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Corporate Governance: new AIM requirements and QCA Code

Posted on 10 May 2018

Corporate Governance: new AIM requirements and the new QCA Code.

A revised edition of the QCA Corporate Governance Code (the QCA Code) was published on 25 April. This follows hot on the heels of a new requirement for AIM Companies to comply or explain against a recognised corporate governance code. These are the latest steps in a line of measures designed to increase corporate transparency following a string of recent high profile failures involving companies listed on the main market of the LSE and AIM, including Sports Direct and Conviviality.

From 28 September this year, AIM companies must disclose on their website details of the recognised corporate governance code that their board of directors has chosen to apply, as well as how the company complies with that code. Where an AIM company departs from its chosen corporate governance code, it must provide an explanation of the reasons for doing so. This information must be reviewed annually.

There is no prescribed list of corporate governance codes that are recognised by the LSE. Currently, according to QCA research, over half of the 900+ AIM companies refer to the QCA Code, which is specifically tailored to meet the needs of small and mid-size firms. When choosing an appropriate recognised corporate governance code, companies should take into account their country of origin, specific stage of development, sector and size. Large AIM companies may instead choose to comply or explain against, the "Gold Standard" requirements of the UK Code of Corporate Governance (the UK Code) see, for example, Advanced Medical Solutions Group's statement). Investment companies may look to the Association of Investment Companies Code of Corporate Governance and companies incorporated overseas, a recognised corporate governance code of their home country.

The latest version of the QCA Code contains some new requirements that address areas of concern in corporate governance highlighted in the Government's response to its Green Paper consultation on corporate governance reform. These changes include a new principle requiring companies to promote a corporate culture that is based on ethical values and behaviours. There is also a new requirement for companies to engage with their stakeholders in general (for example, their workforce, suppliers, customers, regulators and others) and not just their shareholders. The revised QCA Code highlights that usually shareholder expectation is that at least half of the directors of the board will be independent non-executive directors. There is also a new description on the key challenges boards face in relation to directors' independence. It states, amongst other things, that the fact that a director has served for more than nine years does not automatically affect independence, although concurrent tenure with management could hinder the ability to be objective.

Companies should keep an eye on amendments to the UK Code expected to be published in July this year and to apply to financial years beginning on or after 1 January 2019. These also follow recommendations in the Government's response to its Green Paper consultation on corporate governance reform and will contain more detailed provisions in respect of stakeholder engagement, executive remuneration and culture and diversity.

Watch this space…