Which statement best describes 'comply or explain' in practice?

Which statement best describes 'comply or explain' in practice?

• A. A US practice requiring compliance or explanation
• B. A UK practice where compliance or explanation is used
• C. An EU-wide directive
• D. An international standard enforcement method

Answer: (B)

In practice, 'comply or explain' describes a UK approach to corporate governance in which listed companies either conform to the governance code’s provisions or, if they don’t, explain to shareholders in their annual report why they are non-compliant and what alternative arrangements they have in place. The emphasis is on transparency and accountability: explanations allow investors to judge whether the company’s governance is still appropriate despite not following every provision. This approach originated with the UK Corporate Governance Code and remains a defining feature of UK practice. It is not a US requirement, not an EU-wide directive, and not an international standard enforcement method.

In practice, 'comply or explain' describes a UK approach to corporate governance in which listed companies either conform to the governance code’s provisions or, if they don’t, explain to shareholders in their annual report why they are non-compliant and what alternative arrangements they have in place. The emphasis is on transparency and accountability: explanations allow investors to judge whether the company’s governance is still appropriate despite not following every provision. This approach originated with the UK Corporate Governance Code and remains a defining feature of UK practice. It is not a US requirement, not an EU-wide directive, and not an international standard enforcement method.