6.3.2 Differentiation in implementation

The Member States had to bring into force the regulation necessary to comply with Directive 2006/46/EC, or in other words had to embed the comply or explain principle and national corporate governance code in their legal systems, as well as the rules on liability for the publication ofthe statement. The different implementation methods in the countries under research resulted in a differentiation in judicial corporate governance arrangements (see section 4.1.1 and table 6.3.2 below).

The fact that countries have different judicial corporate governance arrangements and embedding methods for the codes and the comply or explain principle is neither surprising nor an issue, because of the influence of the cultural and historical features in a country (i.e. the path dependence - see section 3.3.2) as well as the national legal system. The comply or explain principle can have an embedding in legislation or in listing rules (art. 5 Directive 2006/46/EC). What is preferable will depend on the country. If a culture of self-regulation and an active stock exchange authority with proper supervisory instruments are present in a country, embedding in listing rules is very well possible (e.g. the UK with weak uncertainty avoidance score -section 4.7.4). Otherwise, embedding in legislation is preferable to give the comply or explain principle the necessary status (e.g. Germany and Belgium with high uncertainty avoidance scores).

The legal comparative research showed that, nowadays, the legal embedding of the comply or explain principle is sufficiently arranged in all the countries under research, taking the 'one size does not fit all' approach into account (see section 4.7). However, a point of improvement would be a reference in the codes where its legal embedding is arranged, since this is sometimes unnecessarily difficult to find. Making a reference to the specific listing rule or legislation in for example the preamble of the code is not difficult. One could argue that the directive should state that a reference to the judicial embedding must be made in national corporate governance codes, and also that companies must make a reference to the code they are subject to. However, the imposing of such a rule by the directive regarding the code's contents seems contrary to the concept of self-regulation, which is embodied by the national corporate governance codes. Therefore, referring to the legal embedding in the national corporate governance code should become common practice. The same applies to stating clearly at the beginning of the national corporate governance code which code provisions the comply or explain principle is applicable to. Within the countries under research there is still too much lack of clarity. In the case of Belgium the 6 appendices to the code must apparently be regarded as provisions to which the comply or explain principle is applicable, whilst the Belgian corporate governance committee itself provides no clarification thereon (see section 4.3.3). In its foreword, the German code makes a distinction between recommendations (Empfehlungen) and suggestions (Anregungen). The recommendations are marked in the text through use of the word "shall" (soll). Only as regards the recommendations is it obligatory to disclose the reasons for not complying (see section 4.4.3). The word "shall" is easily overlooked and questions remain about whether the comply or explain principle is in that case applicable to the entire code provision or only to the sentence containing the word "shall". In the Netherlands, article 3 of the administrative order on the corporate governance statement (Staatsblad 154, 2009) states that the comply or explain principle is applicable only to the principles and best practice provisions that are addressed to the management or the supervisory board of the company. The explanation for this 'limitation' of the comply or explain principle is that shareholders are not involved in the preparation of the annual report; it neither contains any shareholders' statements nor is it drawn up by them. Taking these examples into consideration, too many ambiguities exist for both the readers and draughtsmen of the corporate governance statements, whilst a solution is within arm's reach and should, just as the reference to the legal embedding, become part of the common understanding of the comply or explain principle. At the beginning of the code (e.g. in the preambles) it ought to be clarified to which code provisions the comply or explain principle is applicable. The comply or explain principle should apply to (a) designated or defined provision(s); it is not recommended that a specific word or phrase within the code's text implies this (see the optimum framework in section 4.7.3).

To summarise the above, the fact that countries have different judicial corporate governance arrangements and embedding methods for the codes and the comply or explain principle is neither surprising nor an issue, because of the influence of the cultural and historical features in a country (i.e. the path dependence) as well as the national legal system. However, two improvements that are within arm's reach are deemed necessary:

Recommendation 1: National corporate governance codes should contain a reference to their legal embedding as well as to the comply or explain principle, irrespective of whether this involves legislation or listing rules.

Recommendation 2: National corporate governance codes should provide clarity about which specific sort of code provision the comply or explain principle is applicable to.