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Dec 04, 2018

Aim-listed companies improve governance reporting

But despite upped standards, further improvement needed, finds research

Alternative Investment Market (Aim) listed companies have significantly improved their corporate governance standards since a September 2018 rule change, according to a report by London-based accountancy firm UHY Hacker Young and small and mid-cap membership organization the Quoted Companies Alliance.

The findings show improvements in transparency following a change in Aim’s rules, which state that companies must explain how they comply with a recognized corporate governance code.

Putting this into context, the review reveals that before the rule change, only 24 percent of Aim-listed companies explained how their board ensures ethical standards are recognized, compared with 80 percent today – a significant improvement. 

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

Aim Rule 26, which came into force on September 28 his year, requires Aim-listed companies to adopt a recognized corporate governance code. Companies must either disclose how they have complied with each principle under their adopted code or explain why they have not.

Despite these improvements, the research – Corporate Governance Behavior Review – reveals that Aim companies are also falling short in other new corporate governance requirements:   

  • 42 percent do not identify their independent directors
  • 88 percent do not provide a description of how board performance is measured – this includes details of actual performance metrics and how often performance reviews take place
  • 34 percent do not detail director compensation and any benefits awarded each year 
  • 30 percent do not describe the roles and responsibilities of the chair, CEO and board members.

Martin Jones, partner at UHY Hacker Young, says in a statement: ‘Despite improvements in recent years [and the new Aim rule], the research exposes that Aim companies still have a lot of work to do in bringing corporate governance up to required levels.’

The report suggests that communication is key for boards in terms of reassuring shareholders and attracting investors. Information on how boards are selected and why companies differ in approach to corporate governance are often particularly important for investors.  

Jones adds: ‘New rule changes have acted as a catalyst for Aim companies, which 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 Quoted Companies Alliance, also notes: ‘Corporate governance continues to improve among Aim companies and has come a long way in the last five years. This latest research should act as a steer for companies when reviewing their own procedures.’

Ward also highlights the importance of company websites in presenting effective governance: ‘With Mifid II resulting in a decrease in research available on small and mid-caps, companies need to take action to ensure they are using channels like their website to best effect in communicating with investors. It is these investors that are the ultimate arbitrators of whether a company is demonstrating that it is well governed.’