The LSE has, in its AIM Notice 50 of 8 March 2018, made significant rule changes requiring AIM companies to adopt a recognised corporate governance code on a comply or explain basis. The new corporate governance requirements will take effect from 28 September 2018.
All new applicants to AIM are currently required to state the corporate governance code that they will adopt but will not be required to show compliance until 28 September 2018. The LSE has chosen not to define what a ‘recognised corporate governance’ means to allow companies the flexibility to choose a code that better suits their sector, size and specific stage in development. This could be:
• the UK Corporate Governance Code (UKCG) (currently undergoing revision);
• the Quoted Companies Alliance’s (QCA) code; or
• a foreign code of an appropriate standard (for companies with a foreign listing).
AIM companies will be required to annually review and disclose the following information on their website:
• the adopted corporate governance code;
• how the company adheres to its principles;
• why (if at all) it deviates from the code; and
• the date on which the information was last reviewed.
In anticipation of the implementation of the amended AIM Rule 26, the QCA has recently updated its existing code and considers that this new code is less sophisticated and more straightforward than the UKCGC which tends to be used by larger quoted companies.
However, for companies that are looking to be listed on the Main Market, it may be worthwhile to start off with the UKCGC for ease of transition in the future.
Impact on Share Schemes
Companies that currently run or have plans to run some form of executive and/or employee incentive scheme may find that Section D and Schedule A of the UKCG offer specific guidance in this area, especially when determining the balance between fixed and performance-related; and immediate and deferred remuneration. The code suggests that this balance should be done against the backdrop of seeking the company’s best interests.
In light of the government’s increased focus on executive remuneration and its operation in both quoted and unquoted companies, it may be worth adopting a code that clearly sets out the requirements for disclosing against executive incentive schemes as a matter of good practice.
The government is increasingly pushing for the tightening of corporate governance procedures in relatively large companies, especially since the publication of its Green Paper on corporate governance reform in November 2016 and the response to the Green Paper in August 2017. It is hoped that by requiring AIM-listed companies to adopt and disclose against a recognised corporate governance code, there will be increased accountability and this would in turn lead to increased public trust in corporate UK.
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