Types of CG Approach

Rules based approach -(SOX)

Comply or pay penalties

Types of CG Approach (2)

Principles based approach -UK Corporate Governance Code

Comply or explain

Rules based - Characteristics

CLARITY
The rules set out a very clear defined pathway to fulfill corporate
governance requirements.

Rules based - Characteristics

STANDARISED
The rules based approach ensures that everyone is clear in what is required.

Rules based - Characteristics

BINDING
The rules are binding, you have to comply or pay penalties.

Rules based - Characteristics

DETERENT!
As there is no option to comply or explain it should deter 
non compliance.

Rules based - Upside

Following a rules based approach (SOX) will improve investor confidence.

Principles based - Characteristics

Its not law, its a set of principles for guidance thus should lead to 
less loopholes.

Principles based - Characteristics

Its not a "box-ticking" exercise which should lead to more flexibility

Principles based - Characteristics

Due to greater flexibility this will lead to a more cost effective approach.

Principles based - Possible downside

With the option to comply or explain

investors will be less confident if....

Principles based - Possible downside

companies are constantly "explaining" non-compliance