FRC in defence of 'comply or explain'

THE FINANCIAL REPORTING Council has leapt to the defence of the comply-or-explain principle in its response to the European Commission's corporate governance consultation.

This approach, which calls on companies to comply with guidelines or explain why they have deviated, supports best practice and is preferable to stricter regulation, the body argued.

Chief executive Stephen Haddrill (pictured) said that codes underpinned by law are better than regulator interference because this risks undermining the role of shareholders and damaging investor interests.

The European Commission consultation closed today and sought to improve existing corporate governance mechanisms, addressing issues such as boards, shareholders and the comply-or-explain principle.

Clear explanations lie at the heart of good corporate communication, the FRC insisted, yet the body "recognises the need to make the system work better".

It plans to do this through dialogue with companies and investors to reach a consensus on what constitutes a clear explanation in cases in which companies deviate from the FRC's Corporate Governance Code.