complyorexplain

complyorexplain is a governance principle in which an organization is either in compliance with a prescribed code of practices or must publish a justification for any deviation. The concept is widely discussed in corporate governance literature and is commonly applied to codes of conduct, board independence standards, and disclosure requirements. It emphasizes transparency over rigid rule-following.

Originating in the United Kingdom in the early 1990s as part of the Cadbury Report's governance reforms, the complyorexplain approach was designed to balance prescription with accountability. The idea has since spread to other jurisdictions and regulatory frameworks, where codes typically mandate explanations for noncompliance and set expectations for the quality and prominence of those explanations.

In practice, codes or regulations specify the standards to which organizations may claim compliance. When a company adheres to the standard, it may declare full compliance; when it does not, it must provide a clear, public explanation detailing the deviation, its rationale, and any steps taken to return to compliance. Explanations are usually disclosed in governance statements or annual reporting.

Advocates argue that complyorexplain enhances flexibility, investor insight, and comparability by focusing on outcomes rather than form. Critics point to inconsistent explanations, potential boilerplate language, and difficulties in evaluating the legitimacy of deviations. Successful implementation depends on robust standards for what constitutes a meaningful explanation, third-party verification, and ongoing oversight by regulators or auditors.