Quoted Companies Alliance publishes revised Corporate Governance Code

Quoted Companies Alliance publishes revised Corporate Governance Code

On 13 November 2023 the Quoted Companies Alliance ("QCA") published a revised version of its Corporate Governance Code (the "New Code"). The QCA's Corporate Governance Code is aimed at AIM-listed companies, as well as small and mid-sized UK quoted companies. It is adopted by 93% of AIM companies. The Code is designed to be a practical governance tool and is structured around ten broad principles, accompanied by guidance on how to apply the principles effectively. The principles should be applied on a “comply or explain” basis and certain explanations should be included either in the annual report and accounts or on the company's website.

The QCA previously indicated its intentions to update its Corporate governance Code in February 2023, five years since its last revision in 2018. There will be a 12-month transition period from 1 April 2024 to allow companies the flexibility to adjust to the requirements of the New Code, but the QCA recommends that any company which claims to apply the Code in respect of accounting periods commencing on or after 1 April 2024 applies the New Code rather than the 2018 iteration.

Key areas of revision

1. Company purpose

Principle 1 has been updated to refer to the specific need for a company to establish its purpose and the strategy which follows that purpose. The board needs to have in place long-term objectives which can be measured. A disclosure of the company's purpose is expected to be contained in its Strategy Report (which forms part of its Annual Report and Accounts).

2. Key Stakeholders Interests

Principle 4, which requires companies to take into account wider stakeholder interests, has been updated to include environmental and social responsibility. Boards should identify relevant social and environmental issues and disclose any related KPIs. Companies are also expected to disclose who within the organisation is responsible for stakeholder engagement, noting that responsibilities might be assigned to individual directors or board committees.

3. Board composition and independence

Principle 6, which requires companies to establish and maintain a well-functioning board, has been expanded to introduce (and in the case of (a) and (b) to bring within the principles certain provisions previously forming part of the back end of the 2018 Corporate Governance Code):

a) the requirement for directors to be tabled for re-election on an annual basis;

b) the requirement that half of the board comprises independent NEDs and in any event there are no fewer than two independent NEDs on the board;

c) certain factors to be considered which may indicate an impediment to board independence such as tenure, size of any shareholding, commercial relationships and additional remuneration; and

d) the requirement for boards to reflect on their own diversity to ensure they have the necessary knowledge and skillset. The New Code suggests that factors to be given consideration include socio-economic background, nationality, educational attainment, gender, ethnicity and age.

4. Succession planning

Succession planning for both executive and non-executive directors, as well as senior management and other key staff is now flagged as an essential task for the board (assisted by the nomination committee). No member of the board should ever become indispensable and board membership should be periodically refreshed.

Principle 8 is now accompanied by guidance which states that boards should (rather than "may") conduct an annual performance review, which can be carried out internally and supplemented periodically by external evaluation. The annual report should include disclosures regarding when the last external evaluation took place and, if there are no plans for an external valuation, the reasons for that. Part of this review is to ensure that the skills, experience, capabilities and background required of directors and senior management to support the company in its future development are identified and factored into succession planning.

5. Remuneration

The New Code contains a new Principle 9 in relation to remuneration (albeit the detail broadly aligns with the QCA's guidance on remuneration published in 2000). Companies should implement a formal remuneration policy that is supportive of long-term value creation and the company’s purpose, strategy and culture. The Remuneration Report should be put to an advisory shareholder vote at AGMs, with consideration given to a binding vote in the case of larger companies. New or significantly changed share plans should be subject to investor approval.

6. Badge of Honour

The QCA has announced the introduction of a new QCA Code "Badge" which will indicate an Official User of the QCA Code. Going forwards, any business purchasing a verified copy of the New Code can display the Badge on their company website and/or in their annual report.  The QCA expects this to become a recognisable mark which further improves the integrity of the New Code for investors and wider stakeholders.

For further information on the changes and their aims, the QCA has included a series of FAQs on the New Code on its website, where copies of the New Code can also be purchased (available free to members of the QCA).


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