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ACCA Applied Knowledge · Business and Technology · Governance in business organisations

A listed company's governance code uses 'comply or explain'. The company's chair is also the chief executive, contrary to the code. Which action is consistent with the code's approach?

The company should disclose the departure in its annual report and explain its reasons, leaving shareholders to judge whether the explanation is acceptable. Comply or explain permits departures from the code, but it requires transparency rather than silence or automatic compliance.

  1. AAppoint a new chair immediately, as departures from the code are never permitted
  2. BDisclose the departure in its annual report and give reasons, which shareholders may then assessCorrect
  3. CSay nothing, as the code is voluntary and no disclosure is needed

Explanation

Under comply or explain, a company may depart from a provision provided it discloses the departure and explains why. Shareholders then judge whether the explanation is acceptable. Staying silent defeats the approach, and the code does not prohibit departures outright.

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