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If the company has not complied with all of the provisions, or if it has complied with them for only part of the year, the departures must be listed and reasons for the non-compliance given.
The comply or explain rule This brings us to a key feature of the listed companies’ Combined Code, copied to an extent by other codes derived from it: its regime of “comply or explain”.
The Code has been the impetus for the development of a more formalised approach to governance in other sectors.
Universities have produced their own governance code; public sector bodies have guidance from the Independent Commission on Good Governance in Public Services.
There is, though, nothing to stop such companies complying with the Code if they choose to do so.
Shareholder pressure, or simply a wish to conform with “best practice”, may lead many “exempt” companies to follow some or all of the Code’s recommendations.
What they can do, though, is apply pressure with the aim of persuading the board to change its mind.
As the case of the supermarket chain Morrisons shows, this can be most effective at those junctures when a company needs the support of its shareholders.
The Code and the annual report The Code is divided into “main principles”, “supporting principles” and “provisions”.It was a FTSE 100 company and very much in the public eye.Institutional shareholders might not have liked its public defiance of generally accepted principles, but Morrisons was successful, and there was little they could do about it.The reach of The Combined Code on Corporate Governance The Financial Reporting Council (FRC) may be the custodian of the Code but compliance is a matter for the Listing Rules Produced by the Financial Services Authority, these Rules regulate companies with a full listing on the London Stock Exchange.The Code does not apply to: companies whose shares are traded on AIM or other markets not covered by the Listing Rules; a listed company incorporated outside the UK (though such companies do have a lesser reporting obligation).
(See box below.) If the shareholders are not big enough or well organised enough to exert pressure or if they are unwilling to take the opportunities they have to do so, then the board can decide how much it complies.