AIM rule change prompts governance improvements

Companies listed on the Alternative Investment Market (AIM) have enhanced their corporate governance disclosures since a new rule change came into effect in September 2018 requiring them to demonstrate adherence to a recognised code, but there is still room for improvement, according to a progress review

A study by UHY Hacker Young and the Quoted Companies Alliance (QCA) found that before the change to AIM Rule 26, only 24% of AIM listed companies explained how the board ensures that the company’s ethical standards are recognised. That has now risen to 80%.

In addition, while previously only 10% made reference in the chair’s corporate governance statement to how the company’s culture is consistent with its strategy and business model, this rose to 62% after the rule change.

However, the research reveals that AIM companies are also falling short in other new corporate governance requirements. Most (88%) do not provide a description of how board performance is measured; including details of actual performance metrics and how often performance reviews take place, while 30% do not describe the roles and responsibilities of the chair, CEO and board members.

The findings, based on analysis of annual reports and corporate websites of 50 small and mid-sized companies with equity securities admitted to trading on the AIM market, also show that 42% do not identify their independent directors, while 34% do not detail director compensation and any benefits awarded each year.

Martin Jones, partner at UHY Hacker Young, said: ‘The research has exposed that AIM companies still have a lot of work to do in bringing corporate governance up to required levels.

‘New rule changes have acted as a catalyst for AIM companies who have had to fast-track the implementation of new corporate governance procedures. Although this would have put added pressure on some smaller businesses, the net result is undoubtedly positive.’

Tim Ward, CEO at the QCA pointed out that the introduction of MiFID II, there has been a decrease in research information available on small and mid-caps, saying ‘companies need to take action to ensure that they are using channels like their websites to best effect in communicating with investors.’

The new rule changes require AIM listed companies to adopt a recognised corporate governance code, for example the QCA corporate governance code. Companies must either disclose how they have complied with each principle under their adopted code or explain why they have not done so.

Report by Pat Sweet

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