11/05/16

On 9 April 2014 the European Commission published a recommendation on the quality of corporate governance reporting (‘comply or explain’). The recommendation aims to encourage companies to comply with the applicable corporate governance code or to better explain any non-compliance. To that end, the recommendation includes guidelines intended to improve the general quality of corporate governance statements and, in particular, the quality of explanations companies provide in those cases where they deviate from the recommendations set out in the applicable corporate governance code.

The Corporate Governance Committee’s practical rules are, to a large extent, consistent with the European Commission’s recommendation. However, the practical rules do deviate from the EU recommendation on two points. Accordingly, for each deviation from an individual recommendation, the company must:

• describe how the decision to deviate from the recommendation was arrived at within the company (section 8, (c));
• where appropriate, describe the measure taken as an alternative to compliance with the recommendation, and explain how that measure achieves the underlying goal of the specific recommendation or the code as a whole, or clarify how it contributes to good corporate governance by the company (section 8, (e)).

The Corporate Governance Committee decided not to modify its practical rules, but to alert listed companies about the existence of the European Commission’s recommendation and the differences between the recommendation and the Corporate Governance Committee’s practical rules.

Practical rules for high-quality explanations (2016 version)