1.6 Objective, relevance and limitations of this study

The importance of further study of the comply or explain principle has already been recognised by the European Corporate Governance Forum during their meeting of 9 November 2006: "However, it seems appropriate to have a closer look at the way in which companies comply with the recommendations of the applicable code. In particular, it does not seem sufficient to rely on simple compliance rates. When applying the principle of "Comply or explain " more emphasis needs to be put on the quality of the explanations for deviations from the code as a meaningful explanation can fully justify noncompliance. The potential responsibility inherent to a statement ofcompliance should also be examined' (Minutes of meeting European Corporate Governance Forum of 9 November 2006).

Recently further research and consideration became even more evident, since the EU Commission stated in its 2011 EU Green Paper on corporate governance that: "The study referred to above revealed important shortcomings in applying the 'comply or explain' principle that 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 ofthe corporate governance codes. The solutions should not alter the fundamentals ofthe 'comply or explain' approach but contribute to its effective functioning by improving the informative quality of the reports" (EU Green Paper 2011, p. 18).

Although some national corporate governance monitoring committees perform research on an annual basis to measure and qualify their companies' level of compliance (e.g. in Germany since 2003 and in the Netherlands since 2004 -see chapter 4), this study has an added value compared to them and up till now is unique in its kind. A code compliance study with a research period of longer than one year and with more than one country under research has not been performed before. The underlying study provides an overview of the various ways in which five EU countries have designed and enforced the comply or explain principle and how this principle is applied in practice. Besides the added value of an international overview, the research is based on an extensive international dataset with per country the same method of data analysis which reflects a period of three years. The period under research (2005-2007) is of extra interest due to the fact that during this period Directive 2006/46/EC, making the comply or explain principle mandatory for listed companies, was adopted by the EU Parliament and EU Council.

Apart from the relevance of providing an international overview of the application of the comply or explain principle in practice, this study aims to formulate the necessary conditions to be put in place for the principle to work most adequately. These necessary conditions are to be derived from the empirical research, as well as from the legal comparative research. Simultaneously an endeavour is made to address the items of interest that arise from the contents of Directive 2006/46/EC (see section 1.2.2, e.g. on manners of implementation, board liability, past and/or future compliance and preferred lay-out and disclosure) to provide further recommendations. This study moreover intends to identify whether between the five countries under review convergence exists in practice and in regulation and what the role of culture is in this respect. It is believed that a comparative analysis of corporate governance should consist of more than one research method involving several disciplines; the underlying study has the comply or explain principle as its central focus both in theory and practice from a judicial, economical and cultural viewpoint.

In short, therefore, the objectives and simultaneously the relevance of this study can be expressed as:

The limitations of this study have to be acknowledged as well. The theoretical part describes the EU corporate governance model and the empirical part tries to illuminate the direction in which it is evolving. However, the empirical research is based on just five countries and covers a period of only three years. Nevertheless, chapters 4 and 5 clarify why these particular five countries within that specific period of three years are chosen and why together they can be considered to be a good reflection of the EU corporate governance model. In the underlying study the level of compliance of the companies under review is solely measured based on the contents of their corporate governance statement. Unfortunately, companies can state in their corporate governance statement that they comply with the provisions of the applicable code but can deviate from them in practice or in another part of their annual report. The material compliance with the code is hard to measure which is a problem inherent to the EU corporate governance model with the comply or explain principle in place. However, it is not the hard compliance figures that are of interest in this study, but the trends in the (level of) compliance and the specific explanations. Although based on theoretical and empirical research, the questions above imply normative answers and recommendations.

Of further importance with respect to the limitations of this research is that the central focus is the comply or explain principle. This study reviews the theoretical and empirical aspects of the comply or explain principles for the five countries under research (Belgium, Italy, Germany, the Netherlands and the UK). As a consequence thereof, it is not intended to give a full overview of the national corporate governance systems, or to analyse in detail and subsequently compare the contents of the national corporate governance codes. Once again, the focus is the comply or explain principle and its embedding in the national corporate governance systems under review. However, when discussing the comply or explain principle certain relevant information on a country's corporate governance system and national code has to be provided as long as it contributes to the answering of the research question.