The Code is based on the principle of comply or explain. That means that companies that are obliged to apply the Code do not always have to comply with every rule in the Code.
If a company finds that a certain rule is inappropriate due to particular circumstances, it can choose another solution than that found in the Code. The company must, however, clearly state that it has not complied with the rule, along with an explanation of the company's preferred solution and the reasons for this. Companies must also give an account of how they have applied the Code in an annual corporate governance report, including any alternative solutions and the reasons for them.