The UK corporate governance regime is one of the most sophisticated and flexible in the world. For Premium Listed, FTSE 100 companies, the foundation of the corporate governance regime is the UK Corporate Governance Code (the “Full Code“). This is combined with statutory obligations, investor guidelines and industry best practice to provide a comprehensive corporate governance framework.
However smaller companies, including those with a standard listing, those listed on the AIM market and those traded on various exchanges such as the ICAP Securities and Derivatives Exchange (previously PLUS), have more flexibility in the approach they adopt to their corporate governance. This allows smaller listed companies to follow a corporate governance framework more suited and proportionate to their size and complexity.
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The London Stock Exchange has previously said that the Full Code should be a standard that all listed companies should aspire to, but the for smaller companies where the Full Code is not mandatory, they should only apply the applicable provisions of the Full Code. This is entirely true, but it is not of much practical assistance to those companies that fall into these categories.
The key test for any company’s corporate governance regime is whether it helps deliver growth to shareholder value over the longer term. One of the most useful tools for achieving this is produced by the Quoted Companies Alliance.
Quoted Companies Alliance
The Quoted Companies Alliance (“QCA“) is a membership organisation designed to promote the interests of small to mid-size quoted companies. The QCA publishes the Corporate Governance Code for Small and Mid-Sized Quoted Companies (the “QCA Code“). This aims to apply the key parts of the Full Code and other relevant guidance to the needs of small and medium sized listed PLCs.
The QCA Code identified 12 key guidelines that represent best corporate governance practice for applicable companies. It recommends that companies publish a corporate governance statement in their annual report dealing with each of the 12 statements; disclosing how each principle was (or was not) implemented. The QCA Code adopts the ‘comply or explain’ approach that is followed by the Full Code and allows companies to explain why they have not complied with a particular principle and provide details of any alternative systems they have put in place to deal with the issue.
The twelve principles of the 2013 QCA Code are as follows:
Delivering growth in long term shareholder value:
- Vision and strategy: There must be a shared vision of the strategy of the company, what it is meant to achieve and over what period;
- Risk management and internal control: The board is responsible for maintaining a sound system of risk management and internal controls;
- Investor relations and communication: A communication and reporting framework should exist between the board and all the company’s shareholders;
- Shareholder needs and objectives: A dialogue should exist between the board and shareholders so that the board understands the needs and objectives of the shareholders;
- Stakeholder and social responsibilities: Good governance includes a response to the demands of corporate social responsibility;
- Using cost effective and value added arrangements: Ensuring that governance arrangements are cost effective and value added taking into account the size and complexity of the company;
Maintaining a flexible, efficient and effective management framework within an entrepreneurial environment
- Structures and processes: A company should put in place the most appropriate governance methods, based on its corporate culture, size and complexity;
- Responsible and accountable: A company should make clear where the responsibility lies for the management of the company and the achievement of key tasks;
- Balance of the board: A board must not be too large to prohibit effective decision making and it should have at least two independent non-executive directors;
- Board skills and capabilities: The board must have an appropriate balance of functional and sector experience in order to fulfil its functions;
- Evaluation of board performance and development: The board should be periodically reviewed and appropriate actions should be taken following this review;
- Information and support: The board should ensure that processes are in place so that it is provided with the best possible information to allow the directors to constructively challenge recommendations and take proper decisions.
2013 Update of the QCA Code
The original publication of the Corporate Governance Guidelines for Smaller Quoted Companies was published by the QCA in September 2010 and this was a development (in part) on the Corporate Governance Guidelines for AIM Companies. On 1 May 2013, the QCA published an updated version of the QCA Code which, at the time of writing, is the latest version.
The 2013 QCA Code broadly maintained the key 12 principles, although it reordered them to place a greater emphasis on the delivery of growth in long term shareholder value. The other key changes adopted in the 2013 QCA Code were:
- Emphasising the benefits to PLCs of good corporate governance, especially how it can be used to build trust between current and potential shareholders and the company;
- Highlighting the importance of providing full and quality explanations of how the guidelines are implemented, rather than relying on formulaic statements;
- Focusing on the central role of the Chairman;
- Building on the work done by the UK Stewardship Code relating to constructive engagement between shareholders and companies; and
- describing the characteristics of an effective board.
For further information on corporate governance for publicly listed companies, please see our specific services for PLCs or please feel free to contact us to discuss how we can help. To purchase a copy of the 2013 QCA Code, please see here.