On the face of it the proposed Recommendations are reasonable and very much follow the scope of the Combined Code in the UK. As such UK companies should have little problem complying. The paper says “The Recommendation actually aims at inviting Member States to introduce in their national framework, on a comply or explain basis at the minimum, a set of detailed principles to be used by listed companies.”
However at the end of a reading of the paper we have the impression that there is quite a long set of detailed rules and a set of minimum standards which is at odds with the high level stated aim. We would be concerned if the Recommendation became the start of a process of ever tightening regulation and law which does not fit in well with the successful UK system of best practice guidelines and a degree of flexibility.
On the other hand, we take a large degree of comfort from the application of the “Comply or Explain” approach, which should allow a degree of flexibility for individual companies where the rules or principles do not fit well to explain their own circumstances and reasons for non compliance. This is similar to the existing UK approach and we welcome it.
Overall we welcome the Recommendation and the effect it should have on harmonizing best practices in corporate governance throughout the European Union.
