'Comply or Explain' change will be considered: FRC
FRC corporate governance review will consider changes to 'comply or explain' rule
The Financial Reporting Council (FRC) said it will consider rewording the
‘comply or explain’ rule in the first progress report of its review of the
corporate governance code in the wake of the global financial crisis.
The body said it will look at the experience of countries such as the
Netherlands which have adopted a variation on the comply or explain rule, which
they term ‘apply or explain’.
Some believe the shift from ‘comply’ to ‘apply’ to be a purely semantic shift
while others believe the change has the potential to promote innovative
governance structures and better relations between board and investors.
Others believe a change would combat a perceived ‘box-ticking’ culture, but
the FRC itself warns that ‘it is not self-evident that this would be the
effect’.
The FRC is in the midst of its review of the combined code, which will also
take into account the findings of the Walker Review into corporate governance
released earlier this month.
Sir Christopher Hogg, chair of the FRC, said the main themes to emerge from
the review to date are the importance of getting the proper oversight in the
boardroom and the need for better engagement between boards and investors.
‘To remain credible the code must continue to represent best practice, and
companies and investors must adhere to the spirit of “comply or explain”,’ he
said.
‘The FRC will strengthen the code where it is necessary to do so, but will do
so in a proportionate way and will aim to avoid an increase in the overall level
of prescription.’
The review is expected to be completed later this year.
Read the rull
report:
Progress Report: Review of the effectiveness of the Combined Code (July
2009)
