The chair’s guide to comply-or-explain in 2026

The chair’s guide to comply-or-explain in 2026: expert insights as one of the oldest principles in governance and compliance, goes through a profound recalibration.  

Most corporate governance experts, particularly those in the UK, will know the latest developments already: governance is moving away from being process-driven and towards outcomes-based accountability. In other words, you won’t be judged on your ability to follow processes as much as on your ability to recognise their impact. 

From the UK perspective, it’s all contained in the revised UK Corporate Governance Code, owned and enforced by the Financial Reporting Council (FRC) since its inception. The FRC has made it abundantly clear that, while it stands by the code overall, it wants it to encourage a more rigorous, transparent and evidence-led model of compliance. For that reason, the old and well-known concept of “comply or explain” is undergoing a significant shift that you need to understand.

It is a governance reporting policy, made famous by the UK Code, but adopted by multiple regulators worldwide. It’s designed to balance rules with flexibility. It recognises that not every company is the same, and where some might find it easy to follow a particular rule, others might find it harder, not through error, but because their business model, company size or structure makes it more difficult. 

Comply or explain means that you either follow the rule or explain why you can’t. In general, any such explanation will be happily accepted by the regulator as long as it makes logical, governance sense. Chiefly, it must show that you had no option other than non-compliance, and that this path keeps your company legally sound and sustainable.

A central reason why “comply or explain” is evolving is the expanded definition of “material controls”. 

It’s a major departure from previous standards, which often just asked for minimal details on internal controls, which were largely restricted to finance in practice. Now, material controls expands the scope to any of the most critical processes and policies that protect the core components of a company’s operations. If these controls fail, then the ramifications could include the failure of the business model, insolvency, reputational disaster or financial reporting fallout. Modern governance standards require reports on all of these. 

Moreover, the standards also call for declarations of effectiveness on each control. It’s not enough just to confirm the controls are in place; stakeholders now want to know how they performed. What worked? What didn’t work? How are you changing things to improve? All this applies at regular intervals as well, so don’t think you can produce this kind of in-depth reporting once and then you’re done. 

It follows logically that the concept of “comply or explain” has also expanded greatly because of these changes. It’s important to understand that now, in the mid 2020s, as the standards just start to bed in. In ten years’ time, they’ll need to be second-nature for your entire company.

It’s worth mentioning the tick-box culture at this stage, because it’s essential to understand just how irrelevant it is moving forward. 

The tick-box culture means compliance for the sake of bureaucracy and “keeping regulators happy” rather than tackling key issues, engaging and learning. It has long been active in the corporate governance landscape.

With changes to material controls reporting, and the knock-on effect it has on comply-or-explain, it’s important to see just how redundant the tick-box culture is as a result. It might have worked in the past, but not anymore. In fact, many of the latest updates to governance standards worldwide have been made specifically because of tick-box cultures. Regulators see compliance, but they don’t see engagement, and they’re trying to change that. 

While it may be technically possible to continue with a tick-box approach over the next several years, it’s crucial to know that if you choose this option, the ground is shrinking beneath your feet. Good governance rejects tick-boxing. 

What do the new parameters for “comply or explain” mean for directors in practice? 

Explicit responsibility is key. Material controls and the attached “comply or explain” principles mean a lot of scrutiny will be on how internal control frameworks are maintained. The board needs to understand who is responsible for what. A good example here is the audit committee. Often at the centre of decision-making due to its financial oversight, the audit committee’s responsibilities may need to be expanded to deal with new requirements, but in any case, whatever roles it does have need to be explicitly defined to avoid any ambiguity.  

Remuneration alignment for the modern era: Many contracts (executive and non-executive) carry malus and clawback provisions, designed to align pay with performance in key areas. As the responsibilities around compliance evolve, it’s important to ensure these provisions reflect that. 

Engage, challenge, justify: Remember, new and tougher standards aren’t there to cause hassle. They’re there to make you think about your business through every relevant lens. Embracing this fact will make your job on the board far easier. So, instead of constantly playing catch-up on key issues and contributing only to a tick-box culture, ensure that you engage with the issues at play, challenge what doesn’t make sense (even if the only result is a clarification) and be able to justify the decisions of the board once you leave a meeting. This way of thinking will matter hugely when it comes to compliance and reporting. Start now, and it will pay off.

Tick-box compliance is already irrelevant (even if some desperately try to hold on to it), and it will show through long-established processes like “comply or explain”. 

The reality is that these processes will quickly reflect the new normal, where engagement with governance issues is paramount, and recording them in-depth is what keeps regulators happy. The sooner your board embraces this, the quicker it will help make your company sustainable for a modern governance era. 

• UK Corporate Governance Code 2024
• EY 2024 UK Corporate Governance Code: Addressing the New Risk Management and Internal Control Requirements
• The 2024 UK Corporate Governance Code – KPMG International
• Provision 29 Key Considerations – Chartered Institute of Internal Auditors
• The FRC’s Annual Review of UK Corporate Governance Reporting and the ‘Comply or Explain’ Principle in Retrospect – ISS Insights
• Navigating outcomes-based corporate governance reporting: UK Corporate Governance Code 2024 – Financial Reporting Council