Standards

Need to guard against "mindless compliance"

The bodies overseeing application of the Combined Code must be vigilant to ensure it does not become an exercise in “mindless compliance”, the Institute of Chartered Accountants of Scotland (ICAS) has warned.

ICAS, responding to the Financial Reporting Council’s review of the Code’s impact, said too often the Code’s “comply or explain” approach is interpreted as “comply” meaning good and “explain” meaning bad. The accountants’ body recommended that the Code explicitly state that it is a good thing for a company to explain its policies and practices in support of compliance or non-compliance.

David Wood, ICAS executive director of technical policy, said that while the Code has overall has encouraged good governance, “There are examples where compliance with the Code could arguably go against these interests. For example, ‘independence’ of directors can often be seen as more important than ‘experience’ – but the long term nature of corporate strategy can benefit from longer serving directors who have ‘been there and done it before’”.

August 2007