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Under comply or explain, organisations are free to diverge from what is considered best practice in corporate governance, provided they give their reasons for doing so.
“Companies’ boards have an important role to play in preparing the corporate governance statement which should discuss the areas of compliance as well as the reasons for non-compliance,” the report – Corporate Governance Compliance and Monitoring Systems across the EU – says.
The report – the first of a three-part initiative – finds that the EC’s recommendation to enshrine the comply or explain principle in national corporate governance codes across Europe has not been fully implemented. Twelve of the 29 countries affected have no plans to amend their codes to adopt this approach. That has contributed to patchy compliance with the principle throughout the region.
ECIIA’s own research – Corporate Governance Codes on Internal Audit – shows that internal audit is either mandatory or recommended in 89% of European governance codes. That places audit in a good position to help foster better adherence to the comply or explain principle and help boards produce meaningful and well-evidenced annual corporate governance statements.
“ECODA’s research project will provide internal auditors with a more rounded understanding of how comply or explain is implemented in practice throughout Europe,” Henrik Stein, ECIIA President, says. “We welcome this initiative as it will strengthen the ability of internal audit to provide assurance to boards that their corporate governance statements are both accurate and meaningful.”