6.4.5 No standard practice for annual monitoring of code compliance

Under section 6.4.4 it is discussed that, in practice, the 'explain' in the comply or explain principle does not function sufficiently yet and the research results show a decrease in code compliance, as several national code compliance studies have also shown (Dutch Monitoring Committee Corporate Governance Code 2007) (Dutch Monitoring Committee Corporate Governance Code 2008). These issues have resulted in recommendations 8 and 9 above. Strengthening the judicial framework around the principle, as discussed above, and achieving a common understanding of the most adequate lay-out and disclosure of the corporate governance statement is a first step to be taken. Thereafter, as stated under recommendation 8, awareness must make the companies act in line with the core of the comply or explain principle. But how is this awareness to be achieved? In chapter 4 it is researched whether, in the countries concerned, there is a standing corporate governance committee (or a standing corporate governance monitoring committee) that contributes to this awareness, helps to ensure that the code is practicable and up-to-date and ensures that the code compliance is monitored independently annually. The comparative legal research in chapter 4 revealed that all five countries under research do have some sort of standing corporate governance committee. But now their role needs to be enhanced to a role comparable with the Dutch Corporate Governance Code Monitoring Committee. A corporate governance committee should function as an important participant in the corporate governance discussion, noticing developments and providing recommendations to the politicians or participants in the financial markets. Taking into consideration in this respect that the code is based on self-regulation, the corporate governance committee is obviously a body that is independent of any government or listing authority. The standing corporate governance committee itself decides which issues and code topics it focuses on, since corporate governance and national corporate governance codes are dynamic. However, one of the committee's main tasks should be to facilitate an independent annual monitoring study of code compliance. In the Netherlands (since 2004) and Germany (since 2003), a study of code compliance has been performed annually by a group of independent academics on the instructions of the corporate governance committee, which should be common practice in all Member States. Next to the level of compliance, the specific deviations and reasons provided, a focus on the quality of explanations is also of importance in order to be able to update the code or acknowledge certain developments.

Recommendation 10: All Member States should have a standing corporate governance committee that functions as an important participant in the corporate governance discussion, notices developments and provides recommendations to the politicians or participants in the financial markets and facilitates annual code compliance research.

Recommendation 11: Whether the code compliance and the explanations for deviations from the national code ofthe listed companies are sufficient ought to be monitored independently and annually under the responsibility ofthe standing corporate governance committee, so the code can be updated or certain developments acknowledged. Next to the level ofcompliance, the specific deviations and reasons provided, a focus on the quality ofexplana-tions is also ofimportance.