Profession calls for rethink on 'comply or explain'
Rule at the heart of the combined code, which compels companies to either adopt the model code in full or provide an explanation to shareholders, should be made more flexible
Companies should be free to adopt alternative corporate governance structures
without being labelled non-compliant, a big-four partner has said.
KPMG associate partner Tim Copnell said the ‘comply or explain’ rule was
potentially forcing companies to adopt a one-size-fits-all governance code and
reject innovative alternatives.
The rule, which sits at the heart of the combined code, compels companies to
either adopt the model code in full or provide an explanation to shareholders.
Some companies reportedly have spent up to a million pounds putting together
detailed explanations to justify their decision to depart from the code.
Copnell believes viable alternative governance structures are being abandoned
as companies rush to accept the code in full. He said the overall objective of
the code is not compliance, ‘the objective is to be a well-governed
organisation’.
‘If you decide that something else is better, then you should be able to do
it and not be shackled by this framework that someone in an ivory tower has put
together,’ he said.
PricewaterhouseCoopers’ partner Peter Wyman said that, while he is not a fan
of wholesale change of the code, he did acknowledge that the intent of the
‘comply or explain’ rule had been eroded.
He said originally a good explanation ‘was more than acceptable’ if a company
decided to depart from the model code.
‘If a company wants to do something different [today], short of a Herculean
effort, it is regarded as a black mark at best and an abject failure at worst.’