The principle of "comply or explain", which obliges companies either to follow best practice or to explain to their shareholders why they are not doing so, is now well established in Europe. It is considered to be more appropriate for addressing most governance issues than more traditional forms of regulation. One of the main reasons is that it leaves decisions about the appropriateness of a company's governance arrangements to its management and shareholders. In most cases the primary purpose of good governance is to protect the long-term interests of the company and its owners, so it is right that collectively they should decide how to achieve that objective.
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