What are the Cadbury Rules?

The Cadbury Rules are a set of recommendations for corporate governance which were published in 1992 by the Cadbury Committee on Corporate Governance. The Rules and the committee are named for Sir Adrian Cadbury, who chaired the committee. If you're wondering, Cadbury is in fact related to the British chocolate company. Although adherence to the Cadbury Rules is not required to do business in Great Britain, publicly traded companies are expected to follow the Cadbury Rules, and they must answer to their shareholders if they do not.

The goal of the Cadbury Rules or Cadbury Code was to raise the standards of corporate governance and corporate responsibility in England. The Rules were also intended to boost consumer confidence by establishing a clear standard for doing business and protecting shareholders. In addition, the Cadbury Rules encourage members of the public and the private sector to put pressure on companies which do business in the United Kingdom, to encourage them to be more financially and socially responsible.

The text of the Cadbury Rules spells out specific recommendations for boards of directors, non-executive directors, and other company officials. It also recommends the use of internal audit committees and the establishment of systems for accountability in businesses, to ensure that they are operating in a legal manner which is also fair to the shareholders. Objectivity is very important in the Cadbury Rules, as are clear measures against fraud and other illegal acts which might harm shareholders or the public in general.

There are also specific recommendations for handling stockholders. Shareholders are expected to challenge company boards under the Cadbury Rules, and the Rules encourage shareholders to request that their companies to adopt the Rules. This recommendation points out that while shareholders cannot directly influence the direction of the companies they invest in, they can make it clear that they would prefer to see strong corporate governance and accountability.

As published in 1992, the Cadbury Rules took up 90 pages, and the Rules also included a recommendation for regular committee meetings to refine the Rules and to meet changing circumstances in the marketplace. While the Cadbury Rules have been adopted by publicly traded companies, they have also been adopted by smaller organizations since they include many sound guidelines which could apply to a range of situations, from a City Council to a corporate boardroom. In the United Kingdom, publicly traded companies must publish information about themselves which includes a statement on adherence to the Cadbury Rules.