Analysis of 'Comply or Explain Statements' with respect to the Corporate Governance Code
Today the Ljubljana Stock Exchange published an analysis of 'comply or explain statements' with
respect to the Corporate Governance Code. The analysis shows that the level of compliance with
recommended good practice of corporate governance has risen in the last years, as has the number of
quality explanations of deviations from the code. Nonetheless, companies still do not disclose all
deviations or they regard them as irrelevant. The content of the statements is primarily intended
for investors; therefore, an active role of shareholders is crucial in monitoring the quality of
The analysis of 'Comply or Explain Statements' with respect to deviations from the Corporate Governance Code adopted by the Ljubljana Stock Exchange Inc., the Slovenian Directors' Association and the Managers' Association of Slovenia comprises statements of Prime Market companies in the years 2010 and 2011. The analysis shows that the general level of corporate governance in Slovene companies is relatively good. The level of compliance with recommended good practice of corporate governance improved in the observation period, as evidenced by a decrease in the total number of deviations from the code and a significant increase in the number of quality explanations of deviations. It is important to note, however, that an instance of deviation does not necessarily carry a negative connotation with respect to corporate governance as it might merely be a sign of an alternate path chosen by the company in order to fulfil the purpose of a certain provision of the code or the company’s objective.
The provisions of the code which most companies stated deviations from are:
- The provision on stating objectives in the company's articles of association;
- The provision on using information technology for distribution of materials and convening as well as holding supervisory board meetings;
- The provision regarding adequate payments to members of ljse-the supervisory board;
- The provision regarding the setting up of an audit and remuneration committee;
- The provision regarding the disclosure of remuneration of each member of the management board and of the supervisory board.
The analysis also shows that in certain cases companies still do not disclose all deviations –
they either regard them as irrelevant or interpret them differently. Such attitude should be
changed as soon as possible, as cases such as these are the main reasons for cracks in the "comply
or explain" principle in Slovene practises. The principle is effective only when a high level of
transparency is achieved through reliable, comprehensive and complete disclosures realized by
specific explanations, which in addition to deviations also explain alternative practices and
reasons behind them.
The content of statements is primarily intended for investors; therefore, an active role of shareholders is crucial in monitoring the quality of disclosures. The supervisory role of shareholders is the key in identifying and monitoring deviations. As is also the opinion of EU, this role should not and cannot be replaced by potential additional power of state institutions, market organizers or auditors as so called external expert auditors of disclosure adequacy. To this end, institutional investors can make an important contribution as they are professionally committed to exercising shareholder rights.
The analysis of 'Comply or Explain Statements' with respect to deviations from the Corporate Governance Code, which was prepared by Marija Valentinčič Pregelj and Simona Jamnik Čok for the Ljubljana Stock Exchange, is available in Slovene language on the Ljubljana Stock Exchange website (www.ljse.si).
Metka Šipek, Head
Management Board Cabinet & Public Relations
Telephone: 01/471 0221