News
The FRC has released a paper detailing very high level of compliance with the UK Corporate Governance Code and comply or explain. The paper considers what constitutes an explanation under comply or explain. Baroness Sarah Hogg, Chairman of the FRC, stated:
“The comply or explain approach to corporate governance has given us flexibility and enabled us to raise the standards of UK corporate governance over the years in ways that regulation cannot always achieve. This exercise is designed to reinforce our approach at a time when Europe has shown signs of driving towards more prescriptive regulation with a consequent diminution of shareholder rights. It should also make shareholders better equipped to push for full explanations on the relatively rare occasions when these are not forthcoming.”
Areas where comply or explain has led to improvements in corporate governance include the widely accepted desirability of separating the role of chairman and chief executive which was common when the Cadbury Code was introduced in 1992. Also due to the Code fully independent audit committees were the norm in the UK market well before the EU introduced a statutory requirement on listed companies to have an audit committee with at least one independent director. Grant Thornton's annual survey has found that 50 per cent of FTSE350 companies report full compliance with the UK
Corporate Governance Code. Two thirds of those who do not comply explain with a meaningful level of detail, while one third explain but with less detail. In no case did a company that failed
to comply with a provision of the Code fail to provide any explanation at all.
Discussion of what constitutes comply or explain between company and investors.
Published: 16 February, 2012