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IAI Actuarial Core Principles · Business Finance · Corporate governance and the regulation of companies

Many corporate governance codes follow a 'comply or explain' approach. Which statement best describes how this approach works for a listed company?

Under comply or explain, a listed company may depart from a code provision, but it must disclose the departure and give reasons. Shareholders and the market then judge whether the explanation is acceptable. It is not a rigid rule requiring compliance in every case.

  1. AThe company must follow every provision of the code, with no exceptions permitted
  2. BThe company may depart from a provision of the code, but must disclose the departure and give reasons for itCorrect
  3. CThe company must explain its compliance only if a regulator asks it to do so
  4. DThe company may ignore the code provided its auditors approve the decision
  5. The company is exempt from the code if its shareholders are mainly institutions

Explanation

Under comply or explain, a company is not forced to adopt each provision. If it chooses not to, it must publicly disclose the departure and justify it so that shareholders can judge. Option 0 describes a rigid rules-based regime, which is the opposite approach.

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