In Britain, many companies were once organized like their corporate cousins in America, with one person serving as CEO and chairman. In 1988, for example, one person held both jobs at 349 of the Fortune 500 companies and 328 of the FTSE 500 companies in Britain, according to a paper by researchers at Cardiff University in Wales and Purdue University in the United States.
But in 1992 a seismic shift took place in Britain with the publication of a report by the Cadbury Committee. The committee, which was made up of executives, finance experts and academics, was headed by Sir Adrian Cadbury, at the time CEO of the Cadbury confectionary empire. The British government established the committee to address issues related to governance in the wake of several corporate scandals in the late 1980s and early 1990s. Many observers attributed those scandals to ineffective governance and the wielding of authority by all-powerful chairmen/CEOs.
Among other things, the committee’s report, titled “The Code of Best Practice,” recommended that boards of directors of public companies include at least three outside directors as members and that the CEO and chairman posts be held by different individuals. The committee’s recommendations were voluntary, but today nearly all publicly traded companies in Britain separate the roles of chairman and CEO, according to Paul Judge, who began his career at Cadbury Schweppes and later led the buyout of the company’s food businesses to form Premier Brands. The few British companies that do not adhere to the recommendations must explain their reasons to officials of the London Stock Exchange, which adopted the committee’s recommendations.
“The separation of the chairman and chief executive is almost universal now in Britain,” says Judge, who today is vice president of the Chartered Institute of Marketing and serves as chairman of a number of companies and not-for-profit organizations. “Generally, the committee’s recommendations were well accepted. There were some cases of particular personalities who didn’t want to do it, but they are now retired. It’s the right way to do things, because when the chief executive also runs the board, there are no checks and balances. I’m strongly in favor of this model. It does work.” As evidence, Judge says no Enron-like debacles have occurred in Britain since the committee’s recommendations were adopted.