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The performance-governance relationship: the effects of Cadbury compliance on UK quoted companies.

Weir, Charlie; Laing, David


Charlie Weir

David Laing


This paper investigates the extent to which recommendations madeby the Cadbury Committee have affected UK company performance.The Committee recommended that certain internal monitoringmechanisms should be adopted by quoted firms because they weremore effective than others as a means of promoting shareholderinterests. The mechanisms analysed are duality, the number ofoutside directors on the board and the presence of a remunerationcommittee. We analyse the relationship between governancestructures and performance for two years, 1992 and 1995. Usingsamples of 200 companies for each of the years, we find that theproportion of firms adopting the governance structuresrecommended by Cadbury has increased. However there is mixedevidence that the structures are associated with betterperformance. Depending on the choice of dependent variable, thepresence of a remuneration committee has a positive effect onperformance and outside director representation has a negativeeffect. However, there is evidence of a simultaneous relationshipbetween outside director representation and performance, a resultconsistent with additional outside directors being appointedafter a period of poor performance. Complete compliance with themodel of governance proposed by the Cadbury Committee does not,however, appear to be associated with performance which is betterthan that achieved by either partial or non compliance.

Journal Article Type Article
Publication Date Dec 1, 2000
Journal Journal of management and governance
Print ISSN 1385-3457
Electronic ISSN 1572-963X
Publisher Springer (part of Springer Nature)
Peer Reviewed Peer Reviewed
Volume 4
Issue 4
Pages 265-281
Institution Citation WEIR, C. and LAING, D. 2000. The performance-governance relationship: the effects of Cadbury compliance on UK quoted companies. Journal of management and governance [online], 4(4), pages 265-281. Available from:
Keywords Board structure; Company performance; Governance structures; Remuneration committees


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