Advanced Search
MyIDEAS: Login

Le Comply or explain : la transparence conformiste en droit des sociétés

Contents:

Author Info

  • Björn Fasterling
  • Jean-Christophe Duhamel
Registered author(s):

    Abstract

    The ?comply or explain? mechanism, first employed in the UK, combines voluntary compliance with corporate governance codes and a legal obligation (either by law, regulation or listing rule) to declare compliance with, or, as the case may be, to explain deviations from a code. With the adoption of the directive 2006/46/EC the European Union endorses mandatory ?comply or explain? rules, but has left the member states with a range of implementation options. Unlike many other member states, France has until recently refrained from adopting a legal obligation to ?comply or explain?, and the implementation of the directive into national law was kept to a minimum : First, companies may choose not to apply a code, but instead, confine themselves to a description of their corporate governance practices (however, in such a case they must at least explain their non-application of a code). And where companies do refer to a code, the French law is not clear as to which one. We argue that the weaknesses of the French version of ?comply or explain? only reinforce the weaknesses that we consider to be inherent to any ?comply or explain? regime. In short, we question whether ?comply or explain? can live up to its stated objectives : The mechanism?s first rationale is to promote certain standards that code-drafting bodies deem to represent ?best? practices. Although ?comply or explain? is meant to be flexible (companies, after all, have the choice not to comply), it is not normatively neutral. It is hoped that market participants will exercise pressure on companies to comply with a code, supposedly leading to improved corporate governance. Yet, as economic research indicates, it is uncertain, whether any set of corporate governance standards can stand for ?best? practices in every situation. Pressure to declare compliance with a corporate governance code could lead to a conformist adoption of practices, even where they are not ideal for a particular company in a particular market environment. Secondly, it is put forward that ?comply or explain? facilitates and improves corporate governance transparency. In theory, an interested market participant only needs to analyse the standards of a corporate governance code and, if existent, note individual deviations to receive a concise picture of a company?s corporate governance. We argue, however, that market participants should not rely too much on the information quality of compliance declarations. We show that such declarations contain to large extent interpretable information. Furthermore, the contents of compliance declarations are difficult to verify. Auditor control is limited. Regulatory and penal sanctions for false declarations are available, but there is no systematic control of contents (we address the French legal situation but include comparative references to other EU member states). Content verification could be finally achieved through shareholder litigation. Here, we briefly examine the relevant French law and jurisprudence, also with comparative references. We find that in any legal order, unless it offers far-reaching presumptions favoring shareholder-plaintiffs, proving causality becomes an insurmountable obstacle to a successful damages claim, if the latter is based on nothing else than a misleading or false declaration issued under a ?comply or explain? obligation. What remains, is that ?comply or explain? induces companies to produce a new type of corporate governance information that could improve the dialogue between companies and the investing public. But also in this respect we raise doubts : The pressure to signal compliance with a code, combined with the interpretability of compliance declarations and the limited possibilities to verify their contents, makes corporate governance hyperbole more probable than a fruitful exchange of information. ?Comply or explain? could at best establish corporate governance etiquette, at worst illusive corporate governance transparency.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cairn.info/load_pdf.php?ID_ARTICLE=RIDE_232_0129
    Download Restriction: restricted

    File URL: http://www.cairn.info/revue-internationale-de-droit-economique-2009-2-page-129.htm
    Download Restriction: restricted

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by De Boeck Université in its journal Revue internationale de droit économique.

    Volume (Year): t. XXIII, 2 (2009)
    Issue (Month): 2 ()
    Pages: 129-157

    as in new window
    Handle: RePEc:cai:riddbu:ride_232_0129

    Contact details of provider:
    Web page: http://www.cairn.info/revue-internationale-de-droit-economique.htm

    Related research

    Keywords: transparency; corporate governance; corporate governance code; internal control; compliance; conformism;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cai:riddbu:ride_232_0129. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Baptiste de Vathaire).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.