IDEAS home Printed from https://ideas.repec.org/a/kap/jmgtgv/v17y2013i3p791-826.html
   My bibliography  Save this article

Applying the ‘comply-or-explain’ principle: discursive legitimacy tactics with regard to codes of corporate governance

Author

Listed:
  • David Seidl
  • Paul Sanderson
  • John Roberts

Abstract

The comply-or-explain principle is a central element of most codes of corporate governance. Originally put forward by the Cadbury Committee in the UK as a practical means of establishing a code of corporate governance whilst avoiding an inflexible “one size fits all” approach, it has since been incorporated into code regimes around the world. Companies can either comply with code provisions or may explain why they do not comply, i.e., why they deviate from a code provision. Despite its wide application very little is known about the ways in which comply-or-explain is used. In addressing this we employ legitimacy theory by which explanations for deviating can be understood as means of legitimizing the company’s actions. We analyzed the compliance statements and reports of 257 listed companies in the UK and Germany, producing some 715 records of deviation. From this we generated an empirically derived taxonomy of the explanations. In a second order analysis we examine the underlying logic and identify various legitimacy tactics. We discuss the consequences of these legitimacy tactics for code regimes and the implications for policy makers. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • David Seidl & Paul Sanderson & John Roberts, 2013. "Applying the ‘comply-or-explain’ principle: discursive legitimacy tactics with regard to codes of corporate governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(3), pages 791-826, August.
    • Handle: RePEc:kap:jmgtgv:v:17:y:2013:i:3:p:791-826
    DOI: 10.1007/s10997-011-9209-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10997-011-9209-y
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10997-011-9209-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    2. Arcot, Sridhar & Bruno, Valentina & Faure-Grimaud, Antoine, 2010. "Corporate governance in the UK: Is the comply or explain approach working?," International Review of Law and Economics, Elsevier, vol. 30(2), pages 193-201, June.
    3. Wolfgang Drobetz & Andreas Schillhofer & Heinz Zimmermann, 2004. "Corporate Governance and Expected Stock Returns: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 10(2), pages 267-293, June.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    5. Dirk Akkermans & Hans Van Ees & Niels Hermes & Reggy Hooghiemstra & Gerwin Van der Laan & Theo Postma & Arjen Van Witteloostuijn, 2007. "Corporate Governance in the Netherlands: an overview of the application of the Tabaksblat Code in 2004," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1106-1118, November.
    6. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 107-156.
    7. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2005. "Culture, Law, and Corporate Governance," International Review of Law and Economics, Elsevier, vol. 25(2), pages 229-255, June.
    8. David Seidl & Paul Sanderson & John Roberts, 2009. "Applying 'Comply-or-Explain': Conformance with Codes of Corporate Governance in the UK and Germany," Working Papers wp389, Centre for Business Research, University of Cambridge.
    9. Marcello Bianchi & Angela Ciavarella & Valerio Novembre & Rossella Signoretti, 2011. "Comply or Explain: Investor Protection Through the Italian Corporate Governance Code," Journal of Applied Corporate Finance, Morgan Stanley, vol. 23(1), pages 107-121, January.
    10. Zingales, Luigi & Dyck, Alexander, 2002. "The Corporate Governance Role of the Media," CEPR Discussion Papers 3630, C.E.P.R. Discussion Papers.
    11. Axel V. Werder & Till Talaulicar & Georg L. Kolat, 2005. "Compliance with the German Corporate Governance Code: an empirical analysis of the compliance statements by German listed companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 178-187, March.
    12. Sanderson, P. & Seidl, D. & Roberts, J. & Krieger, B., 2010. "Flexible or not? The Comply-or-Explain Principle in UK and German Corporate Governance," Working Papers wp407, Centre for Business Research, University of Cambridge.
    13. Igor Goncharov & Joerg Richard Werner & Jochen Zimmermann, 2006. "Does Compliance with the German Corporate Governance Code Have an Impact on Stock Valuation? An empirical analysis," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(5), pages 432-445, September.
    14. Carlos Alves & Victor Mendes, 2004. "Corporate Governance Policy and Company Performance: the Portuguese case," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(3), pages 290-301, July.
    15. Ilir Haxhi & Hans van Ees, 2010. "Explaining diversity in the worldwide diffusion of codes of good governance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 710-726, May.
    16. Michael Lounsbury & Mary Ann Glynn, 2001. "Cultural entrepreneurship: stories, legitimacy, and the acquisition of resources," Strategic Management Journal, Wiley Blackwell, vol. 22(6‐7), pages 545-564, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Koładkiewicz Izabela, 2017. "The Quality of Explanations for Deviation from Principles of Corporate Governance. An Introduction," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 25(3), pages 34-54, September.
    2. Shrives, Philip J. & Brennan, Niamh M., 2015. "A typology for exploring the quality of explanations for non-compliance with UK corporate governance regulations," The British Accounting Review, Elsevier, vol. 47(1), pages 85-99.
    3. Leona Achtenhagen & Petra Inwinkl & Jacob Björktorp & Robert Källenius, 2018. "More than two decades after the Cadbury Report: How far has Sweden, as role model for corporate-governance practices, come?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 15(4), pages 235-251, November.
    4. Rose, Caspar, 2016. "Firm performance and comply or explain disclosure in corporate governance," European Management Journal, Elsevier, vol. 34(3), pages 202-222.
    5. Torbjörn Tagesson & Sven-Olof Yrjö Collin, 2016. "Corporate governance influencing compliance with the Swedish Code of Corporate Governance," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 13(3), pages 262-277, August.
    6. Peter J. Baldacchino & Nirvana Duca & Norbert Tabone & Simon Grima, 2020. "Corporate Governance Transparency in Small Listed Entities: The Case of Malta," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 23-44.
    7. Manuel E. Núñez Izquierdo & Josep Garcia‐Blandon & Christopher F. Baum, 2021. "Evaluating the impact of compliance with governance recommendations on firm performance: The case of Spain," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3788-3806, July.
    8. Subhan Ullah & Sardar Ahmad & Saeed Akbar & Devendra Kodwani & Jane Frecknall‐Hughes, 2021. "Governance disclosure quality and market valuation of firms in UK and Germany," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5031-5055, October.
    9. Shrives, Philip J. & Brennan, Niamh M., 2017. "Explanations for corporate governance non-compliance: A rhetorical analysis," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 49(C), pages 31-56.
    10. Walid Cheffi & Sonia Abdennadher, 2019. "Executives’ Behaviour and Innovation in Corporate Governance: The Case of Internet Voting at Shareholders’ General Meetings in French Listed Companies," Journal of Business Ethics, Springer, vol. 156(3), pages 775-798, May.
    11. Maria Aluchna & Tomasz Kuszewski, 2022. "Responses to corporate governance code: evidence from a longitudinal study," Review of Managerial Science, Springer, vol. 16(6), pages 1945-1978, August.
    12. Pietro Previtali & Paola Cerchiello, 2019. "Patterns of compliance with soft regulation in Italian listed companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 16(1), pages 37-46, March.
    13. Ilya Okhmatovskiy, 2017. "Self-regulation of corporate governance in Russian firms: translating the national standard into internal policies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(2), pages 499-532, June.
    14. Colleen Honigsberg, 2019. "Hedge Fund Regulation and Fund Governance: Evidence on the Effects of Mandatory Disclosure Rules," Journal of Accounting Research, Wiley Blackwell, vol. 57(4), pages 845-888, September.
    15. Michael Espindola Araki & Henrique Castro Martins, 2022. "Integrating uncertainty and governance into a capital structure puzzle: can risk-taking and rule-taking explain zero-leverage firms?," Review of Managerial Science, Springer, vol. 16(6), pages 1979-2034, August.
    16. Rodríguez Fernández, Mercedes, 2015. "Company financial performance: Does board size matter? Case of the EUROSTOXX50 index," Cuadernos de Gestión, Universidad del País Vasco - Instituto de Economía Aplicada a la Empresa (IEAE).
    17. John Roberts & Paul Sanderson & David Seidl & Antonije Krivokapic, 2020. "The UK Corporate Governance Code Principle of ‘Comply or Explain’: Understanding Code Compliance as ‘Subjection’," Abacus, Accounting Foundation, University of Sydney, vol. 56(4), pages 602-626, December.
    18. Peter J Baldacchino & Claire Vella & Simon Grima, 2019. "The Corporate Governance Code and Compliance by Maltese Listed Companies," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 71-90.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rose, Caspar, 2016. "Firm performance and comply or explain disclosure in corporate governance," European Management Journal, Elsevier, vol. 34(3), pages 202-222.
    2. Reggy Hooghiemstra & Hans van Ees, 2011. "Uniformity as response to soft law: Evidence from compliance and non‐compliance with the Dutch corporate governance code," Regulation & Governance, John Wiley & Sons, vol. 5(4), pages 480-498, December.
    3. Manuel E. Núñez Izquierdo & Josep Garcia‐Blandon & Christopher F. Baum, 2021. "Evaluating the impact of compliance with governance recommendations on firm performance: The case of Spain," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3788-3806, July.
    4. Attiya Y. Javid & Robina Iqbal, 2010. "Corporate Governance in Pakistan : Corporate Valuation, Ownership and Financing," Governance Working Papers 22830, East Asian Bureau of Economic Research.
    5. Christoph Kaserer & Benjamin Moldenhauer, 2008. "Insider ownership and corporate performance: evidence from Germany," Review of Managerial Science, Springer, vol. 2(1), pages 1-35, March.
    6. Attiya Y. Javed & Robina Iqbal, 2007. "The Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange," PIDE-Working Papers 2007:14, Pakistan Institute of Development Economics.
    7. Gerner-Beuerle, Carsten, 2014. "Determinants of corporate governance codes," LSE Research Online Documents on Economics 55828, London School of Economics and Political Science, LSE Library.
    8. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2012. "Corporate governance and firm value during the global financial crisis: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 70-80.
    9. Pascal Gantenbein & Axel Kind & Christophe Volonté, 2019. "Individualism and Venture Capital: A Cross-Country Study," Management International Review, Springer, vol. 59(5), pages 741-777, October.
    10. Koładkiewicz Izabela, 2017. "The Quality of Explanations for Deviation from Principles of Corporate Governance. An Introduction," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 25(3), pages 34-54, September.
    11. Bremer, Marc & Hoshi, Akio & Inoue, Kotaro & Suzuki, Kazunori, 2017. "Uncertainty avoiding behavior and cross-border acquisitions in the Asia-Pacific region," Japan and the World Economy, Elsevier, vol. 41(C), pages 99-112.
    12. Nenova, Tatiana, 2006. "Takeover laws and financial development," Policy Research Working Paper Series 4029, The World Bank.
    13. Subhan Ullah & Sardar Ahmad & Saeed Akbar & Devendra Kodwani & Jane Frecknall‐Hughes, 2021. "Governance disclosure quality and market valuation of firms in UK and Germany," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5031-5055, October.
    14. Heidi Bauwhede, 2009. "On the relation between corporate governance compliance and operating performance," Accounting and Business Research, Taylor & Francis Journals, vol. 39(5), pages 497-513.
    15. Tariq, Yasir Bin & Abbas, Zaheer, 2013. "Compliance and multidimensional firm performance: Evaluating the efficacy of rule-based code of corporate governance," Economic Modelling, Elsevier, vol. 35(C), pages 565-575.
    16. Javed, Attiya Y. & Iqbal, Robina, 2007. "Relationship between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange," MPRA Paper 2225, University Library of Munich, Germany.
    17. Ilir Haxhi & Ruth V. Aguilera, 2017. "An Institutional Configurational Approach to Cross-National Diversity in Corporate Governance," Journal of Management Studies, Wiley Blackwell, vol. 54(3), pages 261-303, May.
    18. Attiya Y. Javed & Robina Iqbal, 2007. "The Relationship between Corporate Governance Indicators and Firm Value : A Case Study of Karachi Stock Exchange," Governance Working Papers 22198, East Asian Bureau of Economic Research.
    19. Pietro Previtali & Paola Cerchiello, 2019. "Patterns of compliance with soft regulation in Italian listed companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 16(1), pages 37-46, March.
    20. Ammann, Manuel & Oesch, David & Schmid, Markus M., 2011. "Corporate governance and firm value: International evidence," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 36-55, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jmgtgv:v:17:y:2013:i:3:p:791-826. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.