The “Comply or Explain” Approach: Company Law's Conformist Transparency (notice n° 565648)
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| Language code of text/sound track or separate title | fre |
| 042 ## - AUTHENTICATION CODE | |
| Authentication code | dc |
| 100 10 - MAIN ENTRY--PERSONAL NAME | |
| Personal name | Fasterling, Bjorn |
| Relator term | author |
| 245 00 - TITLE STATEMENT | |
| Title | The “Comply or Explain” Approach: Company Law's Conformist Transparency |
| 260 ## - PUBLICATION, DISTRIBUTION, ETC. | |
| Date of publication, distribution, etc. | 2009.<br/> |
| 500 ## - GENERAL NOTE | |
| General note | 89 |
| 520 ## - SUMMARY, ETC. | |
| Summary, etc. | The “comply or explain” mechanism, first employed in the UK, combines voluntary compliance with corporate governance codes and a legal obligation (either by law, regulation, or listing rule) to declare compliance with or explain deviations from a code. With the adoption of Directive 2006/46/EC, the European Union endorsed mandatory “comply or explain” rules. However, it left member states with a range of implementation options. Unlike many member states, France has until recently refrained from adopting a legal obligation to Comply or Explain, and the implementation of the directive into national law was kept to a minimum. First, companies may choose not to apply a code, but instead confine themselves to a description of their corporate governance practices (though in such a case, they must at least explain their non-application of a code). Moreover, where companies do refer to a code, French law is not clear as to which one. We argue that the weaknesses of the French version of “comply or explain” only reinforce the weaknesses we consider to be inherent to any “comply or explain” regime. In short, we question whether “comply or explain” can live up to its stated objectives since the mechanism's primary rationale is to promote the standards code-drafting bodies deem to represent best practices. Although “comply or explain” is meant to be flexible (companies, after all, have the option not to comply), it is not normatively neutral. It is hoped that market participants will exercise pressure on companies to comply with a relevant code, which should lead to improved corporate governance. Yet, as economic research indicates, it is unclear whether any set of corporate governance standards can stand for best practices in every situation. Pressure to declare compliance with a corporate governance code could in fact lead to a conformist adoption of practices even where they are not ideal for a particular company in a particular market environment. Secondly, it has been suggested that “comply or explain” facilitates and improves corporate governance transparency. In theory, an interested market participant only needs to analyze the standards of a corporate governance code and, if available, note individual deviations to gain a concise picture of a company's corporate governance. However, we argue that market participants should not rely too heavily on the informational quality of compliance declarations. We show that to a large extent, such declarations contain widely interpretable information. Furthermore, the content of compliance declarations is difficult to verify. Auditor control is limited. Although regulatory and penalties for false declarations are available, there is no systematic control of contents (we address the French legal situation but include comparative references to other EU member states). Content verification could be achieved through shareholder litigation. Here, we briefly examine the relevant French law and jurisprudence, also with comparative references. We find that in any legal order, unless it offers far-reaching presumptions favoring stockholder plaintiffs, proving causality becomes an insurmountable obstacle to a successful claim for damages if the claim is based on nothing more than a misleading or false declaration issued under a “comply or explain” obligation. Finally, “comply or explain” induces companies to produce a new type of corporate governance information that could improve the dialogue between companies and the investing public. However, we raise questions in this respect also as pressure to signal compliance with a code combined with the interpretability of compliance declarations and the limited possibilities of verifying their contents makes corporate governance hyperbole more likely than a fruitful exchange of information. “Comply or explain” could at best establish corporate governance etiquette, and at worst demonstrate illusive corporate governance transparency. |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | corporate governance |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | compliance |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | corporate governance code |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | conformism |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | transparency |
| 690 ## - LOCAL SUBJECT ADDED ENTRY--TOPICAL TERM (OCLC, RLIN) | |
| Topical term or geographic name as entry element | internal control |
| 700 10 - ADDED ENTRY--PERSONAL NAME | |
| Personal name | Duhamel, Jean-Christophe |
| Relator term | author |
| 786 0# - DATA SOURCE ENTRY | |
| Note | Revue internationale de droit économique | XXIII2 | 2 | 2009-06-05 | p. 129-157 | 1010-8831 |
| 856 41 - ELECTRONIC LOCATION AND ACCESS | |
| Uniform Resource Identifier | <a href="https://shs.cairn.info/journal-revue-internationale-de-droit-economique-2009-2-page-129?lang=en&redirect-ssocas=7080">https://shs.cairn.info/journal-revue-internationale-de-droit-economique-2009-2-page-129?lang=en&redirect-ssocas=7080</a> |
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