ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance
Under a principles-based corporate governance code with a 'comply or explain' approach, what must a listed company do if it does not follow a provision of the code?
Under comply or explain, a company that does not follow a code provision must disclose the departure and give its reasons, so shareholders can assess the explanation. There is no automatic fine, delisting or unanimous shareholder consent, as those would suit a rules-based regime.
- ADisclose the non-compliance and give reasons for itCorrect
- BPay a fixed financial penalty to the regulator
- CDelist its shares immediately
- DObtain the unanimous consent of all shareholders
Explanation
Comply or explain allows a company to depart from a code provision, provided it discloses the departure and explains its reasons so that shareholders can judge them. It does not impose automatic penalties, delisting or a need for unanimous consent, which belong to rules-based approaches or are simply not required.
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