“What constitutes an explanation under comply-or-explain?” - Financial Reporting Council paper
The FRC has today published a paper setting out best practice on how companies should explain their non-compliance with provisions of the UK Corporate Governance Code. The paper is here and the accompanying press release is here.
The paper is based on discussions between companies and investors and identifies that an explanation for non-compliance should:
“• set out the background,
• provide a clear rationale which is specific to the company,
• indicate whether the deviation from the Code’s provisions is limited in time,
• state what alternative measures the company is taking to deliver on the principles set out in the Code and mitigate any additional risk”.
The paper’s underlying purpose is to support the FRC’s argument that the European Commission should not move to a more prescriptive and regulated model of corporate governance – on the grounds that the comply or explain approach better allows this more flexible, guidance-led approach to governance.
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