Cap. 10:31 PL'Buc EN'TITIES CoRPoRATE GovERNANCE No. 4/2018 CHAPI'ER 7 CoMPLIANCE Al\'D EN-FORCb'vfENT Preamble 368. The nature and extent of compliance or enforcement of corporate governance principles depends on whether they are required by law or by best practice. If it is the law. then compliance with corporate governance principles is mandatmy Companies must comply or else they face legal consequences. If it is best practice, compliance and enforcement issues are determined by the principles of subsidiary and soft regulation. The subsidiarity principle shies away hom regulation prescribed by law as a source of corporate govemance. The principle simply states that one has to regulate all that which is necessary and do so at the most local level possible. The soft regulation principle, \Vhich is in keeping with the subsidiarity principle, seeks to enforce corporate govemance principles through entreaty. Code prescriptions supplement and compliment the mandatory prescriptions of the law, including listing requirements. 369. Difterent terminologies have been used to desciibe best practice enforcement approaches. Some countries use the ''comply or explain" principle and others use the "apply or explain" principle. The t\vo principles ap~ different. The "comply or explain' approach denotes a mindless application of a code whereas the "apply or explain,. principle reflects an appreciation of the tact that it is often not a case of whether to comply or not, but rather a case of considering how the principles of a code and recommendations contained in it can be applied in the particular circumstances of a given enterprise. 370. Following the ''apply or explain" approach in making decisions, the Board can conclude that to follmv a recommendation would not, in the particular circumstances, be in the best interests of the company. It can then decide, giving the necessary explanation, to apply the recommendation differently or apply another practice and still achieve the objective of recommendation differently or apply another practice and still achieve the objective of faimess, ac(~ountability and tmnsparency in corporate governance. Explaining how the principles and recommendations were applied or, if not applied, the reasons therefor, amounts to compliance. 371. In this Code the "apply or explain" principle has been adopted because it has a bias towards indirect coercion. This Code therefore relies on disclosure principles to encourage compliance through linkage with membership to sector associations. professional bodies and to support the legal licence to be and remain in business. It uses the disclosure principles as a means of encouraging the adoption of specific corporate governance pmctices without mandating actual practices. It recognizes that disclosure alone has a significant coercive effect. 372. Voluntary codes rely on the market as an important mechanism for encoumging compliance with the codes especially where compliance efforts are bro.'ldly and widely disclosed or surveyed. Therefore Zimbabwe has two major sources of corporate govemance, namely, the law and the voluntary codes on corporate govemance. Principles 373. The Board is responsible for the company's compliance with applicable laws and non-binding rules, codes and standards and it should ensure that the company, its officers, employees and agents comply with and adhere to them. 374. The risk of non-compliance should form an integral part of a company's risk management framework. 375. The Board should delegate to management implementation of an effective compliance framework and the processes connected with it 155