Mandatory versus Discretionary Rule Dichotomy in the Harmonization of Corporate Governance Codes: Lessons for Nigeria

Harmonizing corporate governance systems can potentially level the playing field for businesses, as it would increase financial and economic interconnections, including market integration, between countries. Although harmonization at the regional level such as the EU seems challenging because systems are so diverse, the reverse is the case at the national level. A critical issue in the harmonization effort is whether to adopt the “comply or explain” approach or the mandatory compliance approach. Although mandatory compliance is necessary in certain circumstances, particularly in cases of corporate pseudo-reporting that occasions corporate failures, the predominant approach involves “comply or explain”. Given competing interests in the business community, the inclination for flexibility and the regulatory authority's disposition for an oversight function, this article argues that a hybrid approach should be followed, which will internalize the merits of both the “comply or explain” and mandatory compliance approaches while eschewing their disadvantages.