3.1 Introduction

All countries have their own unique system of corporate governance reflecting different economic, political, cultural and legal circumstances. Although the assumption is that good corporate governance helps to underpin market confidence and financial stability, the effectiveness of corporate governance is dependent on a myriad of factors and cannot simply and only be measured by profitability, growth or share performance (Waring 2006, p. 266). The effectiveness of and manner in which a national corporate governance system functions i.a. depends on the way it is designed through economic, political, cultural and legal developments. The same applies to national corporate governance codes and the comply or explain principle. This chapter reviews: How should corporate governance codes and the comply or explain principle be qualified legally and in what manner is it believed that cultural patterns influence the application of the principle?

The main research question of this study is, as concluded from legal and empirical comparative research and whilst arguing for a 'one size does not fit all' approach and 'made to measure' code compliance: how can a common understanding of the comply or explain principle's scope and its most effective form be reached within the EU corporate governance framework? To be able to answer this question and to study the comply or explain principle as used in practice more in-depth and comprehensively, the different 'modes' in which corporate governance systems and, more in particular, the comply or explain principle can and do function need to be reviewed. These different 'modes' largely cohere with a country's culture and legal system. Hence, this chapter elaborates further on culture and the legal qualification of the corporate governance codes and the researched comply or explain principles.

Therefore, section two attempts to qualify the corporate governance codes legally. Since this qualification differs per country, per code, even per code provision and no agreement exists in legal doctrine, the focus is subsequently on the judicial corporate governance arrangements. In what precise manner the comply or explain principle is legally embedded in national regulation and can be the subject of litigation is reviewed further in the comparative legal analysis for the five countries under research in chapter 4. Section three below reviews the cultural dimensions of influence on the application of the comply or explain principle. Corporate governance systems are influenced by many factors, among which the culture factor is regarded as an all-embracing factor that incorporates other important factors such as economical, political and legal factors. Mintz states: "to be effective, corporate governance principles must be part of the culture of an organization"" (Mintz 2005, p. 584). This also applies to societies in general and therefore corporate governance codes and regulation have to be part of the culture of a society as well(Mintz 2005, p. 587). However, what exactly does this culture factor entail and how does it influence corporate governance? The culture factor and the relevant studies performed are examined for the purpose of taking the matter culture issue further into account in chapter 4 when reviewing the corporate governance systems and the comply or explain principles of the UK, Belgium, Germany, Italy and the Netherlands. At the end of section 3 the cultural dimensions influencing their corporate governance systems are presented per country, based on the results of the studies reviewed. Section 4 is a summary and conclusion to this chapter. This chapter can be seen as a necessary prelude or starting point for the research to come. To end this introduction, figure 3.1 below shows the schematic overview of the outline of the study and the coherence of chapter 3 with the other chapters.