Under a 'comply or explain' approach to corporate governance, what must a listed company do if it does not follow a provision of the governance code?
Answer and explanation
Correct answer: B. Explain in its annual report why it has not complied
- Step 1: A principles-based code such as the UK Corporate Governance Code allows flexibility.
- Step 2: Companies either comply or give a reasoned explanation of the departure.
- Step 3: Shareholders and the market then judge the explanation.
Answer
Explain in its annual report why it has not complied.
Why not the others: Comply or explain is not based on fines; it relies on disclosure. Delisting is not an automatic result of non-compliance with a provision. The company must explain and shareholders judge, but permission is not required beforehand.
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