Comply or explain
The basis of the Dutch Corporate Governance Code: a company applies the principles and best practice provisions, or explains in its management report why and to what extent it departs from them. Departures are allowed, provided the explanation is substantive and transparent.
Source: Nederlandse Corporate Governance Code 2025 (Naleving van de Code); Besluit inhoud bestuursverslag; Bogtstra, Garretsen en Renes, MAB 2020; Monitoring Rapport boekjaar 2024
The Dutch Corporate Governance Code is the product of self-regulation. Listed companies account for compliance in their management report and give a substantive and transparent explanation of any departures. Since 3 February 2026 the 2025 Code has been designated by law for this purpose through the Decree on the contents of the management report. The Code recognises that corporate governance is a matter of tailoring and that departures can be justified: what counts is not compliance to the letter, but the extent to which the intentions of the Code guide everyone involved.
According to the Code, an explanation of a departure should in any event contain four elements: how the company has departed, the reasons for doing so, for a temporary departure of more than one financial year when the company intends to comply again, and where applicable the alternative measure taken, with an explanation of how it achieves the purpose of the provision or contributes to good corporate governance.
In practice, explanations often fall short. A study in the Maandblad voor Accountancy en Bedrijfseconomie (2020) rated the explanations of 34 listed companies without an internal audit function for 2018 on a five-level scale. Only three met the standard of the Code; the most common explanation was that the organisation is too small. The researchers therefore advocated, like the South African code King IV, comply and explain: companies that apply a provision also explain how.
The Monitoring Committee Corporate Governance Code counts both application and a sufficiently reasoned departure as compliance. In the Monitoring Report on financial year 2024, compliance was 79% across all companies and 86% for companies listed in the Netherlands.
ONE Risk Advisory helps management boards and supervisory boards make a well-founded choice about the design of the internal audit function, and give an explanation that shows how they obtain independent assurance on risk management and internal control.
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Frequently asked questions
Is comply or explain optional?
No. Listed companies account in their management report for the application of the Code and give a reasoned statement of any departures; this follows from the Decree on the contents of the management report. Departing is allowed, a missing or empty explanation is not.
Is 'our organisation is too small' a good explanation for not having an internal audit function?
Not on its own. The explanatory notes to the Code specifically name outsourcing as an alternative when the size of the company does not lend itself to an in-house internal audit department. A good explanation describes which alternative measures are in place and how they achieve the purpose of best practice provision 1.3.6.
What does comply and explain mean?
Under comply and explain, a company also explains how it applies a provision when it complies. The South African code King IV works this way; the authors of the Internal Audit Monitor advocate it for the Netherlands too.