Consensus on the Comply or Explain principle (IVOR nr. 86) 2012/7.4:7.4 Recommendations for future research

Consensus on the Comply or Explain principle (IVOR nr. 86) 2012/7.4

7.4 Recommendations for future research

Documentgegevens:

mr. J.G.C.M. Galle, datum 12-04-2012

Datum: 12-04-2012
Auteur: mr. J.G.C.M. Galle
JCDI: JCDI:ADS364289:1
Vakgebied(en): Ondernemingsrecht (V)

As also acknowledged by the EU Commission, improvements in the application of the principle are deemed necessary, therefore further research is of interest. Although the underlying study is unique in its kind, since it involves a code compliance study with a research period of more than one year and with more than one country under research, a great deal of research remains to be done to extend the underlying study and research the comply or explain principle as such further. As the EU Commission states, the "revealed important shortcomings in applying the 'comply or explain' principle (...) reduce the efficiency of the EU's corporate governance framework and limit the system's usefulness. So some adjustments appear necessary to improve the application of the corporate governance codes." (EU Green Paper 2011, p. 18).

Hence, several specific recommendations for future research must be mentioned in this section, involving (i) extensions of the underlying study and (ii) further research on the comply or explain principle and corporate governance as such:

-: Extend and test the models in the linear regression (see section 5.7) with more independent variables, such as industry, dual listing, number of independent directors and company performance measures.
-: Further research on the possible feasibility, in practice, of corporate governance statements actually discussing future code compliance. As discussed in the study above, the minimal attention that shareholders pay to code compliance is partly explainable by the fact that the annual report and corporate governance statement are, given their nature, based on history, whilst shareholders are interested in future benefits. As stated above, only the German comply or explain principle is orientated to the past and to the future and Directive 2006/46/EC leaves this in the middle by mentioning "the corporate governance practices actually applied". What are future orientated corporate governance statements 'worth' in terms of accountability? And how does this relate to the rest of the annual report that is, in general, history-based?
-: A comparative analysis of corporate governance should ideally consist of more than one research method involving several disciplines (e.g. as in the underlying research with the disciplines law and economics, content analysis and comparative legal research).
-: As is the case for the recommended annual monitoring studies on code compliance, a more internationally-orientated compliance study should be performed on a regular basis as well. Perhaps the results from the national compliance studies can be compared, otherwise comparative compliance studies remain a necessity to be able to keep determining whether a common understanding of the principle's scope and most effective form does indeed exist. And whether actions are necessary to ensure that the comply or explain principle continues to facilitate ' made to measure' and ' one size does not fit all' corporate governance. To obtain a clear picture of code compliance in practice, a research period of several years and a variety of countries should be the topic of the research. Especially the code compliance and application of the comply or explain principle of rather new Member States are of interest for further research. It is preferable in this respect that the content analysis is performed in the original language the corporate governance statement was drafted in and not the English translation.