ICAEW challenges whether comply or explain is always an effective approach
16 Dec, 2013
The Institute of Chartered Accountants in England and Wales (ICAEW) has published a paper questioning whether the comply or explain approach taken by the UK Corporate Governance Code is always effective and universal.
Comply or explain is the fundamental basis of the UK Corporate Governance Code (the Code), where companies and boards do not need to comply with the Code provisions if they can justify non-compliance, and has been adopted widely in Europe and beyond. In its paper, ICAEW argues that the comply or explain approach is in danger of being undermined.
Supporters of comply or explain need to explain its relative advantages if it is not to be replaced by regulatory interventions where corporate behaviour continues to disappoint. ICAEW argues that these advantages are:
- Innovation - introducing aspirational new ideas and changes to company governance.
- Proportionality - measured application of more demanding requirements, especially for smaller businesses.
- Avoiding box-ticking - encouraging companies to think through overarching principles before complying with provisions because they have the option to “explain”.
- Long-term learning - assisting cultural change in companies by encouraging them to think about how to meet the purpose and principles of corporate governance.
Click here to download the ICAEW press release from their website and here for the full report.