Applying 'Comply-or-Explain': Conformance with Codes of Corporate Governance in the UK and Germany

David Seidl, Paul Sanderson and John Roberts

Working Papers from Centre for Business Research, University of Cambridge

Abstract: The comply-or-explain principle is a central element of most codes of corporate governance. Originally put forward by the Cadbury Committee in the UK as a practical means of establishing a code of corporate governance whilst avoiding an inflexible ‘one size fits all’ approach, it has since been incorporated into code regimes around the world. Despite its wide application very little is known about the ways in which managers apply the principle – in particular, how they make use of the option to ‘explain’ deviations. To address this we analysed the compliance statements and reports of 257 listed companies in the UK and Germany, producing some 708 records of deviations, which we used to generate our empirically derived taxonomy of forms of ‘explanation’. We find these varied forms of ‘explanation’ are based in part on different logics of argumentation. This leads to a broader use of the option to ‘explain’ than envisaged by the Cadbury Committee. In addition our country comparison shows significant divergence in compliance patterns in the UK and Germany which may be explained by differences in experience, culture and legal system.

Keywords: Corporate Governance; Corporate Governance Codes; Comply-or-explain; Compliance; Compliance Reporting; Compliance Monitoring (search for similar items in EconPapers)
JEL-codes: G18 G30 G34 M48 (search for similar items in EconPapers)
Date: 2009-06
Note: PRO-2
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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