FRC reviews ‘comply or explain’ principle

One of the bedrocks of the
on corporate governance – the ‘comply or explain’ approach
– is under review from the
Financial Reporting

The FRC is consulting on the ‘comply or explain’ approach following concerns
raised by companies and investors that the system was ineffective.

‘Companies do not want to invite adverse publicity or adverse votes arising
from a “box-ticking” approach to the Code by
or those who advise them; and they may be deterred by the time required to
“explain”,’ the FRC said in a consultation document.

‘For their part investors, who may hold equity in many hundreds of companies
in the UK and overseas, may simply consider themselves unable to deal adequately
with all explanations in detail.’

The FRC added that there were also concerns that some companies were not
explaining there reasons for no-compliances adequately.

No proposals for alternative regulation have been put forward yet.

‘The FRC wants to assess how serious the above frustrations are and, if their
effects are material, to consider how best to mitigate them,’ the document said.

The consultation closes on 20 July.

Further reading:

consultation document

FTSE-350 still failing ‘comply or explain’ test on combined

Copper giant’s chairman to flout Combined Code

Related reading

tax dictionary