Compliance
In its 2007 response to a Financial Reporting Council consulation paper in July 2007 Pensions & Investment Research Consultants Ltd (a commercial proxy advisory service) reported that only 33% of listed companies were fully compliant with all of the Codes provisions. Spread over all the rules, this is not necessarily a poor response, and indications are that compliance has been climbing. PIRC maintains that poor compliance correlates to poor business performance, and at any rate a key provision such as separating the CEO from the Chair had an 88.4% compliance rate.
The question thrown up by the Code's approach is the tension between wanting to maintain "flexibility" and achieve consistency. The tension is between an aversion to "one size fits all" solutions, which may not be right for everyone, and practices which are in general agreement to be tried, tested and successful. If companies find that non-compliance works for them, and shareholders agree, they will not be punished by an exodus of investors. So the chief method for accountability is meant to be through the market, rather than through law.
An additional reason for a Code, was the original concern of the Cadbury Report, that companies faced with minimum standards in law would comply merely with the letter and not the spirit of the rules.
The Financial Services Authority has recently proposed to abandon a requirement to state compliance with the principles (under LR 9.8.6(5)), rather than the rules in detail themselves.
Read more about this topic: UK Corporate Governance Code
Famous quotes containing the word compliance:
“I am not of the opinion generally entertained in this country [England], that man lives by Greek and Latin alone; that is, by knowing a great many words of two dead languages, which nobody living knows perfectly, and which are of no use in the common intercourse of life. Useful knowledge, in my opinion, consists of modern languages, history, and geography; some Latin may be thrown into the bargain, in compliance with custom, and for closet amusement.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)
“This is the day when people reciprocally offer, and receive, the kindest and the warmest wishes, though, in general, without meaning them on one side, or believing them on the other. They are formed by the head, in compliance with custom, though disavowed by the heart, in consequence of nature.”
—Philip Dormer Stanhope, 4th Earl Chesterfield (1694–1773)
“In this our talking America, we are ruined by our good nature and listening on all sides. This compliance takes away the power of being greatly useful.”
—Ralph Waldo Emerson (1803–1882)