22 May QCA revises corporate governance code
With effect from 28 September 2018, the London Stock Exchange regulations in respect of corporate governance for AIM listed companies will change. From that date all AIM companies are required to disclose:
- which corporate governance code applies to the organisation,
- how the company complies with the code and
- provide an explanation should the company depart from its chosen corporate governance code
The disclosure has to be posted on a website which allows free access and has to be reviewed on an annual basis, with the date of review showing on the site. Moreover the rule change means that companies can no longer choose not to follow a code; with the LSE regulation change stipulating that companies will have to adopt a ‘recognised’ corporate governance code.
Given this new requirement it is perhaps timely that the Quoted Companies Alliance (QCA) has now released an updated version of its corporate governance code. This revision looks to deliver a principles based approach which applies equally to all small and mid-sized companies.
At the heart of the revised code sit ten principles of corporate governance, replacing the twelve principles set out in the 2013 QCA code. The first four look to deliver growth with the next five seeking to maintain a dynamic management framework. Last, but definitely not least, principle ten looks at communication as a means of building trust.
Each of these new principles is backed up by an application framework alongside suggestions for appropriate disclosures either within the annual report or on a website. For example, for principle four which looks at risk, the annual report disclosure recommendation is to “Describe how the board has embedded effective risk management in order to execute and deliver strategy. This should include a description of what the board does to identify, assess and manage risk and how it gets assurance that the risk management and related control systems in place are effective.”
In addition to the ten principles of good corporate governance, the revised code also examines the roles and responsibilities of the board. This includes setting out six characteristics of effective boards starting with having “a clear purpose and strong leadership by the chair”.
Whilst the QCA code has been drawn up with AIM organisations in mind, it provides a strong model for other non-listed companies to follow. As Sir Winfried Bischoff, Chairman of the FRC, commented “The new principles highlight that having an “efficient, effective and dynamic management framework” will allow companies to deliver growth in long-term shareholder value. This is true for companies of all sizes.”