The Impact of the Cadbury Code on Selection of Directors and Board Composition in UK Newly‐quoted Companies, 1990–1994

The publication in the UK of the Cadbury Report and its associated Code of Best Practice focused attention on the conduct and structure of boards in large companies. The Code suggested that greater financial accountability would be facilitated by increasing the number of non‐executive directors, creating new sub‐committees and ensuring that the power of the chair is limited. Surveys amongst FT100 companies show that their compliance with the Cadbury Code has been rapid and virtually complete (Bostock [1995], Cadbury [1995]); less attention has been paid to the compliance of small and medium‐sized companies. The approach that is taken in this survey is to investigate the board structures chosen by these enterprises as they prepare for stock market listing. Companies are prepared for market with the advice of professional advisors who it is assumed have a reputational interest in the success of the issue; therefore, they advance corporate governance structures that satisfy potential investors’ expectations. Such companies are making their boards anew and should represent best‐practice. This paper examines whether current practice in small and medium‐sized companies conforms to the prescribed model for UK boards. It is concluded that the Cadbury Code is not the only model for emergent small to medium sized companies and that the market does not value its adoption in all cases.