Press release

6 March 2006

Corporate Governance: Clarification of the 'Comply or Explain' Principle

The European Corporate Governance Forum which examines best practices in member states in the field of corporate governance, has issued a public statement clarifying the ‘comply or explain’ principle, which obliges companies to justify any deviation from corporate governance codes. The Forum has also issued a report detailing its activities in 2005 and its plans for future activities.

The ‘comply or explain’ principle forms the basis of the European code-based approach to corporate governance. The Forum has undertaken to define in more detail the advantages and the limits of the ‘comply or explain’ principle from a European perspective. As a first step it has now adopted a common statement on the basic principles that guide the system of ‘comply or explain’.

In its annual report the Forum sets out the activities it undertook in 2005, including discussions on the following: recent developments in the member states in the field of corporate governance; the ‘comply-or-explain’ principle; the role and the rights of shareholders in the company; and rules on internal control and risk management mechanisms. On internal control the Forum concludes that for the moment there appears to be no need for further concrete steps. However, it will continue to review whether the current approach is sufficient for ensuring that internal controls within the EU meet best practice standards.

Related link: European Corporate Governance Forum

 

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