5.8.1 Summary of research results

The research question to be answered in this current chapter is: As analysed by comparative empirical research offive Member States: how has the comply or explain principle been applied in practice within the EU in recent years and to what extent is convergence visible in regulation and in application? The results of the empirical research and the analysis thereof are laid down in this fifth chapter. The empirical research involves the application of the comply or explain principle in practice, analysed by means of content analysis of the corporate governance statements of, in total, 237 companies listed in Belgium, Germany, Italy, the Netherlands or the UK for the years 2005-2007. The purpose thereof is to be able to analyse the entire empirical as well as theoretical research on the comply or explain principle in chapter 6 and to provide recommendations regarding how the comply or explain principle should be applied in practice, i.e. the conditions that need to be put in place for it to work properly and as intended.

After the descriptions of the previous studies performed on compliance, the hypotheses based on the theoretical research in the previous chapters were formulated (section 5.3) and the data collection and the research methodology elucidated further (section 5.4). The research is to be divided into a univariate, bivariate and multivariate analysis as summarised further below, after which the conclusions are presented and the research question answered. In section 5.3.1 different levels of code compliance are distinguished so proper research can be conducted (see further explained in table 5.8.1 and 5.8.1a below). As will be elaborated further in chapter 6, in the underlying study does not argue for application of all the code provisions (100% in level of compliance I), but for ' applied and explained sufficiently' (100% level of compliance III). Hence, although all the levels of compliance are tested and analysed above, most importance must be attributed to level of compliance III since this level takes the ' one size does not fit all' approach into account.

20.67 per cent of the companies under review that pay attention to code compliance declare that they comply fully with the applicable code. The manner or lay-out of this code compliance as discussed in the corporate governance statements differs between the countries. An explanation by means of a list with references to the code provisions not complied with is preferable and fortunately most of the companies researched already provide such a list. Year-wise the code compliance increases together with the quality of the explanations in the case of non-compliance (lowest percentage of compliance 91.17 and highest 98.11). Simultaneously the increase in this code compliance also levels off; for Belgium and the Netherlands a decrease can even be seen in 2007 compared to 2006. The temporary non-compliance (companies indicate that the non-compliance is temporary and that, in the near future, they intend to arrange the implementation) decreases at first and then levels off as well. Compared to the total number of deviations, the code provisions complied with least (top 5) constitute a considerable percentage and show few modifications over the years. Recurring deviations are the establishment of committees regarding nomination and remuneration, the remuneration and shareholdings of directors, independence criteria for directors and appointment periods. The main themes of the code provisions not complied with are, for all five countries under review, quite similar. For these provisions that are hard to comply with it is also difficult to give sufficient reasons for non-compliance. It is noticeable that, for non-compliance with remuneration and shareholding criteria for directors, companies often indicate that they have their own regulation regarding this matter and therefore do not comply with the criteria as laid down in the code. A remarkable development, since society explicitly desires improvement on this matter and extensive regulation has been developed in the codes. With respect to the quality of the explained non-compliance, an increase in quality can be seen, but 40.2 per cent of the explanations given are still considered insufficient.

Five hypotheses are tested, all concerning the level of compliance and successively time, judicial corporate governance arrangement, company's size, category-specific deviations and the reasons provided for deviations. Table 5.8.1 below summarises the results of the bivariate analyses and indicates whether the results are consistent with the formulated hypotheses or whether the hypotheses are rejected. The period of time the comply or explain principle has been applicable does matter for the level of compliance. The longer the principle has been applicable, the higher the level of compliance. With respect to size, market capitalisation in general does not matter as regards the compliance level, but when taking the quality of explanations into account size does matter; larger companies do not necessarily have a higher compliance rate, but their deviations are explained more sufficiently than is the case for smaller companies. Furthermore, companies quoted on the country's main stock exchange index have a higher level of compliance than companies listed on the first and subsequently second to main stock exchange index. Moreover, their explanations suffice more. The comply or explain principle embedded in non-statutory norms results in the highest compliance rates compared to the other judicial corporate governance arrangements (pure self-regulation, the principle facilitated by statutory rules and metaregulation). Moreover, it is analysed that the lower the level of compliance, the more general the explanations and the more deviations with respect to the management board and its remuneration.

The linear regression method tests the relation between the dependent variable, the level of compliance (I.a, III.a, I.b and III.b), and the independent variables of time, corporate governance arrangement and size. Table 5.8.1a below shows a summary of the multivariate results. Based on the R2 and the F-ratio it can be stated that between 16% and 17% of the total variance in the level of compliance is significantly explained by the independent variables. With respect to time, the period of time the comply or explain principle has been applicable predicts the level of compliance; the longer it has been applicable, the higher the level of compliance. With respect to the corporate governance arrangement in the model analysed, self-regulation scores best compared to meta-regulation. But when taking the quality of the explanations into account the stricter corporate governance arrangement with statutory rules predicts the highest level of compliance compared to meta-regulation. The explanatory variables of the market capitalisation show almost no significance; hence size does not seem to matter. However, the stock exchange index dummies show the contrary. For the models I.a, III.a and I.b it is predicted that, taking all the variables into account, the more important the index the company is listed on (in practice the larger the company), the higher the predicted increase in the level of compliance.