Corporate Governance: UK Code Compliance and Shareholder Impact

This report provides a comprehensive analysis of corporate governance in the United Kingdom, specifically examining the impact of the combined code implemented in 1998. It delves into the 'explain or comply' approach, assessing the levels of compliance across various provisions, including those related to non-executive directors and service contracts. The study analyzes the quality of explanations provided by companies for non-compliance, categorizing them based on their clarity and objectivity. Furthermore, the report explores the relationship between explanation quality and shareholder attitudes, highlighting the economic consequences of poor governance practices. The findings indicate that while compliance rates are generally high, the quality of explanations significantly influences investor returns. The report concludes by emphasizing the importance of stakeholder attention to explanations and the potential for the market to better recognize and reward good governance practices, offering insights into how the code can be further strengthened to foster better corporate governance. The research is based on an analysis of non-financial corporations in the FTSE 350 index from 1998 to 2004.

Running head: CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Name of the student
Name of the university
Author note

1CORPORATE GOVERNANCE
Introduction
The collective corporate governance code that was initiated in the United Kingdom in the
year 1998 extensively considered as the worldwide target for the preeminent practices of
corporate governance. The elasticity invites to the firm who can elect in between explaining as to
why they do not hold in the sharp divergence to the mandatory structure, for instance, Sarbanes-
Oxley Act in the United States) or complying with the principles1. The advantage of the elasticity
exists in capability to motivate the corporation to obtain the Code spirit. Nevertheless, the letter
wherein legislative regime inclined to the “box ticketing” method that will be futile to permit
sound nonconformity from regulation and would not nurture the trust of the investors2. Therefore
the “Explain or comply” structure would ultimately be inclined to better governance in addition
to that fundamental proposition implemented by nations like Germany and Austria3. The article
explores the achievement of combined code in the country of the United Kingdom, especially
questioned as to whether it tends to too extreme compliance or too little explanations. The code
nurture compliance, particularly in the zones not shielded by indication of Cadbury Code. For
instance, the sections involve the employment of senior autonomous non-executive directors or
the period of 12 months contracts for service of the directors who are executive4. It is motivating
1 Rose, Caspar. "Firm performance and comply or explain disclosure in corporate governance." (2016) European
Management Journal 34.3: 202-222.
2 Azmat, Fara, and Ruth Rentschler. "Gender and ethnic diversity on boards and corporate responsibility: The case
of the arts sector." Journal of Business Ethics 141.2 (2017): 317-336.
3 Rejchrt, Peter, and Malcolm Higgs. "When in Rome: how non-domestic companies listed in the UK may not
comply with accepted norms and principles of good corporate governance. Does home market culture explain these
corporate behaviours and attitudes to compliance?." (2015) Journal of Business Ethics 129.1: 131-159.
4 Council, Financial Reporting. "Developments in Corporate Governance and Stewardship 2014." (2015) London,
January .

2CORPORATE GOVERNANCE
to view that “more than half” of non-fiscal components of FTSE350 have completely complied
with code at the conclusion of 2004. Furthermore, it is observed that, on average, a smaller
amount than 10% of the corporation was not in compliance with the provided single provisions.
Nevertheless, the scenario appears less rosy when viewing the corporation those do not comply
with combined code provisions. Therefore among one in five circumstances of the non-
compliances, the corporation does not demonstrate them at all. Even though if the explanation is
given, they fail to point out particular circumstances that rationalize deviance from the rule. The
corporation that did not comply inclined to attach with a poor explanation until they directly shift
to the rule of compliance. Once it is compiled, either the firm remains compliant or ceases to do
5does nor facilitate a respectable explanation stating the reason for the case. This proposes that
the corporation does not apply elasticity of combined code to the fine-tuning the governance to
developing circumstances6. Nevertheless, the company appears to establish a primary choice in
between con compliance or compliance. Therefore interestingly, the stakeholders appear to be
unresponsive to the explanation quality, although the section of particular explanations in fact a
method to determine good strategies of investment, improved in comparison to concentrating on
compliance. However, in divergence, the returns of the non-compliers diverge importantly in
accordance with the explanation quality. The code can reinforce the following zones with greater
advantages.
1. The provisions relating to the minimum proportions of the non-executive directors as well as
the autonomous non-executive directors have an uppermost occurrence of compliance,
5 Adegbite, Emmanuel. "Good corporate governance in Nigeria: Antecedents, propositions and
peculiarities." International business review 24.2 (2015): 319-330.
6 Elmagrhi, Mohamed H., Collins G. Ntim, and Yan Wang. "Antecedents of voluntary corporate governance
disclosure: A post-2007/08 financial crisis evidence from the influential UK Combined Code." (2016) Corporate
Governance .

3CORPORATE GOVERNANCE
which is above 95% in the year 20047. The latest amendment of combined code makes
sections more inflexible. This will be presumed to affect the levels of compliance, whether
the justification quality of the non-compliance will enhance to be viewed. The substitute
way to make the sections mandatory for the remaining 5% of the corporation that is not
complying and not explain much8.
2. The method to nurture the attention of the stakeholder tom the explanation that has been
found. Section 2 of the amended code entails that the shareholders of the institution must
regard the explanation cautiously in addition to that must provide an explanation to the
corporation in the written form when proper in case they did not approve the position of the
company9. They must evade the box ticketing method. The insertion of a provision in
connection to the norm may have theoretically significant benefits. The complete message to
be transmitted that the absolute compliance might not be expectable along with that the
explanation has been examined to determine the situation wherein the non-compliance is
regarded as the superior method for the governance of the firm
Compliance
The combined code implemented on 31st December 1908 till 31st October 2004. All the
corporations in sample intent to comply or comply in section 9, connecting to the reelection
of the directors. Therefore on judging the compliance along with Section 10 adhering to pay-
linked to the performance necessitate analysis or additional information that is not available.
7 Horvath, Michal. "EU independent fiscal institutions: an assessment of potential effectiveness." (2018) JCMS:
Journal of Common Market Studies 56.3: 504-519.
8 Cumming, Douglas, Tak Yan Leung, and Oliver Rui. "Gender diversity and securities fraud." Academy of
management Journal 58.5 (2015): 1572-1593.
9 Ho, Virginia Harper. "Comply or Explain and the future of nonfinancial reporting." (2017) Lewis & Clark L.
Rev. 21 317.

4CORPORATE GOVERNANCE
Statement of corporate governance
The examination of 245 non-fiscal corporations of United Kingdom that belongs to the FTSE
350 index as 31st December 2003 between 31st December 1998 to 30th June 2004 the tenure the
combined code was in process10. The fiscal corporation was omitted due to the complete
environment of regulatory for the particular corporation contrasts contrast importantly from the
non-fiscal corporation. The regulation, though, is not the portion of the combined code that can
well communicate with the sections and also have execution for performance evaluation as well
as corporate governance11. The dataset entails significant material from the statement of
corporate governance and also the remuneration report of the directors that si embrace in the
annual report performs for every year. That comprises a sample of 1470 prospective firm
observation in the year of which 1286 are available. Therefore the observation that is missing is
due to the unavailability of annual reports or corporations not registered at the creation of the
sample12. The datasets entail material regarding the compliance of the company with the eight
provisions of the combined code and also the actual justified explanation in the situation of non-
compliance. The dataset entails the materials regarding category, number, and liberation of the
directors, quantities of meeting, board committees’ membership, and the quantum of pages of
remuneration report as well as the corporate governance.
10 Judge, William Q., and Till Talaulicar. "Board involvement in the strategic decision making process: A
comprehensive review." (2017) Annals of Corporate Governance 2.2: 51-169.
11 Lama, Tek, and Warwick Wyndham Anderson. "Company characteristics and compliance with ASX corporate
governance principles." (2015) Pacific Accounting Review .
12 Osemeke, Louise, and Emmanuel Adegbite. "Regulatory multiplicity and conflict: Towards a combined code on
corporate governance in Nigeria." (2016) Journal of business ethics 133.3 431-451.

5CORPORATE GOVERNANCE
Principles
The maximum quantum of illustration of compliance in the sample is 10,288 in addition
to that 8712 situations of the compliance that is resulting in the complete compliance frequency
of about 84.7%13. The overall compliance, on average, each principle enhances from 76.7 % in
the year 1998 to 91.4% in the year 200414. The compliance enhances for every principle
excluding those that are connecting to audit committee composition wherein it remains in
approximate the same. The two principles out of the eight have of maximum enhance in
obedience during that age, which is the experienced non-executive directors from 57% to 92%
and service contract from 35% to 80%15. Therefore most interestingly, the two principles are not
enumerated in Cadbury code or present at a diverse level.
Excellence of explanation
In order to examine the excellence of the clarifications, there needed a qualitative
decision on their part and also essentially entails some subjectivity. For the purpose of
enhancement of clarity and objectivity, it is demarcated in three categories. The first part is
objective and can be verified easily, and the firm that is determined does not comply and also
give no explanation. This is regarded as the worst group as the excellence of the explanation
require to be examined by the capacity to rationalize as to why the non-compliance might be
sanctioned. Explanation concerning non-compliance with the provisions of experienced non-
executive director conduct greatest in the sample. The lowest proportion of general explanation
13 Osemeke, Louise, and Emmanuel Adegbite. "Regulatory multiplicity and conflict: Towards a combined code on
corporate governance in Nigeria." (2016) Journal of business ethics 133.3: 431-451.
14 Waweru, Nelson M., and Ntui Ponsian Prot. "Corporate governance compliance and accrual earnings
management in eastern Africa." (2018) Managerial Auditing Journal .
15 Zhao, Jingchen. "Promoting a more efficient corporate governance model in emerging markets through corporate
Law." (2016) Wash. U. Global Stud. L. Rev. 15: 447.

6CORPORATE GOVERNANCE
in addition to that the lowest proportion of not any explanation, so more than about 40 percent of
non-compliance cases there are good explanations. The rate of recurrence of the good
explanation for the residual principles is about 20 %, excluding for the nomination committee
wherein the decent explanations occur only 14% of cases16. The outcome needs to be justified in
consideration of the fact that fewer firms are non-complied with the provisions connecting to the
nomination, audit as well as remuneration committee as contrasted to sections pertaining to
dimension of the service contracts or senior non-executive directors17. Therefore it is considered
that one of the significant factors of the explanation quality is diversity. For example, in the
situation of the description of the senior non-executive director, the firm invites the variability of
circumstances to rationalize non-compliance. Some firms pointed the danger of board division
and other too presence of the robust non-executive director on the board. In divergence, the
explanation concerning the remuneration committee composition asserts that this would not in
the interest of the corporation or claim that the CEO or chairman must cater to the committee18.
The character of the diversity of the explanation is significant to ascertain the complete worth of
the “Comply or Explain” method. Therefore it can be summarized that when examining anyone
out of eight principles out of one hundred firms, only ninety of the firm comply. Furthermore out
of ten only two do not give explanation as well as with exception of audit committees and senior
non-executive director, there exist six cases of not credible explanation. Moreover, there exists a
16 García-Sánchez, Isabel-María, Luis Rodríguez-Domínguez, and José-Valeriano Frías-Aceituno. "Board of
directors and ethics codes in different corporate governance systems." (2015) Journal of Business Ethics 131.3: 681-
698.
17 Sergakis, Konstantinos. "Deconstruction and reconstruction of the “comply or explain” principle in EU capital
markets." (2015) Accounting, Economics and Law-A Convivium 5.3: 233-288.
18 Aguilera, Ruth V., et al. "Connecting the dots: Bringing external corporate governance into the corporate
governance puzzle." (2015) The Academy of Management Annals 9.1: 483-573.

7CORPORATE GOVERNANCE
probability of an optimistic trend of time relating to explanation quality as the proportion of
particular explanation enhances post-2001, however on reducing non-compliance.
Shareholder attitude
The low non-compliance or poor explanation does not implicate that the explanation is
insignificant. The explanation quality does not have a relevant economic outcome. This has been
explained by conducting a simple exercise. The portfolio is formed each year that is comprised
of firm those have complied fully, or in case of non-compliance provide a definite explanation.
In a similar manner, the second portfolio is created, comprise of non-compliers that either do not
provide an explanation or facilitate generalized explanation. The first portfolio return on average
is 5% more in comparison to the second one on an annual basis. Bruno and Arcot conduct similar
exercises where the supplementary adjustment is prepared for the differentiation in the
characteristic of risk19. The first group frameworks on the basis of the market capitalization of
the firm, as well as the book to the market ratios that is equity book value, are demarcated by
equity market value. Then for each group, the differentiation in return in between the portfolio
consists of non-compliers or compliers with definite explanations. Furthermore, the portfolio of
the non-compliers with no explanation or generalized explanation that exceeds 12% yearly. The
differentiation is significant statistically20. Furthermore, Bruno and Arcot observed that among
the non-complaint firm participating in the definite giving explanation produces high returns in
comparison to investing infirm that be unsuccessful in facilitating any explanation21. The
portfolio of the non-compliers, in fact, provide a definite explanation that has profit identical to
the portfolio of the complying firm. Therefore it is clear that explanation quality is motivating
19 Liao, Lin, Le Luo, and Qingliang Tang. "Gender diversity, board independence, environmental committee and
greenhouse gas disclosure." (2015) The British Accounting Review 47.4 (2015): 409-424.
20 Griffith, Sean J. "Corporate governance in an era of compliance." Wm. & Mary L. Rev. 57: 2075.
21 Isidro, Helena, and Márcia Sobral. "The effects of women on corporate boards on firm value, financial
performance, and ethical and social compliance." (2015) Journal of Business Ethics 132.1: 1-19.

8CORPORATE GOVERNANCE
the differentiation in returns. The consequence is symbolic of two factors. The poor explanation
can be theoretically the method for the determination of the firm with having poor governance.
Secondly, the marketplace has not picked up fully of those differences22. The investor would
purchase the portfolios of both non-compilers as well as the compliers with definite explanations.
Moreover, vend the portfolios of poor or no explanation non-compliers that motivate the prices
of stock of the first group and depress the price of the stock of the second one that impacting in
the prices of stock movement that would minimize return discrepancies. The differentiation of
12% yearly is compatible hardly with the concept that such strategies of investment are occurring
on a large scale. This proposes the significant dimension in ascertaining the “Comply or
Explain” method is the attention of the stakeholders to the explanation. After all the code
enforcement is left to stakeholders as Combined Code preamble envisages that corporation must
have a liberal hand to demonstrate the policies of governance in light of the norm involving any
particular situations implementing to them that inclined to the specific method23. It should be for
stakeholders and others to estimate the part of the statement of the company if stakeholders place
no heaviness on the firm to facilitate improved explanation, which is appropriately authorized to
do24. Therefore recently, on 2nd November 2005, Richard Hopper, Chairman of Informa PLC in
the letter to Financial Times, argued that the explanation of the non-compliance by the firm is
preeminent disregard by stakeholders’ institution or the firm is challenged for not attaining the
full structure of the ticket boxes. The statistical information proposes that little consideration is
remunerated to the explanation as conflicting to the compliance. Firstly the explanation quality at
22 Afrifa, Godfred Adjappong, and Venancio Tauringana. "Corporate governance and performance of UK listed
small and medium enterprises." (2015). Corporate Governance.
23 Choudhury, Barnali. "Gender diversity on boards: Beyond quotas." (2015) European Business Law Review 26.1:
229-243.
24 Lakhal, Faten, et al. "Do women on boards and in top management reduce earnings management? Evidence in
France." (2015): Journal of Applied Business Research (JABR) 31.3 1107-1118.

9CORPORATE GOVERNANCE
the level of the company does not enhance over time. The firm in the sample initiates with some
category of explanation as well as stick with an explanation until they shift to the full
compliance. Therefore in another manner, the company does not perceive facilitating generalized
explanation shifting to the definite ones prior to ultimate compliance of the same. The
development is not inconsistent with the fact that average explanation quality enhances after
2001; those who are pitiable explainers become the compliers at a quick rate than that of non-
compliers with better explanations25. The observation proposes that if compression is placed on
the non-compliers, it is heading towards the non-compliance somewhat than the explanation
quality26. Secondly, the firm stops to comply fully and does not facilitate a good explanation.
There is one instance of the firm in the whole sample that ceases to comply, along with that
facilitates verifiable, definite explanation, and the same was not absolutely transitory. For
instance, the firm does not have a distinct board chairman and CEO, resulting in the resignation
of the CEO. The firm, in fact, ceases to comply with certain norms, provides no explanations 27.
There can be two probable clarification of the fact. It can be the firm those are incapable of
facilitating good explanations as due to they do not have legitimate cause to stop compliance. It
can be that they have, however, not initiate actions to mention than in the yearly report do. The
initial interpretation proposes that there does not appear to a series of recurrent situations under
what, as per Sir Derek Higgs, the legitimate exception to the comprehensive healthy rule is
authorized. Another interpretation proposes that there is such a situation; however, it could
25 Larcker, David, and Brian Tayan. Corporate governance matters: A closer look at organizational choices and
their consequences. (Pearson education, 2015).
26 Mathew, Sudha, Salma Ibrahim, and Stuart Archbold. "Boards attributes that increase firm risk–evidence from the
UK." (2016) Corporate Governance.
27 Das, Arindam, and Sourav Dey. "Role of corporate governance on firm performance: a study on large Indian
corporations after implementation of Companies’ Act 2013." (2016) Asian Journal of Business Ethics 5.1-2: 149-
164.

10CORPORATE GOVERNANCE
hardly be implemented in aid of the “Comply or Explain” method. The impact would be similar
without regulations28. The non-existence of explanations, some proposes that stakeholder does
not give consideration to them, so the administrators do not sense forced to rationalize non-
compliance. In addition to that is there is the pressure of the stakeholder on the issues of the
corporate governance this connect to the compliance than that of explanations and also usually
occur after the tenure of immoral performance. The Morrison case can be applied to explain the
manner of the activism of shareholder of the firm29. In the case, Morrison always in non-
compliance with so out of eight provisions of the combined code and also either no clarification
or poor explanation was facilitated by the firm. In an apparent way, the shareholder did not
elevate the concern as long the company’s performance was good. Morrison, in the year 2004,
concluded the seizure of Safeway after that Morrison in July, declared its initial warning of profit
in 106-year history30. These were succeeded by three further warnings in the quick succession
that tend to the pressure of the shareholder as well as the nomination of David Jones as the
leading non-executive director of the company in the year March 2005. The company in an
annual meeting that takes place in May 205 exposes the incapability to project the fiscal place for
coming year. The pressure of the shareholder further exaggerated that tend to the nomination of
three autonomous non-executive directors in the period July 2005 as well as fourth director in
September 2005. The CEO of firm named Bob Stott, gives resignation, and Sir Ken Morrison
moved back from the working obligations. It is laidback to inspect that though, till July 2004, the
performance of the stock value of Morrison was in a match with the marketplace. Morrison, after
that period, was significantly underperformed the FTSE100 index to the limit of 40 % up to
28 Gopalan, Sandeep, and Katherine Watson. "An agency theoretical approach to corporate board diversity." (2015)
San Diego L. Rev. 52: 1.
29 Adams, Michael. "Board diversity: More than a gender issue." (2015) Deakin L. Rev. 20: 123.
30 Elghuweel, Mohamed I., et al. "Corporate governance, Islamic governance and earnings management in
Oman." (2017). Journal of Accounting in Emerging Economies.

11CORPORATE GOVERNANCE
2005. Therefore it is believed that the case of Morrison demonstrates some characteristic that is
similar to many firms. It explains in a particular manner that shareholder intervention in the issue
of corporate governance is generally not pre-emptive; however, characteristically creates post
immoral performance31. That enlightens a relevant value of elasticity that is allowed by code, in
the incentive of the shareholder adopt pre-emptive measures are not nurtured; furthermore, this
manner of enforceability does not produce optimum quality explanation; however, instead,
unvaryingly drags to full compliance.
The value of flexibility
Therefore policy recommendations are suggested with the caveat and the same s
excluding fiscal service corporation from the sample. The significant success of code is in the
heavy quantum of compliance. Nevertheless, in consideration of examination, any may question
as to whether little elasticity and extra legitimate method must be regarded at least in some
zones32. In comparison to the legitimate regime, an elastic structure as a combined code
complement cost in case there are situations wherein one size does not fit all. In case there occurs
full compliance or if no sound explanation is noticed in the situation of non-compliance, the
explain portion of the combined code is inoperative33. The relative advantage of elasticity that is
related to a legitimate approach should be proportionate to the quantum of decent explanations.
Therefore in comparison to the legitimate structure, the elasticity initiates the probability that
31 Sarhan, Ahmed A., Collins G. Ntim, and Basil Al‐Najjar. "Board diversity, corporate governance, corporate
performance, and executive pay." (2019) International Journal of Finance & Economics 24.2: 761-786.
32 Alfraih, Mishari M. "The effectiveness of board of directors’ characteristics in mandatory disclosure
compliance." (2016) Journal of Financial Regulation and Compliance .
33 Afrifa, Godfred Adjappong, and Venancio Tauringana. "Corporate governance and performance of UK listed
small and medium enterprises." (2015) Corporate Governance .

12CORPORATE GOVERNANCE
some firms do not in compliance devoid of having decent cause for doing the same34. The choice
of not applying the norm in the elastic structure is therefore positioned to bad application. This
happens in the corporate that neither explains nor comply. The value of flexibility connect to the
legitimate regime should be in proportion to the quantum of non-compliance that is not
demonstrated. Therefore in consideration of discussion made in the above paragraph, the
proportion of frequency of the definite explanations to the frequency of the no explanation in
respect of each of the eight provisions. In the application of the proportion, there can be an
evaluation of the comparative cost of the Comply or Explain method in comparison to the
statutory method. It can be advocated that the cost of flexibility is low in respect of the provision
connecting to the one-third proportion of non-executive directors, the major proportion of
autonomous non-executive directors in addition to that remuneration committee composition.
There are firms that are no complying with the code for genuine cause devoid of describing the
circumstances35. The twist exists as to why they did not offer an explanation of the
circumstances. In a systematic manner, there can be explanations that can be categorized as good
and others that, in fact, are not good. Hence it can be marked that, in particular, the deficit of
diversity in the explanations in respect of the definite explanations may offer that that specific
explanation may not be enlightening36. Furthermore, it can be argued that the mandatory regime
that would determine certain well-recognized series of circumstances wherein the firm will not
be under obligation to obtain the norm that would not penalize the firm. Therefore the
34 Ntim, Collins G. "Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS
disclosures in Sub-Saharan Africa." (2016) The International Journal of Accounting 51.2: 155-216.
35 Al-Thuneibat, Ali Abedalqader, Hussam Abdulmohsen Al-Angari, and Saleh Abdulrahman Al-Saad. "The effect
of corporate governance mechanisms on earnings management." (2016) Review of International Business and
Strategy.
36 Miglani, Seema, Kamran Ahmed, and Darren Henry. "Voluntary corporate governance structure and financial
distress: Evidence from Australia." (2015) Journal of Contemporary Accounting & Economics 11.1: 18-30.

13CORPORATE GOVERNANCE
comparative advantage of the Comply or Explain method is assessed by the explanations that
might overvalue the accurate contribution of the approach. However, if the two foundations of
mistakes are not subjected to the systematic favoritism that is recurrent for the unobserved firm
features than that for others, the proportion would comprise some significant information.
Conclusion
Thus it can be summarized from the discussion made above that the disregard of what
happening in the firm recently complying in case there was a shift with the statutory regime. It
can be presumed that nothing will alter those as the firm is in compliance under both regimes.
There exist two probable counter-arguments to the opinion37. Firstly their situations may alter in
the future38. As it is mentioned already, that information that no companies are observed that stop
to comply in addition to that facilitates justified explanations is indicative that there might not be
the frequency of situations wherein the ceasing to compliance is required other than the
circumstances that are unforeseeable. Secondly, one can opine that in the contemporary
condition of affairs, too many of the firms comply39. The disagreement is aided by the thought
that the pressure of the shareholders of the company is importantly aimed towards compliance
and not of explanations. Thus it can be admitted that the movement to the path of the statutory
regime can cause the matter worse in this context nevertheless if one view that the compliance
37 Renz, David O. "Leadership, governance, and the work of the board." (2016) The Jossey-Bass handbook of
nonprofit leadership and management : 127-166.
38 Ntim, Collins G., Kwaku K. Opong, and Jo Danbolt. "Board size, corporate regulations and firm valuation in an
emerging market: A simultaneous equation approach." (2015) International Review of Applied Economics 29.2:
194-220.
39 Uyar, Ali, Ali Haydar Gungormus, and Cemil Kuzey. "Impact of the accounting information system on corporate
governance: Evidence from Turkish non-listed companies." (2017) Australasian Accounting, Business and Finance
Journal 11.1: 9-27.

14CORPORATE GOVERNANCE
has attained excessive margin one required to appreciate that the contemporary method suffers
from several drawbacks of how to make the modification to the attitude of the shareholder40. The
amended combined code proposes that the institutional stakeholders express in writing about
their dissatisfaction. In case there are not satisfied with some explanation provided for non-
compliance. This is probable to provoke the firm to facilitate improved explanation as well as it
is believed the same constitute the path in the correct direction41. The market appears to have
select compliance as the regulation. Nevertheless, there appears to be misinterpretation as entail
by compliance42. The code question the firm to either implement the provisions or to demonstrate
the reason for not doing the same. Therefore both the method are regarded to be legitimate of
complying. Thus it is accurate and proper to mention the method as “Apply or Explain.” This
minor amendment of the terminology may cater to attain the viewpoint amongst the shareholder
that greater concentration given to explanation. It would appreciate that firm do either of them de
facto comply. Then non-compliers companies are one that neither does any of them.
40 Chen, Kevin D., and Andy Wu. The structure of board committees. Boston, MA: (Harvard Business School,
2016).
41 Jo, Hoje, Moon H. Song, and Albert Tsang. "Corporate social responsibility and stakeholder governance around
the world." (2016) Global Finance Journal 29: 42-69.
42 Lessambo, Felix. The international corporate governance system: Audit roles and board oversight. (Springer,
2016).

15CORPORATE GOVERNANCE
Bibliography
Books & Journals
Rose, Caspar. "Firm performance and comply or explain disclosure in corporate governance."
(2016) European Management Journal 34.3: 202-222.
Rejchrt, Peter, and Malcolm Higgs. "When in Rome: how non-domestic companies listed in the
UK may not comply with accepted norms and principles of good corporate governance. Does
home market culture explain these corporate behaviours and attitudes to compliance?."
(2015) Journal of Business Ethics 129.1: 131-159.
Council, Financial Reporting. "Developments in Corporate Governance and Stewardship
2014." (2015) London, January.
Elmagrhi, Mohamed H., Collins G. Ntim, and Yan Wang. "Antecedents of voluntary corporate
governance disclosure: A post-2007/08 financial crisis evidence from the influential UK
Combined Code." (2016) Corporate Governance.
Ho, Virginia Harper. "Comply or Explain and the future of nonfinancial reporting." (2017)
Lewis & Clark L. Rev. 21: 317.
Lama, Tek, and Warwick Wyndham Anderson. "Company characteristics and compliance with
ASX corporate governance principles." (2015) Pacific Accounting Review .
Waweru, Nelson M., and Ntui Ponsian Prot. "Corporate governance compliance and accrual
earnings management in eastern Africa." (2018) Managerial Auditing Journal .
Sergakis, Konstantinos. "Deconstruction and reconstruction of the “comply or explain” principle
in EU capital markets." (2015): Accounting, Economics and Law-A Convivium 5.3 233-288.
García-Sánchez, Isabel-María, Luis Rodríguez-Domínguez, and José-Valeriano Frías-Aceituno.
"Board of directors and ethics codes in different corporate governance systems." (2015) Journal
of Business Ethics 131.3 681-698.
Aguilera, Ruth V., et al. "Connecting the dots: Bringing external corporate governance into the
corporate governance puzzle." (2015) The Academy of Management Annals 9.1: 483-573.

16CORPORATE GOVERNANCE
Liao, Lin, Le Luo, and Qingliang Tang. "Gender diversity, board independence, environmental
committee and greenhouse gas disclosure." (2015) The British Accounting Review 47.4: 409-424.
Griffith, Sean J. "Corporate governance in an era of compliance." (2015)Wm. & Mary L. Rev. 57:
2075.
Isidro, Helena, and Márcia Sobral. "The effects of women on corporate boards on firm value,
financial performance, and ethical and social compliance." (2015) Journal of Business
Ethics 132.1: 1-19.
Afrifa, Godfred Adjappong, and Venancio Tauringana. "Corporate governance and performance
of UK listed small and medium enterprises." (2015) Corporate Governance.
Lakhal, Faten, et al. "Do women on boards and in top management reduce earnings
management? Evidence in France." (2015)Journal of Applied Business Research (JABR) 31.3:
1107-1118.
Mathew, Sudha, Salma Ibrahim, and Stuart Archbold. "Boards attributes that increase firm risk–
evidence from the UK." (2016) Corporate Governance.
Das, Arindam, and Sourav Dey. "Role of corporate governance on firm performance: a study on
large Indian corporations after implementation of Companies’ Act 2013." (2016) Asian Journal
of Business Ethics 5.1-2: 149-164.
Adams, Michael. "Board diversity: More than a gender issue." (2015) Deakin L. Rev. 20: 123.
Elghuweel, Mohamed I., et al. "Corporate governance, Islamic governance and earnings
management in Oman." (2017) Journal of Accounting in Emerging Economies .
Sarhan, Ahmed A., Collins G. Ntim, and Basil Al‐Najjar. "Board diversity, corporate
governance, corporate performance, and executive pay." (2019) International Journal of
Finance & Economics 24.2: 761-786.
Ntim, Collins G. "Corporate governance, corporate health accounting, and firm value: The case
of HIV/AIDS disclosures in Sub-Saharan Africa." (2016) The International Journal of
Accounting 51.2: 155-216.

17CORPORATE GOVERNANCE
Miglani, Seema, Kamran Ahmed, and Darren Henry. "Voluntary corporate governance structure
and financial distress: Evidence from Australia." (2015) Journal of Contemporary Accounting &
Economics 11.1: 18-30.
Alfraih, Mishari M. "The effectiveness of board of directors’ characteristics in mandatory
disclosure compliance." (2016). Journal of Financial Regulation and Compliance
Gopalan, Sandeep, and Katherine Watson. "An agency theoretical approach to corporate board
diversity." (2015) San Diego L. Rev. 52: 1.
Larcker, David, and Brian Tayan. Corporate governance matters: A closer look at
organizational choices and their consequences. (Pearson education, 2015).
Azmat, Fara, and Ruth Rentschler. "Gender and ethnic diversity on boards and corporate
responsibility: The case of the arts sector." (2017) Journal of Business Ethics 141.2 317-336.
Adegbite, Emmanuel. "Good corporate governance in Nigeria: Antecedents, propositions and
peculiarities." (2015) International business review 24.2: 319-330.
Horvath, Michal. "EU independent fiscal institutions: an assessment of potential
effectiveness." (2018) JCMS: Journal of Common Market Studies 56.3 504-519.
Judge, William Q., and Till Talaulicar. "Board involvement in the strategic decision making
process: A comprehensive review." (2017) Annals of Corporate Governance 2.2: 51-169.
Osemeke, Louise, and Emmanuel Adegbite. "Regulatory multiplicity and conflict: Towards a
combined code on corporate governance in Nigeria." (2016) Journal of business ethics 133.3:
431-451.
Zhao, Jingchen. "Promoting a more efficient corporate governance model in emerging markets
through corporate Law." (2016) Wash. U. Global Stud. L. Rev. 15: 447.
Choudhury, Barnali. "Gender diversity on boards: Beyond quotas." (2015) European Business
Law Review 26.1: 229-243.
Afrifa, Godfred Adjappong, and Venancio Tauringana. "Corporate governance and performance
of UK listed small and medium enterprises." (2015) Corporate Governance .

18CORPORATE GOVERNANCE
Al-Thuneibat, Ali Abedalqader, Hussam Abdulmohsen Al-Angari, and Saleh Abdulrahman Al-
Saad. "The effect of corporate governance mechanisms on earnings management." (2016)
Review of International Business and Strategy .
Renz, David O. "Leadership, governance, and the work of the board." (2016) The Jossey-Bass
handbook of nonprofit leadership and management: 127-166.
Uyar, Ali, Ali Haydar Gungormus, and Cemil Kuzey. "Impact of the accounting information
system on corporate governance: Evidence from Turkish non-listed companies." (2017):
Australasian Accounting, Business and Finance Journal 11.1 9-27.
Ntim, Collins G., Kwaku K. Opong, and Jo Danbolt. "Board size, corporate regulations and firm
valuation in an emerging market: A simultaneous equation approach." (2015) International
Review of Applied Economics 29.2 194-220.
Chen, Kevin D., and Andy Wu. The structure of board committees. Boston, MA:( Harvard
Business School, 2016).
Jo, Hoje, Moon H. Song, and Albert Tsang. "Corporate social responsibility and stakeholder
governance around the world." (2016) Global Finance Journal 29: 42-69.
Lessambo, Felix. The international corporate governance system: Audit roles and board
oversight. (Springer, 2016).
Cumming, Douglas, Tak Yan Leung, and Oliver Rui. "Gender diversity and securities
fraud." Academy of management Journal 58.5 (2015): 1572-1593.

19CORPORATE GOVERNANCE