5.5.2 Lay-out of corporate governance statement

The companies under review must - based on regulation or legislation - have a section in their annual reports (or sometimes on their website) which is attributed to compliance with the applicable corporate governance code and that, in the underlying study, is referred to as the corporate governance statement. Currently Directive 2006/46/EC,1 in article 1(7), prescribes that a company shall include a corporate governance statement in its annual report in which it refers to the corporate governance code that applies to the company, and/or gives an explanation regarding which parts of the corporate governance code it departs from and the reasons for doing so. Before 5 September 2008 the countries under review had to bring into force the laws, regulations and administrative provisions necessary to comply with this directive. The countries under review already had such rules in force in their laws, listing rules or corporate governance codes in the period under research (2005-2007), since 98.3 per cent of the companies under research include a corporate governance statement in their annual accounts in which, again, 98.3 per cent pay attention to code compliance. 20.67 per cent of the companies that pay attention to code compliance even declare that they comply fully with the applicable corporate governance code (see table 5.5.2 below).

The lay-out (or in other words: design) of those corporate governance statements in which the companies provide information on their code compliance differs between the countries and during the years under research. A little more standardisation in lay-out (note: not in the reasons provided for deviations) would be useful; nevertheless the Directive, with its broad rules, does not impose this. Because of the rapidly changing and more and more extensive codes it is helpful to the users of the annual reports to be able to see clearly which code provision has been deviated from and for what reasons. Therefore, explanations with reference to the code provision concerned are preferable. However, in the years under review (see table 5.5.2 above: list with reference and narrative with reference) no increase can be seen in corporate governance statements with references to the code provisions not complied with, but even a small decrease. Another distinction in the lay-out of the corporate governance statements is whether the companies give their explanations for the non-compliance by means of a list (see table 5.5.2 above: list with or without reference) or in a narrative manner as part of their general corporate governance information (see table 5.5.2 above: narrative with or without reference). A list is preferable to a narrative, since the deviations do not need to be derived from the narrative, especially when there are no references to the provisions not complied with. However, in the years under review no increase can be seen in the explanations of deviations by means of a list.

On the other hand, the number of companies that mention in their corporate governance report that they comply fully with the code has increased, which partly explains why no increase can be seen in corporate governance statements with explanations with references or by means of a list. Moreover, when taking all the corporate governance statements from 2005-2007 with explanations into account the majority have a list with references (32 per cent compared to 26, 20 and 22 per cent), which is the desired design of the corporate governance statement. Overall the results show positive developments, apart from the fact that a more substantial increase in the category 'list with reference' compared to the other categories would have been preferable. The few changes over the years are also explainable by the fact that each country has its own specific rules for the corporate governance statement which sometimes automatically results in one kind of corporate governance statement, as can be seen in the table and pie chart 5.5.2a below for Italy. Or sometimes a certain tradition in the lay-out of corporate governance statements has developed over the years.

In Italy the "Handbook on Corporate Governance Report' as issued in February 2004 by Assonime (the Association of Joint Stock Companies incorporated in Italy) "has been drafted to help listed companies to communicate effectively to financial markets regarding the measures they have adopted under the Corporate Governance Code (...). The Handbook focuses more specifically on the drafting of the corporate governance report" (Assonime and Emmittenti Titoli 2004, p. 69).

The handbook states that Italian companies should include a number of synoptic tables on their code compliance in their corporate governance statement (Assonime and Emmittenti Titoli 2004, p. 69). Many Italian companies followed this recommendation quite literally and as a consequence thereof 77.6 per cent of the companies researched that have a corporate governance statement explain their deviations by means of a list (i.e. the tables). Unfortunately references to the provisions not complied with are rare (6.5 per cent) and it is up to the users of the annual account to decide which part of the tables concerns which code provisions. It is not expected that any of the above will change in the near future since Directive 2006/46/ EC indicates that deviations should be explained but the manner and lay-out thereof are left open. Bar chart 5.5.2b below shows the subdivision of the lay-out of the corporate governance statements per country and for some countries - such as for Italy, Germany and the Netherlands - aclear preference can be seen. Germany and the Netherlands score best with respect to the preferred lay-out (list with reference) as discussed in the previous chapter and part of the optimum framework (see section 4.7.3).