The emergence of ‘comply or explain’ as a global model for corporate governance codes
The introduction of the Cadbury Code in the UK in the early 1990s marked an important turning point in the evolution of corporate governance around the world. The ‘comply or explain’ approach pioneered by the Cadbury Code prioritised flexibility and the role of market discipline in its approach. These priorities can be linked clearly to earlier trends in the evolution of company law and capital market regulation in the UK. In particular, shareholder primacy was already well established, flexibility in governance structure was available through freedom to adjust the articles of association, and self-regulation was a key feature of the capital markets framework. In that sense the emergence of the Cadbury Code in the UK can be viewed as part of a continuum, notwithstanding that it was driven by a crisis of confidence in the prevailing corporate governance framework. However, it is more difficult to explain why the Cadbury Code should have exerted so much influence over systems of corporate governance which differ from the UK in their approach and evolution.
In this seminar we focus on the extent to which the ‘comply or explain’ approach has been adopted in other countries and attempt to explain why this has occurred. We propose three explanations for the spread of ‘comply or explain’ codes around the world, and undertake qualitative and quantitative (leximetric) analysis in order to test these propositions. We view the explanations as most likely operating in tandem rather than as alternative and independent drivers of the spread of ‘comply or explain’ codes. The first is that the spread of ‘comply or explain’ could be viewed as the outcome of a process of competition and convergence in global corporate governance. The second explanation is that ‘comply or explain’ codes offer a form of transplantation of corporate governance principles and rules that avoids the complications associated with the structure and operation of national systems of corporate law. The third explanation is that the spread of ‘comply or explain’ codes demonstrates the capacity of markets as a source of normative experimentation. Viewed in that light, the spread of ‘comply or explain’ codes can be seen as the creation of a transnational system of corporate governance driven by market actors around the world.
Iain MacNeil holds the Alexander Stone Chair of Commercial Law at the School of Law of the University of Glasgow. He is a graduate of the Universities of Glasgow (LLB) and Edinburgh (PhD). Iain’s primary academic interest and expertise lies in corporate governance and financial regulation. He has published widely—in particular he has explored the interaction between public and private law in this sphere, as well as the influence of international standards. His current research is focused on legal, regulatory and ethical responses to misconduct in financial markets. In 2012 Iain served as a special adviser to the House of Lords EU Committee for their investigation into MiFID II (the EU legislative framework for financial markets). He is currently Senior Adviser on a Directorate‑General for Financial Stability, Financial Services and Capital Markets Union commissioned project examining national compliance with EU financial sector Directives.
This event is CPD compatible.