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Corporate governance in the UK: is the comply-or-explain approach working?

Faure-Grimaud, Antoine, Arcot, Sridhar and Bruno, Valentina G. (2005) Corporate governance in the UK: is the comply-or-explain approach working? Financial Markets Group Discussion Papers (581). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

The Combined Code of Corporate Governance, that was introduced in the UK in 1998, is widely regarded as an international benchmark for good corporate governance practice. The flexibility it offers to companies, who can choose between complying with its principles or explaining why they do not, stands in sharp contrast to mandatory systems (e.g. Sarbanes- Oxley Act in the US). The merits of such flexibility are thought to lie in its ability to encourage companies to adopt the spirit of the Code, rather than the letter, whereas a more statutory regime would lead to a "box-ticking" approach that would fail to allow for sound deviations from the rule and would not foster investors' trust. Therefore the "Comply or Explain" model ultimately would lead to better governance and its basic premise has been adopted by several other countries (like Austria and Germany). This article takes stock of the Combined Code's achievements in the UK; in particular, it asks whether it led to too much compliance and too few explanations.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.ac.uk
Additional Information: © 2005 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
Date Deposited: 30 Jul 2009 14:25
Last Modified: 15 Sep 2023 23:01
URI: http://eprints.lse.ac.uk/id/eprint/24673

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