SINGAPORE (July 2): Robert Maxwell, the flamboyant British newspaper baron, who was found naked and dead at sea in November 1991, after apparently falling overboard his yacht as it sailed near the Canary Islands, left his companies in financial disarray. In particular, some £440 million in employee pension funds at his Mirror Group was found to be missing. The scandal came on the heels of an investigation into unaccountable losses and irregularities at Bank of Credit and Commerce International, and the collapse of a fast-growing London-listed company called Polly Peck. These incidents shook confidence in Britain’s corporate sector, and helped spur an inquiry into the state of corporate governance in the country.
In 1992, a committee headed by the late Adrian Cadbury published a landmark report that transformed the way public-listed companies are run. Among the key recommendations of the so-called Cadbury report were that the posts of chairman and CEO should be kept separate, and that there should be non-executive directors of sufficient calibre and number to carry significant weight in a company’s decisions.
A decade later, in 2002, the US Congress passed the Sarbanes-Oxley Act, which was designed to protect investors from fraudulent accounting practices. This too was spurred by a number of scandals, including those involving Enron Corp and WorldCom. Among other things, the new law requires both the CEO and chief financial officer of a company to certify the accuracy of financial information published by their companies. And, they could face stiff penalties if they sign off on financial reports that are misleading or fraudulent.