5.5.9 Trends in quality and category of explanation

As stated before under section 5.3.1 in the underlying study, six categories for the quality of explanations in the case of non-compliance are distinguished (see table 5.3.1a and Annex II): no explanation, general, inline, limited, transitional and genuine. Previous research on code compliance applied this distinction (Arcot and Bruno 2007) (Dutch Monitoring Committee 2008). Pie chart 5.5.9 shows the percentages of those six quality categories for all deviations from the comparable code provisions of the five countries under review for the period 2005-2007. The explanations that this study considers sufficient (see section 5.3.1) (limited, transitional and genuine) constitute the majority of the explanations (60 per cent). 40 per cent of the explanations provided are of inferior quality, of which 15 per cent provide no reason at all for non-compliance.

Table 5.5.9a shows the quality of the provided explanations per year. As discussed in section 5.5.4 the explanation that the company is still implementing the provision (transitional) is decreasing or levelling off. The percentages of better quality explanations do increase over time. Nevertheless, attention must be paid - by the companies, supervisors and policy makers such as national corporate governance committees - to ensure that these quality improvements will continue and do not stagnate or level off as can be seen, for instance, in the case of the genuine explanations.

Country-wise the Netherlands and the UK score best and Germany should be subject to most improvements (see table 5.5.9b and bar chart 5.5.9c).