Comply or explain is the principle that lets a company depart from a specific governance code provision, provided it publishes a clear, reasoned explanation for the departure.

It gives boards room to tailor governance to their own circumstances. As of 2026, it remains the model most UK listed companies use to report governance.

What does comply or explain mean?

Comply or explain means a board can choose not to follow a specific code provision, as long as it explains why the departure suits the company and what it did instead. The provision itself is not compulsory in the way a statute is. What is compulsory is the disclosure.

A company in the FCA’s commercial companies listing category must either state it has complied with every provision of the UK Corporate Governance Code or set out, provision by provision, where it has not and why.

Where does the principle come from?

Comply or explain originated in the Cadbury Report, published in December 1992 by the Committee on the Financial Aspects of Corporate Governance chaired by Sir Adrian Cadbury, formed after governance failures including the collapse of Polly Peck.

The London Stock Exchange gave the resulting Code force by requiring listed companies to state how far they complied and explain any non-compliance. It is widely regarded as the first comply or explain governance code, according to the Institute of Chartered Accountants in England and Wales.

Which UK codes use comply or explain, and which use apply and explain?

The UK Corporate Governance Code, maintained by the Financial Reporting Council, applies on a comply or explain basis to companies with a listing of equity shares in the FCA’s commercial companies category, under the UK Listing Rules that replaced the former premium and standard listing segments in July 2024.

The current 2024 edition, published on 22 January 2024, applies to financial years from 1 January 2025 and adds Principle C, asking boards for a clear explanation of any departure. AIM companies took a different route until recently. From 28 September 2018, AIM Rule 26 required every AIM company to adopt a recognised governance code and disclose how it complied, and around 90 per cent chose the Quoted Companies Alliance Code, which itself runs on apply and explain rather than comply or explain.

From 5 August 2026, the London Stock Exchange removed that requirement entirely, and AIM companies no longer need to adopt or comply or explain against any code, reporting instead against five set governance areas. The Wates Corporate Governance Principles for large private companies still use apply and explain, meaning a company explains how it applied every principle, whether or not that counts as a departure. The Wates Principles support the Companies (Miscellaneous Reporting) Regulations 2018, covering companies with more than 2000 employees, or with both turnover above £200 million and a balance sheet total above £2 billion.

What makes an explanation convincing, and how many companies depart?

A convincing explanation sets out the circumstances behind the decision and shows how the alternative still meets the purpose of the provision, rather than repeating boilerplate wording. Departures remain the exception.

The FRC’s Annual Review of Corporate Governance Reporting, published in November 2025, sampled 100 UK listed companies against the 2018 Code and found that 25 disclosed a departure from at least one provision, most commonly relating to audit committee composition, chair independence and tenure.

What happens if a company gets it wrong?

Getting comply or explain wrong usually means a weak or missing explanation, not a breach of the underlying provision. For companies in the FCA’s commercial companies category, failing to make the statement at all breaches the UK Listing Rules.

In practice, the bigger cost is reputational, since investors and proxy advisers who are not persuaded can vote against a director’s re-election or the annual report at the AGM, a market sanction rather than a legal one.

Conclusion

Comply or explain has shaped UK governance for more than three decades, and its logic now stretches beyond the original Cadbury Code, through the UK Corporate Governance Code and its close cousin apply and explain in the Wates Principles. A board that departs from a provision is not automatically in the wrong. It only becomes a governance problem when the explanation fails to hold up to scrutiny.

How Convene supports comply or explain reporting

Producing a credible comply or explain statement means tracking board decisions and evidencing them under pressure at reporting time. Convene gives company secretaries a single, secure record of board and committee papers, decisions and minutes, so the detail behind an explanation is never scattered across email threads.

To see how Convene can support your next reporting cycle, book a demo.

FAQs

Is comply or explain a legal requirement?

Not in the way company law is, but the obligation to disclose often is. Companies in the FCA’s commercial companies listing category must make an annual comply or explain statement under the UK Listing Rules. The code provisions stay optional. Only the disclosure is mandatory.

What is the difference between comply or explain and apply and explain?

Comply or explain assumes compliance is the default, and a company only explains when it departs. Apply and explain, used by the Wates Principles for large private companies, asks a company to explain how it applied every principle, whether or not that counts as a departure.

Which UK companies must follow comply or explain?

Companies with a listing of equity shares in the FCA’s commercial companies category follow it under the UK Corporate Governance Code. AIM companies no longer follow a comply or explain regime, since the London Stock Exchange removed that requirement from AIM Rule 26 in August 2026. Large private companies fall under the related apply and explain requirement in the Wates Principles.