What Is A 'Meaningful Explanation' Under Comply-Or-Explain?

In February 2012, the Financial Reporting Council (FRC) published a report of discussions between companies and investors on 'What constitutes an explanation under "comply-or-explain"?'.¹

The EC's Green Paper on 'The EU corporate governance framework' published in April last year pointed out that the quality of explanations in corporate governance statements when departing from a corporate governance code recommendation needed to be improved. Although the EC does not intend to alter the fundamentals of the comply-or-explain approach, the Green Paper is considering requiring more detailed explanations for any such departures and a description of the alternative solutions adopted, and making corporate governance statements regulated information within the meaning of the Transparency Directive, thus authorising regulators (rather than shareholders) to decide whether an explanation for a company's departure from a recommendation was sufficient or not.