As described in the chapter, passage of the Sarbanes-Oxley Act in 2002 has drawn attention to the importance of corporate governance. Similar legislation is pending in other nations as well. However, interest in improved governance predated SOX by a decade in the form of governance codes or guidelines. These codes established sets of “best practices” for both board composition and processes. The first such code was developed by the Cadbury Committee for the London Stock Exchange in 1992. The Australian Stock Exchange developed its guidelines in the Hilmer Report, released in 1993. The Toronto Stock Exchange developed its guidelines the following year in the Dey Report.

Today, most major stock exchanges have governance codes. Working in small groups, find the governance codes of two stock exchanges. Prepare a short (2–3 pages, single-spaced) bullet point comparison of the similarities and differences between the two codes. Be sure to include the following topics in your analysis:

• How are the guidelines structured? Are they rules (i.e., required) or recommendations (i.e., suggestions)? What mechanism is included to monitor or enforce the guidelines?

• What board roles are addressed in the guidelines? For example, some codes may place most or all of their emphasis on functions derived from the importance of the agency relationship illustrated in Figure 10.1 on p. 279, such as monitoring, oversight, and reporting. Codes might also mention the board’s role in supporting strategy, or their contribution to firm performance and shareholder wealth.

• What aspects of board composition and structure are covered in the guidelines? For instance, items included in different codes include the balance of insiders and outsiders, committees, whether the CEO also serves as board chair, director education and/or evaluation, compensation of officers and directors, and ownership by board members.