AIM Corporate Governance – A Survey of Codes

By Freddie Spearman

06-2019

As discussed in the article we published previously on Corporate Governance Changes for AIM Companies which can be found here, all AIM companies must now disclose details of the recognised corporate governance code that it has adopted, how the company complies with this code or, where it departed from this code, an explanation of the reasons for doing so. This must be done on an annual basis. This new requirement is set out in full in AIM Rule 26.

All AIM companies should therefore now have adopted a suitable corporate governance code, with most having elected to follow either the Quoted Companies Alliance Corporate Governance Code (QCA Code) or the UK Corporate Governance Code published by the Financial Reporting Council (FRC Code) in respect of their ongoing governance reporting standards.

Which code is the most appropriate one to follow is a question that should be considered at board level by each AIM company. As part of the evaluation process, directors should think about which code provides a suitable structure to enable the company to operate in an efficient way, taking into account the new AIM Rule requirement to either 'comply or explain' how the operations of the company meet the expectations set by the relevant code.

The Quoted Companies Alliance has recently undertaken an exercise of reviewing the websites of 927 AIM companies to better understand which governance codes AIM companies are adopting. The review revealed that 89% (826 companies) had elected to follow the QCA Code as opposed to just 6% (55 companies) which had chosen to follow the FRC Code. The remaining 46 companies either had chosen to follow an alternative governance code or had not yet reported.

It is relatively unsurprising that the QCA Code appears to be more popular with AIM companies given that most AIM companies are categorised as small to mid-sized and therefore the '10 Principles' contained in the QCA Code might be perceived to be easier to follow. The FRC Code on the other hand is often considered to represent a 'gold standard' of corporate governance with its 18 principles and 41 provisions and therefore may be more suited to larger companies – it is mandatory for companies with a premium listing on the Main Market.