1.1 Introduction

"The principle of 'comply or explain' is a central element of EU corporate governance. So it is important to have a common understanding of the principle's scope and of the conditions that need to be put in place for it to work effectively" (Quote of Internal Market and Services Commissioner Charlie McGreevy in press release of 6 March 2006 on statement of the European Corporate Governance Forum regarding the comply or explain principle).

The quote above reflects the importance which is attributed to the comply or explain principle in Europe today. Thanks to i.a. Directive 2006/46/EC, the principle has become a central element in the corporate governance of the European Union (hereinafter the EU). Nevertheless, a common understanding of the scope and necessary conditions for it to work effectively is not yet reached and still is a relevant and current matter of discussion. Relevant, because the EU parliament and council believe that enhanced and specific disclosures (such as by this principle) are necessary to achieve EU-wide comparability and public confidence in financial reports and even facilitate cross-border investments (Preamble 13 of Directive 2006/46/EC). Current, because the 2011 EU Green Paper on corporate governance states that it is now time to consider how to improve the current practice (EU Green Paper 2011, p. 3). The underlying study intends to contribute to this necessary common understanding of the comply or explain principle and as a matter-of-course has the principle itself as central focus (from a judicial,1 economical and cultural viewpoint).

This chapter aims to provide an introduction to the underlying study regarding the comply or explain principle. The research questions, relevance, limitations and outline of the study are set forth. The second section comprises a prologue to the research. The development of the comply or explain principle is reviewed alongside its strengths and weaknesses. Moreover, a preliminary first step is made with clarifying the contents of Directive 2006/46/EC as regards items requiring further and necessary research. The third section clarifies the corporate governance convergence debate since the comply or explain principle as embedded in the EU corporate governance framework is also the subject of debate. The fourth section presents the research questions and section five contains a brief introduction to the research methodology. Section six discusses the objectives, relevance and limitations of this study. Finally, in section seven the outline of the study is clarified and summarised in figure 1.7.