keay2013 (1)

Legal Studies, Vol. 34 No. 2, 2014, pp.
279–304
DOI: 10.1111/lest.12014
Comply or explain in corporate

governance codes: in need of greater
regulatory oversight?
Andrew Keay*
University of Leeds
At the heart of the voluntary corporate governance code in the UK and elsewhere is the
concept of ‘comply or explain’. It provides that a company is to comply with a code’s
provision; but if it does not do so, then it is to state that it does not and explain why it does
not. There is no provision in the UK for any statements by companies to be assessed by any
regulatory body. It is incumbent on the markets generally and the company’s shareholders
specifically to determine whether the response of the company to code provisions does
enough, and then to take some action if they do not. The aim of comply or explain is to
empower shareholders to make an informed evaluation as to whether non-compliance is
justified, given the company’s circumstances. This paper assesses whether the present
scheme, which relies on the stewardship of shareholders and the efficiency of the markets,
should continue, or whether a regulatory body should be empowered to determine whether
companies are in fact complying with code provisions or, if not, whether they are providing
adequate explanations for not complying.
Andrew Keay, School of Law, University of Leeds, Leeds LS2 9JT, UK. Email: a.r.keay@leeds.ac.uk
INTRODUCTION
Since the advent of corporate governance as a discipline, a matter that has attracted the
concern of both the commercial world and government is the provision of workable
and effective governance frameworks. There have been various attempts to achieve
this. What has become very popular in many countries in Europe and around the world
is the use of the voluntary code as the main element in the corporate governance
edifice. This kind of code, known as soft law,1 places significant emphasis on self-
regulation of companies to attain good and respected corporate governance. The type
of code to which I refer can be defined as ‘a non-binding set of principles, standards
* Professor of Corporate and Commercial Law, Centre of Business Law and Practice,
School of Law, University of Leeds and Barrister, Kings Chambers and 13 Old Square Cham-
bers. A previous version of this paper was presented at the 4th Cambridge International
Regulation and Governance Conference, held at Queen’s College, University of Cambridge, on
6 September 2012. I am grateful to the Legal Studies reviewers and for their comments. All
errors remain my responsibility.
1. S Karlsson-Vinkhuyzen and A Vihma ‘Comparing the legitimacy and effectiveness of
global hard and soft law: an analytical framework’ (2009) 3 Reg & Gov 400. ‘Soft law’ is
defined by Francis Snyder as ‘rules of conduct which, in principle, have no legally binding force
but which nevertheless may have practical effects’: F Snyder ‘Soft law and institutional practice
in the European Community’, Law Working Paper 93/5 (Florence: European University
Institute, 1993) at 2.
© 2013 The Author. Legal Studies © 2013 The Society of Legal Scholars
280 Legal Studies, Vol. 34 No. 2
or best practices, issued by a collective body and relating to the internal governance of
corporations’.2 Generally, at the heart of such codes is the concept of ‘comply or
explain’.3 This concept originated in the UK with the Report of the Committee on the
Financial Aspects of Corporate Governance (more commonly known as ‘the Cadbury
Report’)4 in 1992, which provided the first serious code, and provides that a company
is to comply with a set code of practice, but if it does not, then it is to state in the
annual directors’ report that it does not and explain why it does not. The use of this
concept is designed to permit flexibility in companies and it is in response to the fact
that one size does not fit all as far as companies are concerned, as they are all different
and should not be subject to rigid rules. For instance, practices in one firm cannot
be applied cost-effectively in another firm.5 Underlying the principle is the idea
that if companies do not comply but provide adequate explanations for their non-
compliance, then those companies are well governed and they are likely to perform
well.6 In fact, one study has found that companies that depart from the code due to
their circumstances actually outperform other companies.7
One of the critical aspects of many of the codes that embrace the comply or
explain concept is that it is not the job of any regulatory body to assess what
companies do or say in relation to the code provisions. It is incumbent on the
markets generally and the company’s shareholders specifically to determine whether
the response of the company to code provisions does enough, and then to take some
action in order to force companies either to conform with the provisions (if they have
not) or to explain sufficiently why they have failed to do so. The idea is that those
who are really interested in conformity should examine company statements and
respond appropriately. Hence, the aim of comply or explain is to empower share-
holders to make an informed evaluation as to whether non-compliance is justified,
given the company’s circumstances. But, as outlined later in the paper, comply or
explain as it is presently employed in the UK and other jurisdictions has not been
without its critics.
The aim of this paper is to assess whether the present approach in voluntary codes
implementing the comply or explain concept, which relies on the stewardship of
shareholders and the efficiency of the markets, should stand as it is at the moment or
whether some form of regulatory body should be empowered to determine whether
companies are in fact complying with code provisions or, if not, explaining adequately
their reasons for not complying. To this end, after providing some general background
to the concept of comply or explain, the paper develops in the following fashion. First,
it will ascertain how effective the concept is in a corporate governance setting. This
2. Weil, Gotshal and Manges LLP International Comparison of Selected Corporate Gover-
nance Guidelines and Codes of Best Practice (New York, 2003).
3. D Seidl ‘Standard setting and following in corporate governance: an observation-
theoretical study of the effectiveness of governance codes’ (2007) 14 Org’n Stud 705 at
708; R Aguilera and A Cuervo-Cazurra ‘Codes of good governance’ (2009) 17 Corp Gov Int’l
Rev 376.
4. 1 December 1992; Gee, under the chairmanship of Sir Adrian Cadbury (and known as ‘the
Cadbury Report’).
5. P Coombes and S Wong ‘Why codes of corporate governance work’ (2004) 2 McKinsey
Q 48.
6. S Arcot and V Bruno ‘One size does not fit all, after all: evidence from corporate
governance’ (15 January 2007), available at http://ssrn.com/abstract=887947 (accessed 20
February 2012).
7. Ibid.
© 2013 The Author

Legal Studies © 2013 The Society of Legal Scholars
Comply or explain in corporate governance codes 281
part of the paper is divided into two sections. The first section will identify and discuss
the shortcomings that exist with shareholder and market scrutiny of company state-
ments. The second section will focus on the nature of the explanations that are given
by companies when they do not comply with a particular requirement in the code and
whether they are adequate. The second major part of the paper will consider whether,
and if so, how, a regulatory body could be employed to enhance the corporate
governance scheme and it will evaluate the benefits of using such a body, with the aim
of determining whether it would provide a better approach to that which exists at the
moment.
While there is some consideration of other nations in places and of the general
European Union (EU) approach, the primary focus is on the UK position.8
1. BACKGROUND
Adoption of comply or explain means that compliance with a governance code is not
mandatory, but what is compulsory is disclosing non-compliance. As indicated earlier,
comply or explain is designed to permit flexibility in companies.9 The idea behind it
is that it is not possible to raise the standards of corporate governance by simply
requiring the assembly of structures and the laying down of rules, as companies are all
different and should not be subject to rigid rules.10 The UK Corporate Governance
Code (CGC),11 the latest iteration of the code provisions that have been formulated for
UK listed companies, states, in its introductory material, that ‘the “comply or explain”
approach is the trademark of corporate governance in the UK’,12 and this is because it
has been used since the handing down of the Cadbury Report. It has been one of the
common aspects of all codes that have been formulated since Cadbury.13 It is clearly,
as we will see later, a concept that the Financial Reporting Council (FRC) and many
elements of business generally see as a non-negotiable factor in UK corporate
governance.
The principle of comply or explain has been widely accepted. In the UK, it was
approved of by the Company Law Review Steering Group in its comprehensive review
of UK company law at the end of the last century and the beginning of the present
8. It must be noted that there have been some interesting developments in other EU Member
States. Some of these are discussed later in the paper.
9. For a broad discussion, see above n 6; M Moore ‘“Whispering sweet nothings”: the
limitations of informal conformance in UK corporate governance’ (2009) 9 J Corp Law Stud 95
at 101.
10. S Arcot, V Bruno and A Faure-Grimaud ‘Corporate governance in the UK: is the comply
or explain approach working?’ (2010) 30 Int’l Rev Law Econ 193; an earlier version of the
paper (July 2009) is available at http://ssrn.com/abstract=1532290 (accessed 9 March 2012).
11. Financial Reporting Council (FRC) UK Corporate Governance Code (September 2012) at
4; available at http://www.frc.org.uk/getattachment/a7f0aa3a-57dd-4341-b3e8-ffa99899e154/
UK-Corporate-Governance-Code-September-2012.aspx (accessed 28 January 2013).
12. Ibid, at 4.
13. The Cadbury Report has been regarded as ‘the cornerstone of the comply-or-explain
framework in Europe, long before this system was introduced in European law’: EU ‘Study on
monitoring and enforcement practices in corporate governance in the Member States’ con-
ducted by RiskMetrics Group for the EU (23 September 2009) at 22, available at http://
ec.europa.eu/internal_market/company/docs/ecgforum/studies/comply-or-explain-
090923_en.pdf (accessed 27 April 2012).
© 2013 The Author

one.14 It has been applied elsewhere outside of the UK on many occasions, and it has
become a feature of the EU’s approach to corporate governance.15 The concept has
had such an impact that in 2006 the European Commission (EC) issued Directive
2006/46/EC of the European Parliament and of the Council (4 June 2006) that
introduced comply or explain for the first time in European law.16 In 2006, the
European Corporate Governance Forum indicated its strong and unanimous support
for the principle.17 Also, a fairly recent study commissioned by the EU concerning the
monitoring and enforcement practices in corporate governance in the EU, titled ‘Study
on monitoring and enforcement practices in corporate governance in the Member
States’, and conducted by the RiskMetrics Group (the ‘RMG Study’), found that there
is overwhelming support for the comply or explain principle.18 The principle has also
been applauded by academics19 and employed quite recently in the drafting of the
FRC’s Stewardship Code.20
The essential idea behind comply or explain is to make the board accountable for
what has been or not been done. The Cadbury Report provided that companies are at
liberty to explain rather than comply with code provisions, but they should only do so
if they believe that their existing arrangements ensure proper accountability and
underpin board effectiveness.21 In the Preamble to the CGC, the FRC has stated that
companies are at liberty not to comply, but to explain provided that their existing
arrangements ensure proper accountability.22
For the most part, codes that embrace comply or explain essentially make no
provision for the empowering of regulatory bodies to assess the responses of compa-
nies to code provisions. It is incumbent on companies themselves to assess how
appropriate is their response, and for the markets and other parties, including the
shareholders, and, in some jurisdictions, other stakeholders, to determine whether the
company has complied or explained (and explained adequately if not complying), and
then to take action to force companies to conform with the provisions, if they have not,
or have not explained why they have failed to do so. The aim is to leave enforcement
of the approach to those who are really interested in the company’s conformity with
the code. Hence, the aim of comply or explain is to empower shareholders (and
possibly stakeholders) to make an informed evaluation as to whether non-compliance
is justified, given the company’s circumstances. The function of the market is to
penalise non-compliance by a company where the company fails to adequately explain
14. See eg Company Law Review Modern Company Law for a Competitive Economy:
Completing the Structure (London: DTI, 2000) para 12.50; Company Law Review Modern
Company Law for a Competitive Economy: Final Report (HMSO, London, 2001) para 3.49.
15. EU, above n 13, at 11.
16. The Directive has been implemented by the vast majority of Member States.
17. Statement of the European Corporate Governance Forum on the comply-or-explain prin-
ciple (22 February 2006) para 1, available at http://ec.europa.eu/internal_market/company/
docs/ecgforum/ecgf-comply-explain_en.pdf (accessed 19 June 2012).
18. Above n 15, pp 12, 167.
19. See eg European Company Law Experts’ Response to the European Commission’s Green
Paper ‘The EU Corporate Governance Framework’ (22 July 2011) p 22, available at http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=1912548 (accessed 12 September 2012).
20. FRC UK Stewardship Code (July 2010), available at http://www.frc.org.uk/images/
uploaded/documents/UK%20Stewardship%20Code%20July%2020103.pdf (accessed 16 April
2012).
21. Cadbury Report para 8 under ‘Preface’ at 3.
22. FRC, above n 11, para 8.
© 2013 The Author

by assigning a lower share price,23 and this is assumed to act as an enforcement

process. Failure to conform with code provisions could mean that that is taken into
account by prospective shareholders and, hence, if a company did not comply with
significant provisions or neglected to explain in an adequate way why there was not
compliance, then shareholders might see the company’s shares as less attractive and
this could lead to a reduction in the value of shares.24 Failure to comply or explain
might lead to questions being asked by the capital markets about the company’s
legitimacy.25 Directors are commonly concerned with delivering shareholder value by
way of higher share prices,26 and it has been suggested that the benefit of complying
with the code will lead to favourable developments as far as the company’s share price
is concerned.27 Also, it has been found that non-compliance could also lead to a higher
cost of capital for companies.28
The comply or explain approach may be seen as being workable in the context of
corporate governance because the ones regulated are relatively high profile and their
actions are monitored by self-interested investors.29
23. F Easterbrook and D Fischel The Economic Structure of Corporate Law (Cambridge, MA:
Harvard University Press, 1996); A Anand ‘Voluntary vs mandatory corporate governance:
towards an optimal regulatory framework’ (2005) at 10, available at http://law.bepress.com/
15th/baszaar/art44 (accessed 12 September 2012); D Seidl, P Sanderson and J Roberts ‘Apply-
ing “comply-or-explain”: compliance with codes of corporate governance of the UK and
Germany’, Centre for Business Research, University of Cambridge, Working Paper 389 (June
2009), available at http://www.cbr.cam.ac.uk/research/programme2/project2-23output.htm
(accessed 22 June 2012). Amama Shabbir found in a study involving a sample of companies
that greater non-compliance leads to lower total shareholder returns: ‘To comply or not to
comply: evidence on changes and factors associated with changes in compliance with the UK
code of corporate governance’ (18 March 2008), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1101412 (accessed 9 March 2012). But see the concerns of E. Micheler
‘Facilitating investor engagement and stewardship’ at 6, available at http://ssrn.com/
abstract=2046125 (accessed 12 September 2012).
24. H Gregory and R Simmelkjaer II ‘Comparative study of corporate governance codes
relevant to the European Union and its Member States’, Final Report (Brussels: European
Union – Internal Market Directorate General, Weil, Gotshal and Manges LLP, 2002) at 68–69,
available at http://ec.europa.eu/internal_market/company/docs/corpgov/corp-gov-codes-rpt-
part1_en.pdf (accessed 8 March 2012).
25. D Seidl, P Sanderson and J Roberts ‘Applying the ‘comply-or-explain principle’: discur-
sive legitimacy tactics with regard to codes of corporate governance’, paper presented at the 4th
Cambridge International Regulation and Governance Conference, Queen’s College, Cam-
bridge, 6 September 2012. Any reduction in the share price of a company is known as an
‘illegitimacy discount’: E. Zuckerman ‘The categorical imperative: securities analysts and the
illegitimacy discount’ (1999) 104 Am J Sociol 1398).
26. D Seidl and P Sanderson ‘Comply or explain: the flexibility of corporate governance
codes in theory and in practice’ (12 September 2007), available at http://www.cbr.cam.ac.uk/
pdf/Seidl_Sanderson_Paper.pdf (accessed 5 March 2012).
27. C Mallin ‘Corporate governance and the bottom line’ (2001) 9(2) Corp Gov Int’l Rev 77.
28. R Hooghiemstra and H van Ees ‘Uniformity as response to soft law: evidence from
compliance and non-compliance with the Dutch corporate governance code’ (2011) 5 Reg &
Gov 480 at 483.
29. P Sanderson et al ‘Flexible or not? The comply-or-explain principle in UK and German
corporate governance’ Working Paper 407, Centre for Business Research, University of
Cambridge (June 2010), available at www.cbr.cam.ac.uk/pdf/wp407.pdf (accessed 22 June
2012).
© 2013 The Author

2. THE EFFECTIVENESS OF COMPLY OR EXPLAIN
(a) Introduction
It is not easy to assess whether comply or explain is working effectively. There is
little publicity surrounding any failure of a company to comply, or if they have
deviated from compliance whether they have adequately explained why they have
not complied. Recently, Grant Thornton reported that there is 50% compliance with
the CGC.30 This is consistent with conclusions of a study undertaken by David Seidl,
Paul Sanderson and John Roberts of the 129 largest listed companies in the UK in
2009,31 and a study conducted by Reggy Hooghiemstra and Hans van Ees in relation
to companies in the Netherlands.32 But these numbers are, for the most part, based
on a company’s own assessment. And, in any event, the fact that a sizeable number
of companies are not fully compliant does not mean that the system is not working
well, provided that those not complying explain their non-compliance and do so
adequately.
There are only very general guidelines given by codes and little or nothing on
how a company is to explain its failure to comply, and because statements of expla-
nation can be so different, company to company, it is extremely difficult to verify the
statements.33 Assessing whether companies do in fact comply can be rather a sub-
jective call. Furthermore, there are no statistics available that might indicate how
effective the principle is in practice, because there is no regulator administering the
regime in the UK, and there are no formal sanctions for errant companies, and,
therefore, there is no record of defaults. This is also the case generally across the EU.
Iain MacNeil and Xiao Li even assert that the markets are not concerned about
non-compliance and how effective the principle is, particularly if companies are
performing.34
Seidl, Sanderson and Roberts take the view that
‘The successful application of the ‘comply-or-explain principle’ thus
depends on both the company and the investor acting with integrity, applying the
code as far as possible but allowing for deviations where sensible and, where
necessary, entering into an authentic dialogue to increase each side’s understanding
of the position of the other.’35
30. Grant Thornton ‘A challenging climate’ at 6, available at http://www.grant-thornton.co.uk/

pdf/corporate_governance.pdf (accessed 21 June 2012).
31. Seidl et al, above n 23. Interestingly, the study found that only 15% of the 130 largest
German companies were fully compliant with the German code (Cromme Code).
32. Above n 28, p 491.
33. The Swedish approach is somewhat of an exception, as it provides that if a company does
not comply, then it must explain the reasons for not doing so, and describe the solution that has
been adopted instead (‘Response to the European Commission Green Paper on the EU Corpo-
rate Governance Framework’ (2011) at 6, available at http://www.frc.org.uk/images/uploaded/
documents/FRC%20response%20to%20the%20Green%20Paper%20on%20the%20EU%20
corporate%20governance%20framework%20July%202011.pdf (accessed 15 March 2012).
34. I MacNeil and X Li ‘ “Comply or explain”: market discipline and non-compliance with
the Combined Code’ (2006) 14 Corp Gov Int’l Rev 486 at 488; an earlier version is available
at http://ssrn.com/abstract=726664 (accessed 5 March 2012).
35. Seidl et al, above n 23.
© 2013 The Author

The concern that some have with comply or explain is that while non-compliance
is a breach of the Listing Rules,36 which can lead to sanctions such as public censure,
there have been no occasions on which the Financial Services Authority (FSA) has
initiated action against a company for non-compliance,37 and this notwithstanding a
number of publicised breaches of the principle.38 The FSA is concerned essentially
with the fact that a company makes a corporate governance statement and will only
censure if none is made.39
Comply or explain might be delivering flexibility for companies, but that in itself
does not present us with evidence that there is complying or explaining going on, in
accordance with the idea behind the principle. What has been submitted is that comply
or explain has made corporate practice more transparent and made companies think
carefully about what they do and why.40 However, Christian Andres and Erik Thiessen,
in a study of German companies, concluded that their findings cast doubt on whether
comply or explain is effective.41
The European Corporate Governance Forum (ECGF) has said that for the principle
to be effective three elements must be present, namely: a real obligation to comply or
explain; a high level of transparency, with coherent and focused disclosures; and a way
for shareholders to hold company boards ultimately accountable for their decisions to
comply or explain, and the quality of their disclosures.42
The first of the ECGF’s elements has largely been fulfilled throughout the EU. As
mentioned earlier, Directive 2006/46/EC requires companies in the EU to publish a
‘comply or explain’-based corporate governance statement. It is submitted that it is the
latter two elements – namely, the holding of boards to account and the quality of
disclosure – that are the problematical issues, and which will be discussed below.
(b) Shareholder engagement

Boards are generally seen as accountable to shareholders in the UK43 and, under some
other national corporate systems, other stakeholders. It is necessary, according to the
former Chief Executive of the FSA, Hector Sands, that:
‘Shareholders must also take responsibility to be active individually and
more importantly, in collaboration with other investors, to engage with senior
36. Rule 12.43A.

37. J Armour ‘Enforcement strategies in UK corporate governance: a roadmap and empirical
assessment’ (April 2008), available at http://ssrn.com/abstract=1133542 (accessed 21 June
2012) at 1; above n 15, p 66. This accords with the views expressed by the then Chief Executive
of the FSA, H Sands ‘The crisis: the role of investors’, NAPF Conference 2009 (11 March
2009), available at http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2009/
0311_hs.shtml (accessed 20 June 2012).
38. Gregory and Simmelkjaer, above n 24; Moore, above n 9, pp 135–136.
39. FRC ‘Regulatory impact assessment: Combined Code on Corporate Governance’ (July
2003) at 6, available at http://www.ecgi.org/codes/documents/regulatoryimpact.pdf (accessed
29 January 2013).
40. Coombes and Wong, above n 5, p 51.
41. C Andres and E Thiessen ‘Setting a fox to keep the geese – Does the company-or-explain
principle work?’ (2008) 14 J Corp Finance 289.
42. Above n 17, para 2.
43. See A Keay and R Adamopoulou ‘Shareholder value and UK companies: a positivist
inquiry’ (2012) 13 Eur Bus Org Law Rev 1.
© 2013 The Author

management and Non-Executive Directors in companies and question the effec-

tiveness of the construct of their boards.’44
For it to be working effectively, shareholders have to be aware of the company’s
activities, for unless shareholders are aware of what is happening they will not realise
that directors are not complying and, therefore, they will not seek an explanation or
decide to take any other sort of action.45 Generally speaking, shareholders tend to fail
to engage in the monitoring of their companies. Perhaps this passivity is engendered
partly by the factors of costs and time. Passivity was, arguably, a contributing factor
to the advent of the global financial crisis.46 The investors in listed companies have
been regarded as unchallenging in relation to what boards of those companies have
done, and too reliant on the usual channels of information, such as annual reports.47
The tendency amongst shareholders is not to utilise the rights that they have or to
engage in monitoring. They have a propensity to rely on others to undertake moni-
toring and communication with companies,48 thereby engaging in free-riding.49 This in
turn acts as a discouragement to any investor undertaking monitoring, on the basis that
they will have to cover the costs and time of the effort and others will benefit without
contributing anything to the task.
Admittedly, there are shareholder representation companies such as Pensions and
Investment Research Consultants (PIRC) that will monitor companies and publicise
some failures of companies to comply or explain, but still shareholders have got to
have access to any publication and to be able to act on the information. Some investors
might use proxy voting advisers/governance support advisers, such as Manifest. This
company’s role is ‘[W]ork-flow consulting, voting guideline development, custom
vote recommendations, vote execution, record keeping and reporting.’50 However,
FRC senior investment advisor Peter Montagnon has argued that ‘Proxy voting agen-
cies are undermining the governance efforts of investors who try to engage more
effectively with firms they are invested with.’51 Marc Moore has said something
similar in relation to rating agencies.52 These agencies also place their own require-
ments over and above those that are provided for in the code,53 therefore making it
more demanding for companies.
44. Sands, above n 37.

45. To improve shareholder engagement, Eva Micheler has suggested that the establishment
of an Internet-based review and rating facility would be a way to facilitate shareholder engage-
ment: above n 23.
46. International Corporate Governance Network ‘G20 Leaders’ Summit: the role of corpo-
rate governance in restoring stability’ (23 March 2009), originally available at http://www.
icgn.org/files/icgn_main/pdfs/news/icgn_letter_to_the_ukpm_24_march_09_pdf (accessed 20
June 2009).
47. Sands, above n 37. Mr Sands was the Chief Executive of the Financial Services Authority
at the time.
48. Above n 15, p 17.
49. Ibid, p 71.
50. See http://www.manifest.co.uk/what-we-do/vote-agency/ (accessed 19 June 2012).
51. Statement made at the NAPF Conference 2011, available at http://www.
professionalpensions.com/professional-pensions/news/2118871/napf-conference-2011-proxy-
voting-agencies-acute-governance-chief (accessed 19 June 2012).
52. Moore, above n 9, p 103.
53. Ibid, p 123.
© 2013 The Author

Arguably, comply or explain does not actually exist for some investors, in that it
has been overtaken by ‘the comply or perform’ principle.54 That is, shareholders are
not concerned about what their companies are actually doing provided that they are
performing well. Thus, shareholders might not be overly interested in monitoring
companies if they are performing well.
The FRC has acknowledged that the dispersed ownership structure that exists in the
UK can create hindrances to effective organisation of shareholders so as to hold
directors accountable.55 However, the ownership of UK shares is not as dispersed as it
once was, with institutional shareholders collectively holding approximately 41% of
shares and international shareholders holding about the same portion.56 Nevertheless,
there are still limits to shareholder engagement. International shareholders are likely
to be fairly passive.57 What about institutional investors? For many years, there has
been consideration of whether the institutional shareholders that hold large portions of
company shareholdings are ready to respond to events occurring in companies. There
appears to be no definitive conclusion to be drawn concerning the engagement of
institutional investors, but there are several indications that only some are taking their
role seriously.58 This is certainly one reason why the FRC introduced the Stewardship
Code – to encourage greater institutional shareholder involvement.
The RMG Study asserted that market-wide monitors tend to primarily monitor the
availability of information on corporate governance statements that is produced by
companies, and in only some cases do they undertake some analysis of the value of the
statements.59 The study indicates that more monitoring is performed in EU Member
States where a blockholder system is in operation60 and this, of course, does not
include the UK.
Sridhar Arcot and Valentina Bruno found in one study61 that many companies
complied with the code provisions or they kept to the same explanations for non-
compliance year on end; they did not modify explanations. The researchers argue that
the most likely reason for this was that either shareholders did not attach sufficient
importance to explanations or they did not succeed in having statements improved in
quality. Equally reasonable explanations of this phenomenon are that the shareholders
were content with the quality of the statements and/or the company just decided to
54. MacNeil and Li, above n 34, p 492. This view appears to be affirmed by S Arcot and V
Bruno ‘In letter but not in spirit: an analysis of corporate governance in the UK’ (May 2006),
available at http://ssrn.com/abstract=819784 (accessed 22 February 2012).
55. FRC ‘Response to the European Commission Green Paper on the EU Corporate Gover-
nance Framework’ (2011) at 28 (Executive Summary), available at http://www.frc.org.uk/
images/uploaded/documents/FRC%20response%20to%20the%20Green%20Paper%20on%20
the%20EU%20corporate%20governance%20framework%20July%202011.pdf (accessed 15
March 2012).
56. According to the latest available report from the Office for National Statistics in Owner-
ship of UK Quoted Shares 2010 (28 February 2012) p 3, available at http://www.ons.gov.uk/
ons/dcp171778_257476.pdf (accessed 13 April 2012).
57. See B Cheffins ‘The stewardship code’s Achilles’ heel’ (2010) 73 MLR 1004, 1013, 1016.
58. For instance, above n 15, pp 47–52. Also, see M Goergen, L Renneboog and C Zhang ‘Do
UK institutional shareholders monitor their investee firms?’ [2008] 8 J Corp Law Stud 39;
P Santella et al, ‘Legal obstacles to institutional investor activists in the EU and in the US’
[2012] Eur Bus Law Rev 257.
59. Above n 15, p 11.
60. Ibid.
61. Arcot and Bruno, above n 54.
© 2013 The Author

move from non-compliance to compliance because circumstances had changed.62

Another viable reason is that investors did not voice any concern about what the
directors had done because of inertia or they simply did not know that there were flaws
in the statement.
Shareholders have a number of options available to them if they are dissatisfied
with what the board has done in relation to their corporate governance obligations
under comply or explain, but in practice many or all of them cannot be invoked, or if
they can they do not really contribute to the conclusion that the comply or explain
approach is effective, certainly as far as enforcement goes. The options include the
following for shareholders:63 divesting themselves of their shares;64 seeking to exert
pressure on the board for a change;65 exercising their voting rights;66 and bringing a
derivative action (under chs 1 and 2 of Part 11 of the Companies Act 2006) against the
directors for a breach of their duties, such as a breach of s 171(a) of the Companies
Act 2006,67 if the code provisions are incorporated into the company’s articles of
association.68
So, even if shareholders are willing to engage in monitoring their companies, it is
debatable as to whether they enjoy enforcement rights that will make a lot of differ-
ence. The fact is that enforcement is always the vital issue when it comes to deciding
between soft regulation and government regulation.69
(c) The statements associated with comply or explain

We have seen significant differences of opinion in the past as to what percentage of
companies are actually compliant with code provisions. For instance, in 2004, 47% of
companies believed they were compliant, while PIRC, in the same year, rated only
34% as compliant.70 Only a year earlier, Grant Thornton had estimated that only 7%
fell into this category.71 Recent studies suggest that the number of companies com-
plying with provisions of the CGC is quite high, with Grant Thornton in its 2011
62. In fairness, the researchers do recognise these reasons.

63. For greater discussion, see A Keay ‘Company directors behaving poorly: disciplinary
options for shareholders’ [2007] JBL 656.
64. This might well be embraced by small investors, but those holding larger volumes might
not be able to do so because of specific investment policies, contractual limitations or because
disposing of a significant block of shares could lead to a substantial loss that the investor is not
willing to sustain. See above n 15, p 71.
65. But unless a shareholder is a substantial investor or able to cobble together a coalition of
like-minded shareholders, then this is not likely to be very effective.
66. But shareholders might feel that their shareholding is too small to warrant a monitoring
strategy to enable them to exercise their voting rights to their advantage.
67. This provision states that directors have a duty to act in accordance with the company’s
constitution.
68. But to continue a derivative action, shareholders need the permission of the court, and the
case-law suggests that obtaining the permission of the court is not an easy task. See A Keay and
J Loughrey ‘Derivative proceedings in a brave new world for company management and
shareholders’ [2010] JBL 151.
69. E Wymeersch ‘Enforcement of corporate governance codes’ (2006) 6 JCLS 113 at 118; an
earlier version of the paper is available at http://ssrn.com/abstract=759364 (accessed 21 June
2012).
70. PIRC Corporate Governance Annual Review (2004).
71. Grant Thornton FTSE 350 Corporate Governance Review (2003).
© 2013 The Author

Corporate Governance Review72 finding that 50% of FTSE350 companies comply (an
increase from 47% in 2010),73 but that is only half of the story. The whole point of
comply or explain is to permit companies not to comply if they explain their reasons
for deviating from code provisions. Placing significant emphasis on compliance can
lead to a box-ticking approach to monitoring. The intention behind the CGC is not to
force companies to comply when they have good reasons for not doing so. So, the
statements of explanation that are given by companies are of potentially great import.
In a recent study of UK and German companies, Seidl, Sanderson and Roberts found
that, of the 257 UK listed companies studied, about 60% had at least one deviation
from the code provisions.74
Arcot and Bruno found in a study in 2006 that 17% of non-compliances are not
explained at all.75 In a later study in 2009, the same researchers, with Antoine
Faure-Grimaud,76 still found that nearly 20% of companies studied failed to provide
any explanations for their non-compliance.77 In a 2009 study, Seidl, Sanderson and
Roberts found that about 15% of the UK companies studied failed to provide expla-
nations for their deviation from the Combined Code.78 What is more, researchers have
found that companies that did not comply, but did purport to explain, did not do a good
job in providing explanations. This causes as much disquiet as the failure to provide
any explanations. In an earlier study of the UK’s Combined Code and the use of
comply or explain, Arcot and Bruno discovered that there were significant problems
with the quality of the explanations that were given.79 The researchers stated that there
was ‘frequent use of standard and uninformative statements when explaining their
departure from the best-practice’, resulting in lip-service being paid to the whole idea
of disclosure.80 They found that few companies over time changed their explanations
for non-compliance and either gave the same explanations from one time period to the
next or moved directly to compliance. The conclusion that is drawn is that companies
do not use comply or explain to ‘fine tune’ their governance arrangements in order to
address changing circumstances.81 In fact, there is evidence that the explanations of
companies from period to period are not consistent.82 The analysis of other research-
ers, such as Seidl, Sanderson and Roberts, also demonstrates that a substantial number
of companies in the UK have not tendered full and proper justifications for their
deviations from code provisions.83
The foregoing is supported by Grant Thornton’s 2011 Corporate Governance
Review,84 in which it was said that the percentage of informative disclosures in
72. Grant Thornton, above n 30, at 6.

73. A study of 257 listed UK companies by David Seidl, Paul Sanderson and John Roberts
seems to have found something similar: above n 25.
74. Ibid.
76. Arcot et al, above n 10, p 193.
77. Ibid.
80. Ibid.
81. Ibid.
82. Ibid.
83. Seidl et al, above n 23. This also seems to be the case in Belgium: S De Clyn ‘Compliance
of companies with corporate governance codes’ (2008) 3 J Bus Systems, Gov & Ethics 1 at
12–13.
© 2013 The Author

statements of explanation had dropped to 69% (down from 73% in 2010). The RMG
Study found that over 86% of the EU companies studied disclose some kind of comply
or explain information.85 But only 39% of all explanations were rated as sufficiently
informative. The RMG Study notes that the aggregate results of a director institute and
business association survey produced similar findings.86
In ‘Review of the effectiveness of the Combined Code’, the FRC acknowledged
that there had been criticism, by respondents to the FRC’s Call for Evidence on the
working of the Code, concerning the quality of explanations provided when compa-
nies chose not to comply with particular provisions of the Code.87 One respondent to
the FRC’s Call said that ‘not all companies provide adequate explanations for non-
compliance and some consider any explanation will suffice’.88 Another stated that
‘There have been many examples in recent times of a fundamental lack of
credibility in terms of the explanations provided, and poor practices by companies
in entering into dialogue with shareholders prior to announcing a major contra-
vention of the Code’s key principles.’89
To a similar effect, it would appear that there is a wide use of boilerplate state-
ments,90 something that was confirmed by some respondents to the FRC study in
2009.91 Boilerplating – that is, employing generic, non-specific statements that
provide little information – undermines efforts to make boards more accountable to
shareholders and to ensure that comply or explain works. This might be a reason for
the inclusion in many corporate governance statements of the explanation that non-
compliance was in ‘the best interests of the company’,92 which is a phrase that has
little real meaning. Arcot, Bruno and Faure-Grimaud93 have reported that while the
trend of compliance is upward, there is an increasing use of standard statements when
explaining non-compliance. In its aforementioned review of the effectiveness of the
Combined Code, the FRC noted the fact that investors and service providers were of
the view that boilerplate statements were overly used by companies.94 More recently,
in 2011 the FRC did admit that some companies continued to give only perfunctory
explanations – and at times no explanation at all.95 The finding of the RMG Study was
that providing incomplete information was something that had continued even in
85. Above n 15, p 13.

86. Ibid. Both the RMG Study and director institute and business associations studies found
the UK to be in the top four countries as far as disclosure was concerned.
87. FRC ‘Review of the effectiveness of the Combined Code: summary of the main points
raised in responses to the March 2009 Call for Evidence’ (July 2009) at 37, available at
http://www.frc.org.uk/documents/pagemanager/frc/Combined_Code_2009/
Web_changes_to_2009_Review_of_the_Combined_Code_July_2009/
FRC%20Summary%20of%20responses%20to%20March%202009%20consultation.pdf
(accessed 22 March 2012).
88. Ibid. The respondent was the Investment Management Association.
89. Ibid, p 38. The respondent was Railpen Investments.
90. Moore, above n 9, p 103; above n 15, p 152.
91. FRC, above n 87, p 38.
92. Moore, above n 9, p 127.
93. Arcot et al, above n 10.
94. FRC, above n 87, pp 37, 38.
95. FRC ‘Developments in corporate governance 2011’ (December 2011) at 3, available
at http://www.frc.org.uk/images/uploaded/documents/Developments%20in%20Corporate%20
Governance%2020116.pdf (accessed 15 March 2012).
© 2013 The Author

countries where comply or explain had a long existence.96 And there is no provision in
Directive 2006/46/EC concerning the minimum content of any corporate governance
statements. The content and quality of statements differs significantly around the EU
‘from market to market, company to company, and provision to provision’.97
There is other evidence that companies engage in boilerplating when they have to
provide non-specific information. For instance, this is the situation with statements
made by UK listed companies and included in the company’s Business Review (BR).
The BR is a document that listed companies are required, under s 417 of the Com-
panies Act 2006, to include in the Directors’ Report. The empirical evidence that is
available suggests that some companies engage, as far as constructing some parts of
the BR are concerned, in boilerplating.98 An example is where companies have to
disclose risk factors.99
Directors might be tempted to justify the failure to provide high-quality explana-
tions on the basis that to do so is costly.100 Shareholders might appreciate this fact, but
would surely prefer to be fully informed. In any event, prospective investors would not
be appreciative of the saving of cost, as they would want as much disclosure as
possible to enable them to factor what is disclosed into the data that they have, and
which will be relied on in their decision as to whether or not to invest. Other boards
might be wary of being too informative in case it eventuates that what they are
disclosing is incorrect, leading to reputational and legal consequences.101 Yet other
boards might point to the fact that there is no guidance on what is an adequate or
proper explanation; codes simply do not give any indications whatsoever.
If a company provides an explanation that is not sufficiently substantial (or accu-
rate), a shareholder encounters the problem of not being able to assess the explanation
and is faced with the option of either accepting the view of the board or coming to the
conclusion that non-compliance was not justified, but being virtually powerless to do
anything about it.102
One of the shortcomings of the present system is that there is significant subjec-
tivity. The directors comply with what they feel is appropriate and they explain
reasons for non-compliance in the terms that they feel is apposite. A lot rides on the
discretion of the board. This is fine to a point, because the board must be given
discretion and authority to get the job done, but the fact is that they determine what is
explained and how it is explained, and that limits the accountability of the board
significantly. This position is exacerbated further by the fact that there is no common
ground on how comply or explain is satisfied, and no principles or even guidelines for
directors as to what constitutes proper or acceptable explanations. The fact is that
whether or not an explanation is adequate is a highly subjective matter.
96. Above n 15, p 181.

97. Ibid, p 83.
98. P Taylor ‘Enlightened shareholder value and the Companies Act 2006’, unpublished PhD
thesis, Birkbeck College, University of London (May 2010) at 186; C Villiers ‘Narrative
reporting and enlightened shareholder value under the Companies Act 2006’ in J Loughrey (ed)
Directors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis (Cheltenham:
Edward Elgar, 2012) at 118.
99. Taylor, above n 98, p 196.
100. R Hooghiemstra ‘What determines the informativeness of firms’ explanations for devia-
tions from the Dutch corporate governance code?’ (2012) 42 Account & Bus Res 1 at 6–7.
101. P Healy and K Palepu ‘Information asymmetry, corporate disclosure and the capital
markets: a review of the empirical disclosure literature’ (2001) 31 J Account & Econ 405.
102. MacNeil and Li, above n 34, pp 489–490.
© 2013 The Author

The FRC has in fact admitted that there is a problem as to what constitutes an
explanation under comply or explain, and it recently held two discussion meetings
with companies and investors to address this issue. It then published a report on
comments made at the meetings.103 What was proposed at the meetings was that for
meaningful explanations the company’s statement should entail a full explanation and
that this should involve: a setting of the context and historical background; a convinc-
ing rationale for the action that was taken; and a description of mitigating action to
address any additional risk and to enable there to be conformance with the relevant
principle.104 But whether this is done and how it is done is, again, a matter for the
directors.
While the majority of respondent institutional investors to the RMG Study in 2009
supported comply or explain, they did point to the fact that there was a low disclosure
quality to company statements.105 The study found that only a quarter of respondent
investors were of the opinion that the quality of disclosure was good enough.106
Clearly, the study demonstrates that many investors across Europe are not completely
satisfied with the quality of company disclosure. Twenty per cent of investor respon-
dents were of the view that the quality was poor and a substantial proportion (47%)
thought that it was average at best.107
There are indications that even when given, explanations are not regularly exam-
ined. Arcot, Bruno and Faure-Grimaud found, in a broad empirical study involving
245 UK non-financial companies, that shareholders, especially of widely held com-
panies, do not pay much attention to the quality of explanations that are provided.108
The researchers actually went on to say that the market as a whole appeared to be
ignoring the explanations that are given.109 But the whole idea of comply or explain
was to encourage shareholders to scrutinise explanations and then to lobby for a
change of approach, or some other action, if they did not find the explanations either
adequate or convincing.
The problem that shareholders often have is that in order to properly evaluate the
accuracy or value of statements made by companies, they would have to be privy to
non-public documents or information, and generally they are not. Likewise, the
shareholders might not be able to assess whether the company was justified in not
complying.
Seidl, Sanderson and Roberts have said that their findings concerning the fact that
a fairly large percentage of companies provided no explanations for their failure to
comply with code provisions might suggest that such companies do not see the capital
market and, more specifically, their shareholders, to be effective or relevant code
monitors.110 To put it more harshly perhaps, such companies, or at least some of them,
regard shareholders with some contempt. The board might ask itself: how much is
103. FRC What Constitutes an Explanation under Comply or Explain? (February 2012),
available at http://www.frc.org.uk/images/uploaded/documents/FRC%20explanations%20
paper%200301121.pdf (accessed 28 June 2012).
104. Ibid, p 6.
105. Above n 15, p 12.
106. Ibid, p 13.
107. Ibid, p 155.
109. Ibid.
© 2013 The Author

sufficient to ensure explanation of deviation? But this could be replaced with the
question: how much can we get away with?111
Clearly, the FRC has acknowledged the problem and the need for some action to be
taken with respect to statements that are given to explain deviations from the CGC,
and so that there are clear and meaningful explanations given by companies.112 As a
consequence, it stated that its work plan for 2012–2013 includes a continuation of its
efforts to promote better-quality explanations by companies if they decide to depart
from the CGC’s provisions.113 Subsequently, in its Consultation Document on revi-
sions to the CGC, the FRC114 has said that it will set out in the Preface to the CGC the
characteristics that mark an informative explanation, as discussed in its earlier paper,
in February 2012, ‘What constitutes an explanation under comply or explain?’115
Undoubtedly there are problems where companies do not comply with code pro-
visions, and do not provide any explanation(s). Also, many of those companies that do
not comply fail to give any explanations whatsoever. Further, many of those compa-
nies that do submit explanations do not provide good quality ones. It might be
concluded that while the code encourages compliance, it does not ensure informative
explanations of non-compliance.116
3. OVERSEEING COMPLY OR EXPLAIN
(a) Introduction
The above suggests that in two ways comply or explain is not effective. First, the
essential idea behind the adoption of comply or explain is that the shareholders and the
markets will assess what the company has done and judge it accordingly. It is
envisaged that if the company does not explain why it has failed to comply or its
explanation is not adequate enough, then the shareholders and the markets will
respond and force the company to make good its deficiencies. The responsibility for
enforcing comply or explain generally rebounds on the investors.117 The research
suggests that investors do not monitor sufficiently and do not generally bother to
engage in any assessment of what companies have done or not done. This is due partly
to the fact that monitoring the veracity of explanations is not easily done and if it is
done it is costly, and this is typically a reason for the lack of shareholder intervention
except at times when there is poor company performance.118
111. A Belcher ‘Regulation by the market: the case of the Cadbury code and compliance
statement’ [1995] JBL 321 at 331.
112. FRC ‘Revisions to the UK Corporate Governance Code and Guidance on Audit Commit-
tees’ (April 2012) at 7, available at http://www.frc.org.uk/documents/pagemanager/Corporate_
Governance/April_2012/Cons%20Doc%20UK%20Corp%20Gov%20Code%20and%20
Guidance%20on%20Audit%20Committees.pdf (accessed 28 June 2012).
113. Draft Plan and Budget 2012/13 (March 2012) p 4, available at http://www.frc.org.uk/
images/uploaded/documents/FRC%20draft%20plan%20and%20budget%202012-131.pdf
(accessed 28 June 2012).
114. Above n 115, p 1.
115. FRC, above n 103.
117. EC The EU Corporate Governance Framework, COM(2011) 164 para 3.2, available at
http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf#page=2
(accessed 16 April 2012).
© 2013 The Author

Secondly, it would appear that, overall, companies do not provide sufficiently

high-quality explanations for their decisions not to comply with their deviation from
compliance with the code provisions, and this failing is exacerbated by the fact that
shareholders do not assess the explanations that are given.
(b) The introduction of a regulator/monitor

It would appear that some action needs to be taken to ameliorate the position that
exists at present. One possibility is to introduce greater regulatory oversight. Many EU
Member States, including the UK, do not have any regulator/monitor that checks
whether companies are complying, and, if they are not, whether their explanations are
adequate. This part of the paper examines, first, whether it is desirable and then if it
is, whether, secondly, it is feasible, to provide that the actions of companies in
complying or explaining are subject to the oversight of a regulator/monitor.
We begin from the premise that more regulation will not necessarily provide us
with a better system. There is no guarantee that a regulator would identify failures to
comply and/or ascertain whether explanations were adequate. But a regulator is
probably likely to have more chance of detecting problems than shareholders, even
those that are large institutional investors. And we have seen that there are flaws in the
operation of comply or explain that do need addressing. Recently, and notwithstand-
ing the fact that the EC has endorsed comply or explain, in a consideration of
remuneration and financial institutions, it has averred that comply or explain has
important shortcomings.119
As we have seen, the burden falls on shareholders to monitor the activities of
directors and ascertain if they fail to comply or explain, and if the directors do not do
so, to do something about it. The monitoring responsibility of shareholders is unregu-
lated, although in the UK the FRC has sought to encourage monitoring by institutional
investors; and, in particular, it has done this with the introduction of the Stewardship
Code as a response to the findings and comments of the Walker Review.
As far as the need for explanations goes, Arcot, Bruno and Faure-Grimaud assert
from the findings of their empirical research that we have to find ways to cause a
change in the attitude of shareholders towards explanations.120 While comply or
explain has engendered substantial support and acceptance, there are weaknesses in its
implementation, most notably when it comes to monitoring by shareholders and the
level and quality of the information in statements explaining companies’ deviations
from the code provisions.121 This causes one to consider whether the principle could
be improved by the granting of monitoring and enforcement duties to a regulatory
body. It is quite likely that if there was a regulator overseeing the process, there would
have to be more particularisation of the statements that explain a company’s position.
At the moment, in the UK there is some light touch monitoring and enforcement
from the FSA:
‘If a company fails to include a statement in the required form, it may,
however, use its enforcement powers, including its fining powers, against that
119. ‘Corporate governance in financial institutions and remuneration policies’ COM(2010) 84

at 6, available at http://ec.europa.eu/internal_market/company/docs/modern/com2010_284_
en.pdf (accessed 27 April 2012). Also, see the comments of Marc Moore, above n 9.
120. Arcot et al, above n 10, p 194.
121. Above n 15, p 18.
© 2013 The Author

company. The FSA monitors compliance with the Rules by sampling a number of
annual reports on a routine basis.’122
But, ‘[t]he Financial Services Authority, as Listing Authority, makes no judgement
on the accuracy or adequacy of the compliance statements made by listed companies:
these are matters for the judgement of directors and shareholders’.123 The FRC made
this clear when it stated in the Preamble to the 2006 version of the Combined Code
that ‘It is for shareholders and others to evaluate the company’s statement.’124 This was
omitted from the 2008 version and the CGC, but it remains implicit.
Arguably, because the CGC is not the only mechanism that makes the direc-
tors accountable for what they do or do not do, as there are, inter alia, reporting
requirements, directors’ duties, derivative actions, power to remove directors and
voting rights for shareholders, it is sufficient as formulated. But the concern is,
as indicated earlier, that so much is placed on comply or explain in the Code and
the other mechanisms are not optimal in calling the directors to account suffi-
ciently, partly because the implementation and enforcement of these mechanisms is
difficult.125
The idea behind comply or explain, as we have seen, is to encourage shareholders
to scrutinise explanations and then to lobby for a change of approach, or take some
other action, if they did not find the explanations convincing. But, in the section of the
CGC that is titled, ‘Comply or Explain’,126 there is a pointed remark directed to
shareholders that they are entitled to challenge explanations of boards concerning
non-compliance with the Code’s provisions where the explanations are unconvincing,
but that the explanations are not to be assessed in a mechanical fashion. This might be
seen as an implicit caveat that shareholders should not aim either to call into question
what the directors have decided to do regularly or to put into effect the enforcement
aspect too frequently.
In a few EU Member States, there is an official kind of monitor who engages in
market-wide monitoring and publishes a form of analysis of statements made by
companies.127 Patently this does not happen in the UK and many other states; it is the
investors as the end users of statements who are to conduct the monitoring and
investigation. In the UK, this state of affairs exists as part of a clear policy. In some
Member States where an official monitor exists, the monitor seeks to verify the
availability of information that is disclosed by companies, and some have the power
to impose sanctions for failure to comply. In Spain the regulator, the Comision
Nacional del Mercado de Valores (CNMV), has monitoring powers under the
122. FRC ‘Regulatory impact assessment: Combined Code on Corporate Governance’ (July
2003) at 6, available at http://www.ecgi.org/codes/documents/regulatoryimpact.pdf (accessed 9
March 2012).
123. Ibid, p 6.
124. FRC ‘The Combined Code on Corporate Governance’, June 2006, para 4, available at
http://www.slc.co.uk/media/78872/combined_20code_20june_202006.pdf (accessed 25 March
2013).
125. For instance, see A Keay ‘Company directors behaving poorly: disciplinary options for
shareholders’ [2007] J Bus Law 656.
126. FRC ‘UK Corporate Governance Code’, September 2012, para 4 at 4, available at
http://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-
Governance-Code-September-2012.aspx (accessed 25 March 2013).
127. Above n 15, p 178.
© 2013 The Author

Securities Market Law and Order128 under which it is entitled to order companies to
make good omissions as far as failure to comply. It also has the power to ensure that
companies provide sufficient information that explains the reasons for the company’s
deviation from the code.129 The regulator’s findings are published with the aim of
enabling shareholders to make a judgement about the action of the company in not
complying on a particular issue. The publication of details is often accompanied by
expressions of good practice.130 In Slovenia, the Securities Markets Agency, the
Slovenian corporate regulator, monitors the accuracy of statements, and the aim is to
ascertain whether companies have truthfully revealed which code requirements they
have not adhered to and whether they have given adequate explanations for devia-
tions.131 An approach that is different from the Spanish and the Slovenian is that of the
Dutch. Under the Dutch system, there is no corporate regulator who monitors, but
instead the Dutch Corporate Governance Code Monitoring Committee, the committee
that has the function of ensuring that the corporate governance code is current and
practicable, has determined that it will hold companies accountable for failing to
comply and not providing a statement explaining the non-compliance.132 At present no
explanation has been given as to how the committee will do this and what processes
it will follow.
The idea of having some form of regulatory oversight of comply or explain is not
new. For instance, as part of its review of the Combined Code in 2009, one respondent
to the FRC’s Call for Evidence said that
‘Given that the public at large evidently no longer has confidence in the
current manner in which the Combined Code is implemented in practice, I recom-
mend that the FRC abandons the ‘comply or explain’ mechanism . . . [and] actively
monitors and applies sanctions for non compliance with the Code.’133
In one of its most recent Green Papers on corporate governance, the EC accepted
the fact that comply or explain was generally favoured by a broad section of people;134
however, it picked up on the finding of the RMG Study that over 60% of explanations
given by companies were not sufficient.135 The Green Paper suggests that a better
approach would be if monitoring bodies such as securities regulators, stock exchanges
or other authorities were empowered to scrutinise available information and determine
whether or not it is adequately informative and comprehensive.136 It was suggested
that where there are serious cases of non-compliance or a failure to explain deviation,
128. ECO 3722/2003 of 26 December. See Spanish Unified Good Corporate Governance Code
(2006) at 7, available at http://www.cnmv.es/DocPortal/Publicaciones/CodigoGov/Codigo_
unificado_Ing_04en.pdf (accessed 28 January 2013).
129. See http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-
framework/individual-replies/spanish-cnmv-advisory-board_en.pdf (accessed 28 January
2013).
130. Above n 15, p 179.
131. Ibid, p 166. The regulator acts under the Securities Markets Act, available at http://
www.ebrd.com/downloads/legal/securities/slovsm.pdf (accessed 28 January 2013).
132. R Abma and M Olaerts ‘Is the comply or explain principle a suitable mechanism for
corporate governance throughout the EU? The Dutch experience’ (2012) 9 Eur Company Law
286 at 298.
133. Above n 87, p 3. The comment was made by Timothy Boatman.
134. EC, above n 117.
135. Ibid, para 3.1.
136. Ibid, para 3.2.
© 2013 The Author

then formal sanctions might be appropriate.137 The Green Paper invited views on the
proposal for authorising a regulator to check statements. It was said that one way of
ameliorating the present situation would be to make corporate governance statements
regulated information within the meaning of Art 2(1)(k) of the Transparency Directive
(2004/109/EC).138
The response of the UK’s Department of Business Innovation and Skills to this
proposal was negative. It stated that monitoring bodies should not be assigned the
role of checking the quality of explanations, and it went on to say that comply or
explain statements should not become regulated information under the terms of the
Transparency Directive.139 The FRC also vented its opposition to the EC proposal.140
The FRC stated the fact that it believes strongly that explanations in relation to
codes are directed at shareholders and it is up to them to decide whether to accept
or reject explanations, and ultimately whether to dismiss boards. Concern was mani-
fested by the FRC in relation to the EC suggestion, as the regulator would be
‘usurping the right of shareholders to assess the acceptability of explanations which
is an essential pillar of the comply-or-explain concept’.141 According to the FRC,
this approach does not permit companies to regulate themselves.142 To a point, this
is correct. As mentioned above, shareholders do have the right and power to do
something if they are not happy with what the board has done. But the fact is that
it is the boards themselves that determine with which parts of the code the company
complies and what to say by way of explanation where the company deviates. And
a company statement that a company complies with particular provisions of the
code is not easy to verify.143 Furthermore, any explanations of deviation are difficult
for shareholders to appraise in many instances. But the FRC stated that comply or
explain does not merely rely on shareholders to monitor what companies are doing.
It points to governance service providers, the financial Press and other organisations
such as the Association of British Insurers as active monitors of the actions of
companies.144
The FRC said that it felt that authorising a regulator to check governance state-
ments could not be achieved, in any event, until there was consensus in each market
concerning what actually constitutes an explanation. The FRC explained that it
had some unease with the EC suggestion in its Green Paper, as it felt that it could lead
to a ‘compliance-driven box-ticking approach’145 whereby lawyers would be tempted
to consult the regulator before the preparation of statements to see whether they are
137. Ibid.
138. Ibid.
139. Department of Business Innovation and Skills ‘UK government response to European
Commission Green Paper: The EU Corporate Governance Framework’ (July 2011) at
17, available at http://www.bis.gov.uk/assets/biscore/europe/docs/u/11-1097-uk-government-
response-eu-corporate-governance-framework (accessed 12 September 2012).
140. FRC ‘Response to the European Commission Green Paper on the EU Corporate Gover-
nance Framework’ (2011), available at http://www.frc.org.uk/images/uploaded/documents/
FRC%20response%20to%20the%20Green%20Paper%20on%20the%20EU%20corporate%20
governance%20framework%20July%202011.pdf (accessed 15 March 2012). It reiterated its
opposition in a later report: FRC, above n 103.
141. Ibid, p 5.
142. Ibid, p 3.
143. MacNeil and Li, above n 34, p 488.
144. Ibid, p 5.
145. Ibid, p 6.
© 2013 The Author

acceptable, and this would mean that shareholders would be ‘out of the loop’.146 The
FRC made the counter-proposal that once there was clarity concerning the nature of
appropriate explanations, shareholders could be encouraged to pass on to the regulator
those explanations that they thought failed to satisfy the agreed criteria, after the
shareholders had raised the matter with the board and the latter had failed to provide
a more informative explanation. The regulator would then be authorised to seek a
better explanation from the company.147 The problem with this suggestion is threefold.
First, it does not address the issue of shareholders not monitoring explanations and not
having the opportunity or power to verify explanations. In fact, later in its document
the FRC admits that where there is dispersed ownership of shares, as in the UK, it can
create obstacles to shareholders being able to effectively hold boards to account.148
Secondly, the FRC’s suggested process could lead to a long-drawn-out process that
would provide companies that either did not want to say anything, or to say anything
further on the one hand, or thought that what was being required of them was a waste
of time on the other, with an opportunity to procrastinate, with the hope, perhaps, that
shareholders would give up. Thirdly, there appears little incentive for shareholders to
refer statements to a regulator. It could well lead to extra work and cost and that would
not be attractive for any shareholder.
It is not only the UK government and the FRC that are opposed to what the EC has
actually proposed. A group of leading European company lawyers indicated its oppo-
sition to the proposal of the monitoring of corporate governance codes being promoted
at the EU level. It felt that the use of the usual supervisory measures and sanctions
would undermine the debate with shareholders and the voluntary nature of the code.149
The experts were also concerned that the quality of the explanation might come under
threat if there was to be a risk of legally enforceable sanctions, but it accepts, as do
several studies, that levels of explanation are low. Nevertheless, the experts are in
favour of national supervisors verifying compliance with the code and, where there
was not compliance, to investigate the reasons for this and recommend action to
ensure compliance or proper explanation.150
For comply or explain to work in its present form as an effective accountability
mechanism, the market needs to develop and maintain a clear understanding of what
constitutes an explanation. We have seen that this is a problematic issue, as there is no
clear understanding concerning the adequacy of explanations. If regulators have a
role, then the FRC argues that it should be in support of shareholders rather than as
a substitute for them.151 The FRC would probably point to the Stewardship Code as a
mechanism that will encourage more shareholders to hold directors to account, and
that will deal with the shareholder engagement problem that was identified earlier. The
FRC has said, in a recent consultation paper dealing with revisions to the Stewardship
Code,152 that many respondents to the ‘Kay Review of UK Equity Markets and
146. Ibid.
147. Ibid.
148. Ibid, p 28 (Annex 1).
149. European Company Law Experts’ Response to the European Commission’s Green Paper
(P Davies et al) ‘The EU Corporate Governance Framework’ (22 July 2011) p 23, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1912548 (accessed 12 September 2012)
150. Ibid, pp 23–24.
151. FRC, above n 103.
152. FRC ‘Revisions to the UK stewardship code’ (April 2012) at 1, available at http://
www.frc.org.uk/documents/pagemanager/Corporate_Governance/April_2012/Cons%20Doc
%20UK%20Stewardship%20Code.pdf (accessed 27 April 2012).
© 2013 The Author

Long-Term Decision Making’153 expressed satisfaction with the Stewardship Code.

But it is likely that even if these measures address to some degree the issue of
shareholder engagement, they are not going to provide a broad investor response, for
reasons given earlier, and the measures will not deal with the issue of defective
explanations.
Clearly, there is concern amongst some that the code scheme is not optimal as far
as ensuring that there is the level of accountability that is appropriate. For instance, the
FRC disclosed in its ‘Review of the Effectiveness of the Combined Code’ document
in 2009 that a small number of respondents154 thought that consideration should be
given to the FRC or another body being more active in monitoring.155 Conceivably this
could lead to a greater sense of accountability, which would generally be seen as
positive, but the FRC wishes to ensure, it would seem, that the onus should be on the
shareholders to engage in monitoring, and whether action is taken should be some-
thing that is left to the markets.
Of course, because there is difficulty in knowing whether an explanation should be
given, and, if so, in what terms, the establishment of a regulator with authority over
comply or explain does not mean that all problems are solved. It would seem that to
ameliorate the present situation a regulator, at the very least, would have to provide
some guidelines for boards. Formulating these would not be an easy task. One reason
is that, as we have noted, all companies are different and one size cannot fit all. But
does the fact that the introduction of a new scheme would not be easy constitute a good
reason to say that the present state of affairs should remain? Clearly not. Two things
that are in favour of the appointment of a regulator are that at least it might make
shareholders feel more protected, and that directors might be deterred both from
refraining to provide any explanation and/or from churning out boilerplate or other
statements lacking in quality.
Obviously, if a regulator is appointed, then certain advantages of soft law that exist
with codes are lost. For instance, there is likely to be more cost involved,156 and it
could lead to a feeling of ‘us and them’. But other advantages of soft law, such as the
existence of flexibility, should not be lost.
If there is to be any regulatory oversight, the European Corporate Governance
Forum appears to want it to be minimal. It is of the view that the statements that
explain the areas of compliance, as well as the reasons for non-compliance, are a
matter for the board and for review and discussion with the shareholders. It believes
that regulatory authorities should limit their role to checking the existence of the
statement, and to reacting to clear misrepresentations of fact. The forum made it
plain that in its opinion a regulatory authority should not attempt to second-guess
the judgement of the board or the value of its explanations, which is an issue for the
shareholders.157
The RMG Study took the view that comply or explain could function better if
monitoring powers were given to ‘market-wide monitors’. It was proposed that such
153. Interim Report (February 2012), available at http://www.bis.gov.uk/assets/biscore/

business-law/docs/k/12-631-kay-review-of-equity-markets-interim-report (accessed 27 April
2012).
154. These included Grant Thornton and the Chartered Institute of Management Accountants.
155. FRC, above n 87, p 39.
156. See R Winter ‘State law, shareholder protection, and the theory of the corporation’ (1977)
6 J Legal Stud 251 at 258.
157. Above n 17.
© 2013 The Author

monitors would be granted independence and would engage in assessing the infor-
mation value of company statements. Further, they would publish analyses of their
monitoring activities and engage with companies in relation to the content of their
disclosures.158
It is relatively easy to verify that a company has provided a statement that it has
adhered to the code provisions, and that it has published explanations of its deviation
from the code provisions. As one would expect, checking whether in fact code
provisions have been complied with and whether an explanation of non-compliance
provides sufficient information is more difficult. This is because, first, detecting and
then determining whether a statement explaining the reason for non-compliance is
accurate is likely to be reasonably exacting and time-consuming for a monitor; hence
a monitor would not be able to pursue consideration of all companies’ statements. It
would seem that in countries where there are monitors of corporate governance
statements, they do not check systematically the accuracy of information.159 This is
understandable and, therefore, it would seem that if regulatory oversight were to be
introduced to the UK and other Member States, the regulator would have to engage in
a random examination of the statements of companies, supplemented by other exami-
nations, undertaken when it had reasonable cause to investigate a particular compa-
ny’s statement(s). Secondly, evaluating statements made by boards explaining reasons
for non-compliance involves qualitative judgements and can be even harder.160
Earlier, I mentioned that a few EU Member States have an official monitor that
engages in market-wide monitoring of companies. To date, those who have had the
power in certain EU Member States to monitor companies’ statements have not
wielded significant power. They have never checked the accuracy of information that
has been provided in statements by companies or imposed sanctions. An example is
the Italian Commissione Nazionale per le Societa e la Borsa (CONSOB), which was
granted the power to determine the accuracy of disclosed information. Its power was
repealed in 2006 because of the difficulty experienced in undertaking the role
assigned.161 Nevertheless, the RMG Study concluded that analysis of what occurs in
some EU Member States that make provision for a regulator/monitor indicates that the
comply or explain principle can be more useful and can lead to enhanced corporate
governance practices.162
Because many are concerned about introducing regulation, the body that is deputed
to act in relation to overseeing the operation of comply or explain could be referred to
as a monitor rather than a regulator, and it should be granted defined and reasonably
narrow powers, as this might offer some comfort to those who believe that introducing
greater regulatory oversight will attenuate the present soft law system.
(c) Sanctions
One clear issue tied to any oversight role of a regulator is what enforcement measures
should be devised and whether any sanctions are to be provided for, and, if so, how
severe should they be? Some commentators see the fact that there is generally no
158. Above n 15, p 16.

159. Ibid, p 64.
160. Ibid, p 60.
161. Ibid, p 64.
162. Ibid, p 179.
© 2013 The Author

penalty attaching to companies that fail to comply with voluntary codes as a signifi-
cant weakness of such codes.163 The introduction of a stricter oversight process would,
arguably, only be effective if there were potential sanctions tied to non-compliance or
failure to explain properly. In fact, in the EC Green Paper164 it was stated that the
absence of penalties can render soft law ineffective. In their recent study, Reggy
Hooghiemstra and Hans van Ees demonstrate that self-regulatory mechanisms may
well fail if there are no external pressures such as sanctions.165
The imposition of sanctions would be, as the RMG Study mentions, a delicate
procedure because of the potential prejudice to investors.166 Also, it would be difficult
to know what kind of penalties should be provided for, when to impose penalties and
the extent of the penalties.167 It is not always necessary for a strong sanction to be
imposed to make the process workable. It would probably be more appropriate to
employ ‘softer’ penalties that are regarded as informal enforcement measures,168 and
at the low end of the pyramid of regulatory enforcement that has been used frequently
by regulators.169 These kinds of penalties seek to persuade boards along the right path
rather than beating them into submission. In fact, softer penalties might be viewed as
consonant with the informal code process. One would be careful about implementing
a strategy that is focused on punishment, as that is likely to undermine the goodwill of
those actors who are motivated to comply because they desire to be responsible. Per-
haps the lightest ‘penalty’ would be for the regulator to convey to the company board
informally that the principle has not been adhered to, together with the threat of
further action if the company does not rectify its failings. As far as the provision of
information by a company is concerned, the regulator could indicate to the company
how it could be improved in succeeding statements.
A strategy based totally on persuasion will be exploited by those companies who
are making decisions based on economic rationality, so this type of approach probably
needs to be supported by something that is harsher. A second alternative is for the
regulator to make a determination concerning breach of the principle and have this
determination publicised. This would provide a public censure of companies who fail
to comply. This is effectively a form of ‘naming and shaming’,170 and is likely to have
a greater effect on the reputation of the company and board members. Sylvia
Karlsson-Vinkhuyzen and Antto Vihma have found that soft sanctions that are likely
to impact on a company’s reputation may create a critical incentive in a board’s
163. See eg A Anand ‘Voluntary vs mandatory corporate governance: towards an optimal

regulatory framework’ (2005) at 10, available at http://law.bepress.com/15th/baszaar/art44
(accessed 12 September 2012).
164. ‘Corporate governance in financial institutions and remuneration policies’ COM(2010)
285 at 6, available at http://ec.europa.eu/internal_market/company/docs/modern/com2010_
284_en.pdf (accessed 27 April 2012).
165. Hooghiemstra and H van Ees, above n 28, p 481.
166. Above n 15, p 62.
167. Ibid, p 64.
168. Armour, above n 37. This approach has been successful in Australia: M Welsh ‘New
sanctions and increased enforcement activity in Australian corporate law: impact and implica-
tions’ (2012) 41 Common Law Wld Rev 134 at 140.
169. For discussion of the pyramid, see J Ayres and J Braithwaite Responsive Regulation:
Transcending the Deregulation Debate (New York: Oxford University Press, 1992).
170. A measure supported in the European Company Law Experts’ Response to the European
Commission’s Green Paper: Davies et al, above n 149, p 24.
© 2013 The Author

compliance with a code,171 and so this mechanism seems to be attractive. The

approach involves the added benefit of keeping down costs for government and
companies alike. The publication of the determination of a regulator might lead to
other action by shareholders. The public dissemination of a determination of a regu-
lator that the corporate governance statements of a company have been provided in an
accurate or misleading fashion might also lead to proceedings being instituted by third
parties who have been misled.
It is likely that any of the above outcomes would be far better and more appropriate
than the handing down of some externally imposed sanction,172 which might be seen
as heavy-handed.
(d) Final reflection on the issue

So should a regulator be appointed to oversee comply or explain? Grant Thornton said
in its 2011 Corporate Governance Review173 that there is a hard core of companies that
provide minimal information and it is likely that only regulatory oversight will cause
them to change their ways. Also, it is possible that in the wake of the global financial
crisis, the public might expect some form of regulatory oversight of the response of
companies to the code.174 There is research undertaken in Australia that has found that
activity by a regulator is a major element in encouraging compliance by companies,175
and so such a process might have the same effect in relation to comply or explain. The
Hooghiemstra and van Ees study, referred to earlier, demonstrates that regulatory
enforcement is an important driver in securing a company’s compliance with soft law
and that some sort of regulator/monitor should act as an enforcer.176 So, there is much
to recommend the establishment of a regulator, but what must be ensured, as adverted
to by the RMG Study, is that the introduction of oversight by a regulator will promote
comprehensive and trustworthy disclosure, yet at the same time not reduce the quality
of the information that is given.177
There is no suggestion by anyone that the introduction of a monitoring regulator
will absolve investors from continuing to be responsible for undertaking some engage-
ment with the companies in which they have investments. It would be beneficial,
undoubtedly, for there to be dialogue between investors and a regulatory body that was
established to monitor.
CONCLUSION
The UK and other countries in the EU and around the world have as a central plank
of their corporate governance regime a voluntary code that has comply or explain at
171. Karlsson-Vinkhuyzen and Vihma, above n 1, p 406.

172. This is something that was raised in the ‘Study on monitoring and enforcement practices
in corporate governance in the member states’: above n 15, p 69.
174. See the comments of Hector Sands in his speech ‘Delivering effective corporate
governance: the financial regulators [sic] role’, Merchant Taylors’ Hall, London (24 April
2012), available at http://www.fsa.gov.uk/library/communications/speeches/20120424-hs.shtml
(accessed 21 June 2012).
175. Welsh, above n 172, p 136.
176. Hooghiemstra and van Ees, above n 28, pp 481, 493.
177. Above n 15, p 16.
© 2013 The Author

its core. It has been said that experience demonstrates that where countries have
implemented comply or explain, it leads to a movement of convergence towards better
governance practices.178 The perception of comply or explain in the UK is very
positive,179 and across Europe 77% of the investor respondents to the RMG Study
indicated their support for comply or explain.180 In fact, all of the actors involved in the
corporate governance process in the EU provide broad support for the principle.181 A
wide-ranging study conducted in 2009 found that most of its respondents considered
soft regulation that utilises comply or explain to be an effective regulatory tool.182 The
respondents were companies and directors, and one might well expect them to support
it. But, also, the majority of respondent institutional investors supported the prin-
ciple.183 However, the RMG Study, while accepting the fact that the principle is
considered an appropriate and efficient regulatory mechanism by many actors and
regulators, found that there is a broad consensus that the approach operates in a way
that is flawed,184 and the deficiencies with the principle that can be identified can
hinder the emergence of even better corporate governance practices.185
As far as the effectiveness of comply or explain goes, it would seem that there are
two main problems that it faces. The first is that there is a lack of shareholder
engagement with the principle. This is a matter of significant concern, as the principle
is predicated on the basis that the shareholders will be the ones who will monitor
board compliance with code provisions; and that if they do not comply, shareholders
are to ensure that the board provides adequate explanations for deviating. Secondly,
statements by companies that are designed to explain why the company has not
complied are often very brief and uninformative.186
As a result of these problems, the paper has examined whether the establishment of
a regulator whose role is to ensure that comply or explain is being implemented
properly is a step that could ameliorate the present situation. While there are potential
drawbacks with this innovation, it has been suggested here that serious consideration
should be given to making provision for a regulator/monitor to oversee the corporate
government statements of companies. It has been submitted that if this action were
taken and concomitant soft sanctions were provided for in respect of board failure to
comply or explain properly comply or explain could be more effective. This accords
with the approach advocated recently by the EC in a Green Paper when it stated that
the comply or explain concept would work better if regulators or other authorities had
the power to check that companies had in fact complied with code provisions when
they did not provide explanations for non-compliance, and to evaluate explanations
for deviating from the code.187 Such a move would mean that appropriate sanctions
have to be introduced for board failures. It is arguable that an array of ‘soft’ sanctions
could be provided for. These could include, first, the regulator conveying to the
178. Above n 17.

179. Above n 15, p 150.
180. Ibid, p 165.
181. Ibid, p 166.
182. Ibid, p 12.
183. Ibid.
184. Ibid, p 13.
185. Ibid, p 166.
186. MacNeil and Li, above n 34, p 489.
187. EC ‘The EU: Corporate Governance Framework’ (2010), available at http://ec.europa.eu/
internal_market/company/docs/modern/com2010-284_en.pdf# (accessed 16 April 2012).
© 2013 The Author

company board informally that the principle has not been adhered to, together with the
threat of further action if the company does not rectify its failings. A second possible
sanction, and one that is stronger than the former sanction, is for the regulator to make
a determination concerning breach of the principle and have this determination pub-
licised. This could be seen as a public censure of companies who fail to comply.
The conclusion arrived at here might be seen as radical, but that is not necessarily
the case, given what has been said in other contexts. Also, Sir Adrian Cadbury has
recognised that ‘Both statutory and self-regulation have their part to play in corporate
governance. The issue is the balance between them and the aspects of governance for
which each is appropriate.’188
Critically, any decision to provide for statutory regulation in the area under con-
sideration, and in the manner discussed here, has to be thought through very carefully
so that the gains made under comply or explain are not lost, and the positive reaction
of many to comply or explain is not lost.
188. A Cadbury Corporate Governance and Chairmanship: A Personal View (Oxford: Oxford
University Press, 2008) p 28.
© 2013 The Author


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Legal Studies, Vol. 34 No. 2, 2014, pp.

Comply or explain in corporate

© 2013 The Author

© 2013 The Author

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by assigning a lower share price,23 and this is assumed to act as an enforcement

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2. THE EFFECTIVENESS OF COMPLY OR EXPLAIN

30. Grant Thornton ‘A challenging climate’ at 6, available at http://www.grant-thornton.co.uk/

© 2013 The Author

(b) Shareholder engagement

36. Rule 12.43A.

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management and Non-Executive Directors in companies and question the effec-

44. Sands, above n 37.

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move from non-compliance to compliance because circumstances had changed.62

(c) The statements associated with comply or explain

62. In fairness, the researchers do recognise these reasons.

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72. Grant Thornton, above n 30, at 6.

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85. Above n 15, p 13.

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96. Above n 15, p 181.

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3. OVERSEEING COMPLY OR EXPLAIN

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Secondly, it would appear that, overall, companies do not provide sufficiently

(b) The introduction of a regulator/monitor

119. ‘Corporate governance in financial institutions and remuneration policies’ COM(2010) 84

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© 2013 The Author

© 2013 The Author

© 2013 The Author

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Long-Term Decision Making’153 expressed satisfaction with the Stewardship Code.

153. Interim Report (February 2012), available at http://www.bis.gov.uk/assets/biscore/

© 2013 The Author

158. Above n 15, p 16.

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163. See eg A Anand ‘Voluntary vs mandatory corporate governance: towards an optimal

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compliance with a code,171 and so this mechanism seems to be attractive. The

(d) Final reflection on the issue

171. Karlsson-Vinkhuyzen and Vihma, above n 1, p 406.

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178. Above n 17.

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