7.3 Conclusions and recommendations - A recommended route

It is believed that attempts to create a 'one size fits all' corporate governance model will fail. An improved variety of corporate governance systems based on national cross-references is argued for.

The comply or explain principle as a central element within EU corporate governance contributes to this with strengths, such as stimulating the discussion and paving the way for changes in legislation, flexibility, 'made to measure' compliance, monitoring and bench-marking by the capital markets and accountability of directors towards shareholders.

Although Directive 2006/46/EC confirmed the comply or explain principle as a central element within the EU corporate governance, its wording and contents lack detail, resulting in indistinct implementation.

Therefore, taking the 'one size does not fit all' and 'made to measure' approach into account, a common understanding of the comply or explain principle's scope and most effective form within the EU corporate governance framework should be aimed for.

The economical remedies for agency problems can be translated into legal strategies of which the execution of which is laid down in corporate legislation, regulation or contracts; hence law and economics converge.

In a balanced corporate governance code all the agency relations and problems are taken into account (agency theory), whilst acknowledging and rewarding trustworthiness of its stewards (stewardship theory), not neglecting the fact that an adequate corporate governance system also functions as a mechanism against incomplete contracts (transactions costs theory) between the shareholders and stakeholders involved (stakeholder and shareholder theory).

Like the concept of corporate governance itself, the coherence of the theories underlying corporate governance has no fixed form either. This variable coherence between the theories underlying the concept of corporate governance not only influences the concept itself but simultaneously the contents of national corporate governance codes and their application in practice through the comply or explain principle.

The comply or explain principle that enhances the 'one size does not fit all' and ' made to measure' approach theoretically is a variation on the disclosure remedy and is influenced by the legitimacy theory and the theory on market failure.

The legal qualification of codes and the comply or explain principle differs per country and code, even per code provision and no agreement in the legal doctrine exists.

The feature to be hybrid and flexible is a necessity for codes to capture the dynamic collection of norms and values on corporate governance.

It is believed that, in general, regulation in codes can be considered law whenever these rules are in line with the applicable legislation or derivable from legal sources (legislation, custom, jurisprudence, treaty and legal principles).

However, it is far more relevant to make a distinction in judicial corporate governance arrangements, since corporate governance codes can be considered new judicial arrangements that are strengthened by the accountability managers have to provide to their stakeholders by means of the comply or explain principle.

Culture that can be regarded as an all-embracing factor that incorporates others (e.g. economical, legal and political factors), influences the judicial corporate governance arrangements, whereby similar cultural dimensions enhance convergence in corporate governance apart from the situation in which a country has specific predominant cultural dimensions.

When researching corporate governance and the comply and explain principle (for more countries simultaneously), cultural dimensions, the application in practice and the legal and economical dimensions must be combined.

The corporate governance codes and comply or explain principle as a substantive part of a national corporate governance system are, in general, developed for two reasons: for genuinely improving a country's corporate governance structure and/or using the code (partly) as a marketing instrument to enhance its competitive position.

The features of the countries' cultures are reflected in the code's and comply or explain principle's embedding and functioning in practice, as well as in differences in size and detail of the code, which is partly explainable by the country's uncertainty avoidance level and the role company legislation has.

Although the comply or explain principle and corporate governance codes are sufficiently embedded in the national corporate governance systems of the five countries under research by means of listing rules or legislation, clarity on which code provision the principle is applicable to and whether the corporate governance statement involves future and/or past code compliance does not always exist.

Due to Directive 2006/46/EC, the judicial corporate governance arrangements self-regulation supported by non-statutory rules (the UK), self-regulation supported by statutory rules (Belgium, Italy and the Netherlands) or regulation of self-regulation (meta-regulation in Germany) remain the options.

The lay-out of the statement (e.g. a narrative or tables) as well as the manner of disclosure (annual report and/or internet), imposed by national regulation, differ between the countries under research, sometimes resulting in ambiguities.

Although Directive 2006/46/EC states that the Member States should have rules on board liability concerning the publication of the corporate governance statement, the countries under research have not implemented this rule sufficiently and the discussion lingers in jurisprudence and doctrine.

part from Germany, supervision of (material and formal) code compliance is performed at three levels: shareholders, the external auditor and an assigned authority, usually the listing authority.

All five countries under research have a standing corporate governance committee, although its role differs and, apart from in the Netherlands and Germany, no sufficient annual code compliance research is performed.

In practice improvements are necessary and there is as yet no common understanding of the principle's scope and most effective form among the five Member States under research.

Convergence exists in code regulation to the extent that the main topics of all the codes under research are the board's structure and functioning.

Convergence can be seen in the application by all countries under research as regards recurring topics (such as the establishment of committees regarding nomination and remuneration, the remuneration and shareholdings of directors, independence criteria for directors and appointment periods) not complied with and simultaneously insufficiently explained, hence convergence between the countries in 'good' and 'bad' practice.

The highest point of code compliance has not yet been reached: since all the explanations for non-compliance can still not be considered sufficient (40.2 per cent is still insufficient).

In embracing the 'one size does not fit all' approach it can be defended that some deviations (e.g. due to interim situations) will continue to exist, even though at all times a sufficient explanation for non-compliance is provided.

A country needs time to make the comply or explain principle common practice.

A company's size matters for the level of compliance and the quality of explanations.

The manner in which the comply or explain principle is embedded in a country influences the level of compliance and, based on the research results, the comply or explain principle embedded in non-statutory norms seems to be the best format.