Comply or Explain

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In the United Kingdom, a system of governance under which public companies are not legally required to adopt recommended governance standards but instead required to issue an annual statement to shareholders explaining whether they are in compliance with these standards or, if not, stating their reasons for noncompliance. This practice allows companies to deviate from recommended practices if the company believes they are not appropriate for its specific situation. The “comply or explain” system originated in the United Kingdom but has also been adopted in other European countries. The most well-known corporate governance code, which requires either compliance with single provisions of the code or disclosure of any departures thereof as well as explanation of alternative practices to default provisions. The approach has been criticised for negligence to disclose their actual behaviour emerging among companies, or, in the case of stated deviation, lack of sufficient explanations, which affect the effectiveness of the principle.

See also: Apply and Explain, Apply or Explain, UK Corporate Governance Code

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The Comply-or-explain-principle explained (Datenservice)