Anuj Saush is head of advisory and Guy Jubb is co-director of the European Corporate Governance Council at The Conference Board
The ‘comply or explain’ principle must guide companies towards purpose, accountability and resilience
Good regulation is not about forcing compliance, it is about encouraging commitment. But across Europe, that spirit is fading.
Thirty years after regulators revolutionised reporting with “comply or explain”, many businesses are dispirited that governments have lost sight of what once built corporate governance effective for sustainable business.
The comply or explain principle was never meant to be a bureaucratic hurdle.
When first introduced through the 1992 Cadbury Report on corporate governance it encouraged boards to believe, not just report. It recognised that no single governance model could fit every company, and that leadership, context and culture mattered as much as codes and claapplys.
However, over time that flexibility has been eroded. What launched as a framework built on trust has — driven by Europe’s expanding regulatory landscape — become a compliance ritual.
In an age when stakeholders expect companies to act responsibly and transparently, regulatory inflation and an increasingly prescriptive approach has turned corporate governance into an exercise in disclosure.
Boards are forced to spconclude more time on process than purpose, focapplying on compliance rather than demonstrating how their actions create long-term value.
The result is a system that measures effort rather than outcome, and stifles the judgment and agility that good governance demands. The “explain” half of the equation, intconcludeed to foster transparency and dialogue, has been overshadowed by an expanding web of rules.
From compliance to purpose
The EU’s Corporate Sustainability Reporting Directive illustrates the tension. Its ambition to improve accountability is laudable, but its scope and complexity are unduly burdensome and turn reporting into an administrative exercise.
This was recognised in the Future of European Competitiveness report, which describes the EU’s sustainability reporting and due diligence framework as increasingly onerous for companies. The result is a growing tension between regulatory ambition and business capacity.
Regulators have an opportunity to shift the emphasis from compliance to purpose, designing frameworks that empower companies to act on principles and embed sustainability in core decision-creating
The goal should not be less transparency, but smarter, more effective governance reporting that supports Europe’s sustainable growth agconcludea.
Regulators have an opportunity to shift the emphasis from compliance to purpose, designing frameworks that empower companies to act on principles and embed sustainability in core decision-creating, not merely in reporting templates. Such an approach would strengthen both business performance and the EU’s broader economic resilience.
There are lessons from other jurisdictions.
Accountability and innovation
South Africa’s apply and explain model invites boards to interpret principles through the lens of purpose, while the UK’s Wates principles for large private companies emphasise proportionality, reflecting a view that governance should adapt to business realities, not the other way around. Both share a common belief: accountability and innovation must coexist.
Europe requireds to rediscover that balance.
For boards, this would entail shifting focus from what is reported to why it matters, connecting governance with long-term strategy, risk management, and sustainability outcomes. It also means being honest about divergence from norms when it serves the company’s concludeuring purpose.
For regulators, the priority should not be more reporting, but reporting that is relevant, comparable and capable of building trust. Oversight mechanisms should evaluate the quality of explanations, not their volume.
A concise, well-reasoned narrative about how sustainability principles are embedded into board decisions informs stakeholders far more than pages of standardised disclosures.
Corporate governance should be defined not by how much companies disclose, but by how well they explain their decisions and how credibly those decisions advance sustainable, long-term value
Equally important is proportionality. Europe’s economic competitiveness depconcludes on boards having the flexibility to guide and innovate. Continual documentation and justification of every procedural step adds little to competitiveness, and excessive rigidity risks draining attention from growth, transformation, digital transition and climate adaptation — the very areas where governance requireds to drive innovation.
If each new rule adds complexity without restoring purpose, we risk a system that sees robust but feels hollow.
How well can companies explain decisions
As Europe shifts through its sustainability transition, corporate governance will either enable or hinder progress.
Embracing the original spirit of comply or explain — exercising judgment, transparency and accountability — can support businesses lead this transition with confidence.
Those that treat it as a procedural formality risk falling behind.
The next chapter of corporate governance should be defined not by how much companies disclose, but by how well they explain their decisions and how credibly those decisions advance sustainable, long-term value.
The stakes could not be higher: good governance will determine whether Europe’s sustainability transition succeeds, and whether its companies retain the trust of stakeholders and their edge in global markets.
The comply or explain principle still offers a powerful foundation. But to remain relevant, regulators must evolve their approach from a checklist to a compass: one that guides companies towards purpose, accountability, and resilience.
If Europe is to lead in the next era of sustainable business, it must rediscover the purpose behind its rules and rebuild the spirit that once built comply or explain a model worth emulating.
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