ACCA Applied Knowledge · Business and Technology · Governance in business organisations
Which of the following is a recognised disadvantage of a principles-based approach to corporate governance?
A key disadvantage is that companies may offer weak or boilerplate explanations for departures, and without legal enforcement shareholders may not challenge them. Principles-based codes are widely applied to listed companies and do not need amending whenever one company changes its structure.
- ACompanies may give weak explanations for non-compliance, and boilerplate compliance can occurCorrect
- BIt cannot be applied to listed companies
- CIt requires the code to be updated every time a company changes its structure
Explanation
Because compliance is not enforced by law, companies may give poor or boilerplate explanations, and shareholders may not challenge them. Principles-based codes are widely used for listed companies and do not need updating for each company's structure.
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