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Applying 'Comply-or-Explain': Conformance with Codes of Corporate Governance in the UK and Germany

  • David Seidl
  • Paul Sanderson
  • John Roberts
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    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. Despite its wide application very little is known about the ways in which managers apply the principle – in particular, how they make use of the option to ‘explain’ deviations. To address this we analysed the compliance statements and reports of 257 listed companies in the UK and Germany, producing some 708 records of deviations, which we used to generate our empirically derived taxonomy of forms of ‘explanation’. We find these varied forms of ‘explanation’ are based in part on different logics of argumentation. This leads to a broader use of the option to ‘explain’ than envisaged by the Cadbury Committee. In addition our country comparison shows significant divergence in compliance patterns in the UK and Germany which may be explained by differences in experience, culture and legal system.

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    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp389.

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    Date of creation: Jun 2009
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    Handle: RePEc:cbr:cbrwps:wp389
    Note: PRO-2
    Contact details of provider: Web page: http://www.cbr.cam.ac.uk/

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    1. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
    2. 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, 09.
    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.
    4. David Seidl, 2006. "Regulating organizations through codes of corporate governance," ESRC Centre for Business Research - Working Papers wp338, ESRC Centre for Business Research.
    5. Cadbury, Adrian, 2002. "Corporate Governance and Chairmanship: A Personal View," OUP Catalogue, Oxford University Press, number 9780199252008, March.
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