Many now agree that ‘principles not provisions’ needs to be the basis of governance reporting, particularly in the wake of the banking crisis. Indeed, one of the major corporate failures to be exposed in the last few years is that, under the old system, compliance could conceal a multitude of sins. Previously, companies could claim compliance with the Combined Code despite having a totally dysfunctional Board – a worrying situation for investors. Good governance reporting, then, needs to accurately reflect a company’s actions to provide a clear and transparent view of its behaviours and operations at all levels. And this will only be achieved by encouraging companies to move away from the tick-box approach to compliance towards a principlesbased reporting model. In the words of the FRC, companies need to use the Code “as a means of promoting appropriate behaviour by Boards and good communication between Boards and shareholders”. Europe: constraining through change? There are concerns in some quarters, however, that efforts to encourage greater Board-level transparency could be undermined by developments in Europe. In the EU Green Paper, the question is asked whether companies’ corporate governance statements should become regulated as part of the Transparency Directive. Many UK commentators feel such measures would constrain companies’ abilities to communicate through their annual reports particularly if the innovation which is currently being sought in UK reporting would become subject to regulatory compliance. www.blacksunplc.com © Black Sun Plc 2011 13