December 4, 2019 Communicating governance
Recognising the important role which a strong corporate governance regime has to play in delivering good corporate outcomes, in 2018 the London Stock Exchange (LSE) revised its requirements in respect of corporate governance for AIM listed companies. With effect from the 28 September 2018, new regulations required all AIM companies to disclose not only which corporate governance code applied to their organisation but also how the company complied with the code. Companies also had to provide an explanation in the event of any of their practices varying from the advertised corporate governance regime.
Partly in response to this new requirement the Quoted Companies Alliance (QCA) took the opportunity to revise its recommended corporate governance code for AIM companies to include guidance on communicating governance. That new code set out ten principles of corporate governance which together looked to deliver growth, maintain a dynamic management framework, and promote communication as a means of building trust.
To mark the first anniversary of the LSE regulation change, the Quoted Companies Alliance commissioned a survey to ascertain how companies have adapted to working within a defined corporate governance framework. Although 68% of AIM companies had previously followed a corporate governance regime, the requirement to do so has resulted in 89% of AIM companies adopting the QCA code.
One of the key findings from the survey is the way in which adopting a corporate governance code has improved conversations both within the organisation and with shareholders. 40% of those surveyed acknowledged that under the new regime they had disclosed more information to the market than previously. It is perhaps unsurprising that these enhanced disclosures included areas such as strategy and business model, helping investors to make informed decisions in respect of the future prospects of an organisation.
However, other areas identified as benefitting from enhanced disclosure included sustainability and board diversity, board evaluations and board member skill-sets. This perhaps reveals the way in which boards have started to appreciate the importance not simply of communicating decisions but also decision pathways. The survey also revealed that increased communication in respect of board diversity and skills has led to an increased focus on succession planning.
Commenting on the results of the survey YouGov Director of Reputational Research, Oliver Rowe, said:
“Investors tell us that governance of a company is an important factor when they weigh up their investment decisions, with a company’s chosen code and adherence to it becoming an increasingly common heuristic for them to get a sense of who the firm is.”
How Elemental can help
Elemental has an in-house team of chartered secretaries, governance professionals and lawyers who have put in place governance frameworks for FTSE companies, AIM companies and organisations in the not-for-profit sector, including help with communicating governance best practices. To discuss your individual requirements and how we may be able to help please get in touch with a member of the team. To find out more about our other company secretarial services visit our services page.