to mitigate risks and to eliminate agency conflict between managers/agents and owners/principles (Pinheiro, Carriero & Joaquim, 2013). Corporate governance demands effective stewardship and leadership to develop implementing policies, practices and processes to direct, administer and control a company’s operations to ensure balanced integration (Kimball, 2017) by evaluating decisions on honesty, transparency, integrity, inclusivity, accountability, and responsibility as described by PricewaterhouseCoopers (PwC-2013). Moving forward, CEO, chairman, board of directors must also vigilantly identify their collective roles to meet shareholders’ demands, expectations and needs (Price, 2017). The separation of ownership and control generates agency costs arising from the misalignment of managers and owners’ interests to maximize their profit and/or minimize their risk at the expense of the shareholders (Gebba, 2015)

Letza et al. (2011) argue that corporates are rationally bound by agreements for better governance to maximise economic interests of shareholders and stakeholders. The pluralist views of a dialectical relationship can operate unconstrained by some single-valued objective (Mitchell et al., 2015). The 2017 Good Governance Report evaluates the 100 largest UK-listed companies and confirms Diageo, Aviva, GKN, Barclays and Smith Group at the top five spots mainly due to higher level of commitment of companies’ audit committees and the greater independence and objectivity of the firms’ board leadership. In parallel to success stories, corporate scandals are also spotted around the globe in years 2017-2018. Apple for purposely slowing down older iPhones to compensate for decaying batteries, Equifax for the worst data breaching in USA history (Shen, 2017) and the Commonwealth Bank-Australia for interest rate rigging and prioritising insurance and superannuation funding (Bartholomeusz, 2018) are currently facing forensic investigations.


The short and smart definition of corporate governance and two pages long code of best practices which were provided by Sir Adrian Cadbury around 25 years ago is still considered the heart of international standards of corporate governance around the world (Thornton, 2017). The backbone of corporate governess codes is the voluntarily comply-or-explain mechanism of long-term rethinking and recalibration of alternative best practices, suited to the shared beliefs and formal measures providing innovative market-based solutions (Iwasaki, 2014). Instead of box-ticking, and mindlessly conforming the requirements, the comply-or-explain approach provides firms more flexibility with accountability to willingly comply with a set of cooperate governance standards or explain the reasons of noncompliance in their financial reports justifying alternative ways of sustaining growth (ICAEW, 2013).

The fundamental principles of comply-or-explain approach are jointly governed by firms’ goodwill, openness, integrity, morality and accountability (SpencerStuart, 2015). The key idea of comply-or-explain is based on self-regulation, modernisation, proportionality, and the spirit of law which allows organisations to choose higher standards of corporate governess rather restricted by old practices and rigid set of codes (Nedelchev, 2013). Ahmad (2014) expresses that the legal position of the comply-or-explain approach of corporate governess lies between voluntary soft-law (non-compliance with some provisions/ deviations to support with an explanation) and mandatory hard-law (compulsory to apply corporate’s code). Aliyev (2015) emphasises that comply-or-explain philosophy requires strong functioning intuitions having a common sense of self-regulation to update principles of generic rules.

Although the comply-or-explain approach enjoys wide acceptance in the EU, USA, Africa and OECD countries however, explanations defending non-compliances to the codes can be misleading in different circumstances. The codes’ flexibility creates uncertainty and may not stop firms from circumventing unpleasant rules (Sturm, 2016) and potentially tends to avoid compliance with the actual best practices which is against the spirit of code (Nerantzidis, 2014). Sanderson, Seidl and Robert (2013) share that comply-or-explain mechanism allows noncompliance but only where regulatees provide a convincing explanation acceptable to shareholders about the desirability or indeed superiority of an alternative course of actions.

After the initiatives of London Stock Exchange in the 90s, this concept of voluntary code of corporate governess was propagated internationally through interconnected financial institutes and industry associations and thus marked the beginning of the great re-alignment among securities exchanges (Jordan, 2013; Rita & Njuguna, 2016). Nearly all jurisdictions now have national codes or principles with 84% following a comply-or-explain” framework (OECD-Factbook, 2017). Further, countries seeking to implement these principles must also monitor their corporate governance frameworks to promote ethical, accountable and transparent practices (G20/OECD, 2015). Despite an increased global awareness of the need for corporate governess, its adoption remained sluggish in UAE during the twenties (Bhatia, 2013). In addition to 1984 Commercial Companies Law, Abu Dhabi Securities Market successfully released first local corporate governance codes in 2004 (Shehata, 2015).

During the 2007 global financial crises, UAE government had felt the need for good corporate governance and accordingly, Securities and Commodities Authority (SCA) issued the corporate governance code expanding the governance rules and regulations to companies listed on UAE stock exchanges (Hashem, 2013). The 2009 Ministerial Resolution had introduced a more comprehensive set of corporate governance regulations (Moniem, 2014) which made it mandatory for publicly traded companies to strengthen their corporate governance (Hashemi, 2013). UAE Central Bank also issued corporate governance guidelines for UAE banks in 2014. Later, in 2011, UAE government issued new decree outlining corporate governance rules and regulations for State-Owned Enterprises (SOEs). All previous 2009 corporate governance code for SME were replaced in year-2016 by the new set of rules developed by SCA (PwC-Middle East, 2016) to steer UAE into a global business environment by introducing better corporate governance (ElGammal et al., 2018). At present UAE is developing new corporate governance principles for SOEs to drive prosperity uniformly across the country.


In modern economies, the role of government is limited to the tasks of regulations and supervision generally without any direct intervening into the businesses’ transactions. The key responsibilities of transparent, legal and ethical trades are therefore on the commercial and financial entities. Both public and private stakeholders to intensify their efforts to elevate governing principles and establish more productive benchmarks to foster mechanisms of shareholders’ activism, innovation, and self-regulation for better capital allocation. The corporate governance should also voluntarily promote elasticity in the adoption of global best practices to maintain a balance between a “comply or explain” approach and formal regulations among varies jurisdictions by replacing the conventional one-size-fits-all approach. To summaries, integrating corporate behaviour that optimises the triple bottom line (performance, social and the environmental outputs) constructs a broader framework of good governance and corporate citizenship without diluting the effectiveness of corporate governess standards.

Ahmad, E., 2014, ‘ Is ‘comply or explain’ Sufficient As An Enforcement Mechanism For Corporate Governance Codes ? , viewed on May 12, 2018, < Is_comply_or_explain_Sufficient_As_An_Enforcement_Mechanism_For_Corporate_Governance_Codes>

Aliyev, A., 2015, ‘ Overview Of ‘Comply or Explain’ As an Enforcement Mechanism for Corporate Governance Codes’, IFC, viewed on May 13, 2018, < ComplyorExplain.pdf>

Bartholomeusz, S., 2018, ‘ The Scandals Are Starting to Bite, CBA's Latest Result Shows’, The Sydney Morning Herald, viewed on May 13, 2018, < banking-and-finance/the-scandals-are-starting-to-bite-cba-s-latest-result-shows-20180509-p4ze8c.html>

Bhatia, R., 2013, ‘ Corporate Governance in the UAE’, SME Advisor, viewed on May 11, 2018, <>

‘Building Trust in A Time of Change: Global Annual Review 2013’, PWC, p.34, viewed on May 11, 2018, <>

ElGammal, W., El-Kassar, A., and Messarra, L.C., 2018, ‘Corporate Ethics, Governance and Social Responsibility in MENA Countries", Management Decision, vol. 56, issue.1, pp.273-276, <>

G20/OECD Principles of Corporate Governance: OECD Report to G20 Finance Ministers and Central Bank Governors, 2015, ‘Ensuring the Basis for an Effective Corporate Governance Framework (Ch-1)’, pp.13-15, OECD, viewed on May 14, 2018, < ca/Corporate-Governance-Principles-ENG.pdf>

Gebba, T. R., 2015, ‘ Corporate Governance Mechanisms Adopted by UAE National Commercial Banks’, Journal of Applied Finance & Banking, vol. 5, issue. 5, p.25, ISSN: 1792-6580

Hashemi, A. A., 2013, ‘ Need for Corporate Governance Evident at Home and Abroad’, The Nation, viewed on May 10, 2018, <>

Hashim, E., 2013, ‘One Size Does Not Fit All in The World of Corporate Governance’, The Nation, viewed on May 10, 2018, <>

ICAEW Challenges Whether Comply or Explain is Always an Effective Approach’, ICAEW, UKAccountingPlus, Deloitte, UK, viewed on May 13, 2018, <>

Iwasaki, J., 2014, ‘ Comply or Explain – Is It Sustainable? ’, Financial Director, viewed on May 13, 2018, <>

Jordan, C., 2013, ‘Cadbury Twenty Years On’, vol. 58, issue 1, pp.4-5, <>

Kimball, K., 2017, ‘ Corporate Governance – What Is It ?’, SAJEN, < business-law/corporate-governance-what-is-it/>

Letza, S., Samlleman, C., Sun, W. X., and Kirkbride, J., 2011, ‘Philosophical Underpinnings to Corporate Governance: A Collibrational Approach’, DOI10.1007/978-94-007-1588-2_7

Mishra, S., 2018, ‘ The Corporate Governance World in 2018: A Global Review’, Harvard Law School Forum on Corporate Governance and Financial Regulation, <>

Mitchell, R. K., Weaver, G. R., Agle, B. R., Bailey, A. D., and Carlson, J., 2015, ‘ Stakeholder Agency and Social Welfare: Pluralism and Decision Making in the Multi-Objective Corporation’, Academy of Management Review, p.2, AMR-2013-0486-STFMTS.R2

Moneim, A. A., 2014, ‘ Corporate Governance in the UAE Legislation’, Judicial Department-Abu Dhabi, pp.5-6, ISBN978-9948-488-97-2, viewed on May 11, 2018, <https://www.adjd. 20in%20UAE%20Legislation.pdf>

Nedelchev, M., 2013, ‘ Good Practices in Corporate Governance: One-Size-Fits-All vs. Comply-or-Explain’, I nternational Journal of Business Administration, vol.4, issue 6, pp.75-79, E-ISSN 1923-4015, <>

‘New UAE Rules Raise the Corporate Governance Bar’, 2016, PwC Legal Middle East, viewed on May 13, 2018, < -code-july-2016.pdf>

Nerantzidis, M., 2015, ‘Measuring the Quality of The Comply or Explain Approach: Evidence from The Implementation of The Greek Corporate Governance Code’, Managerial Auditing Journal, vol. 30, issue: 4/5, pp.373-375, <>

OECD Corporate Governance Factbook, 2017, ‘The Corporate Governance Framework (Ch-2)’, OECD, p.15, viewed on May 14, 2018, < -Factbook.pdf>

Pinheiro, A. S., Carriero, A. D., and Joaquim, N. D., 2013, ‘Exploring Corporate Governance: The Behavior of Characters from the Viewpoint of Academic Authors’ Discourses’, USP, São Paulo, v. 24, issue. 63, pp. 234-235, <>

Price, N. J., 2017, ‘ What Is Corporate Governance and Is My Organization Doing It Right? ’, Diligent, <>

Rita, R., and Njuguna, A., 2016, ‘The Evolution of Corporate Governance and Consequent Domestication in Kenya’, International Journal of Business and Social Science, vol.7, issue 5, pp.154-158, ISSN 2219-1933, <>

Sanderson, P., Seidl, D., and Roberts, J., 2013, ‘The Limits of Flexible Regulation: Managers’ Perceptions of Corporate Governance Codes and ‘Comply-Or-Explain’, pp.1-9, Working Paper No. 439, CBR Research Programme of Corporate Governesses, < papers.pdf>

Shehata, N. F., 2015, ‘ Development of Corporate Governance Codes In The GCC: An Overview ’, Corporate Governance, vol. 15, issue: 3, p.319, <>

Shen, L., 2017, ‘ Corporate Scandals: The 10 Biggest Business Scandals of 2017’, Fortune, viewed on May 12, 2018, <>

Spencer Stuart, 2015, ‘Current Board Trends and Practices at Major UK Companies’, UK Board Index, p.6, viewed on May 14, 2018, < research%20and%20insight%20pdfs/ukbi2015_web.pdf? la=en>

Sturm, M. E., 2016, ‘ Corporate Governance in the EU and U.S.: Comply-or-Explain Versus Rule’, European Union Working Papers, issue 16, pp.185-186, <file:///G:/9511-SME/Assignment% 202/part%20B/3/sturm_eulawwp16.pdf>

‘The 2017 Good Governance Report: The Great Governance Debate Continued’, supported by CQI and CASS Business School, viewed on May 10, 2018, <file:///G:/9511-SME/Assignment% 202/part%20B/2/GGI-report-2017-IoD.pdf>

Thornton, G., 2017, ‘ Corporate Governance Review’, GrantThornton, 2017 Highlights, viewed on May 14, 2018, <

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Corporate Governance and Strategic Leadership
Evaluation of Sir Adrian Cadbury’s key legacy of a "comply or explain" approach to corporate governance
University of Canberra  (School of Management, Faculty of Business, Government & Law)
Master of Business Administration
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corporate, governance, strategic, leadership, evaluation, adrian, cadbury’s
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Muhammad Yasir Arslan (Author), 2018, Corporate Governance and Strategic Leadership, Munich, GRIN Verlag,


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