08 May 2018

The QCA has published a new corporate governance code. The new QCA Code:

  • contains ten corporate governance principles
  • provides an explanation of what each of these principles entails
  • requires the chair to provide a corporate governance statement
  • sets out a set of corporate governance disclosure requirements.

Companies seeking to adopt the new QCA Code must apply the ten corporate governance principles, publish a corporate governance statement prepared by the chair and make the relevant disclosures explaining how they are meeting the principles. 

For AIM Companies the new QCA Code is well timed. From 28 September 2018, each AIM company must provide details of a recognised corporate governance code that the board of directors of the AIM company has decided to apply and explain how the AIM company complies with that code, and where it departs from its chosen corporate governance code provide an explanation of the reasons for doing so.

Ten corporate governance principles

The new QCA Code contains ten principles. These are:

  1. establish a strategy and business model which promote long-term value for shareholders
  2. seek to understand and meet shareholder needs and expectations
  3. take into account wider stakeholder and social responsibilities and their implications for long-term success
  4. embed effective risk management, considering both opportunities and threats, throughout the organisation
  5. maintain the board as a well-functioning, balanced team led by the chair
  6. ensure that between them the directors have the necessary up-to-date experience, skills and capabilities
  7. evaluate board performance based on clear and relevant objectives, seeking continuous improvement
  8. promote a corporate culture that is based on ethical values and behaviours
  9. maintain governance structures and processes that are fit for purpose and support good decision-making by the board
  10. communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.

Corporate governance statement

The chair of the board must provide a corporate governance statement. This must:

  • clearly articulate his/her role and demonstrate his/her responsibility for corporate governance
  • explain how the QCA Code is applied by the company and how its application supports the company’s medium to long-term success
  • explain any areas in which the company’s governance structures and practices differ from the expectations set by the QCA Code
  • identify any key governance related matters that have occurred during the year, including any significant changes in governance arrangements.

The Code recommends that the corporate governance statement is included in the annual report and on the company’s website.


What disclosures are required?

A company must make a number of corporate governance disclosures. These are linked to the governance principles.

Companies may choose to publish these disclosures in the company’s annual report, include them on their website or adopt a combination of the two approaches. Recommended locations for each disclosure have been specified in the new QCA Code.

Companies must include historical annual reports and other governance-related material, including notices of all general meetings over the last five years. AIM Companies adopting the QCA Code will need to comply with this requirement of the QCA Code and with the website disclosure requirements in AIM Rule 26 (Company information disclosure).

Companies adopting the QCA Code must address each of the disclosures or provide a clear and well-reasoned explanation for that non-compliance.

Comply or explain?

If a company departs from the governance principles it must provide a well-reasoned explanation for doing so as part of its corporate governance reporting. This corporate governance statement prepared by the chair must also contain a clear and well-reasoned explanation of any areas in which the company’s governance structures and practices differ from the expectations set by the QCA Code.

Do we have to have a senior independent director?

No. However companies should consider whether it is appropriate to have a senior independent director (see additional guidance in section 4 of the QCA Code).

How many NEDs do we need?

Normally boards will include at least two independent NEDs.

Who decides whether a NED is independent?

The board. The QCA Code makes it clear that independence is a board judgement. Section 6 of the QCA’s Corporate Governance Files contains a detailed discussion on independence.

Do AIM Companies have to adopt the new QCA Code?

No. AIM Companies have a choice to make. For many this will be between the UK Corporate Governance Code (UKCGC) and the new QCA Code. Market capitalisation, shareholder expectations and corporate plans will influence the choice.

We expect that many AIM Companies will discuss the choice of corporate governance code with their nomad. Most are likely to choose the QCA Code as historically that has been the default choice for AIM companies. However the largest AIM Companies may prefer to adopt the UKCGC especially if the final version published by the FRC is shorter and sharper than the new QCA Code.

What guidance is available?

Sections 2 and 4 of the QCA Code provide additional guidance for companies applying the QCA Code. The QCA has also published further guidance on application of the ten corporate governance principles. See the QCA’s Corporate Governance Files.

Next steps

Companies should work through the new QCA Code, consider how they are applying each corporate governance principle and establish the impact on their existing governance arrangements.

Although there are only ten principles, we expect that it will take companies take some time to prepare disclosures which satisfy the requirements of the QCA Code. Whilst many of these will be familiar, it will be interesting to see how companies approach disclosures covering:

  • seeking engagement with shareholders and whether this has been successful – AGM attendance and voting levels will be good measures of success
  • acting on feedback from stakeholders
  • external advice on significant matters – the requirement to describe and explain must presumably be qualified by confidentiality requirements and legal privilege?

The relationship between the corporate governance statement and the prescribed disclosures may take some time to settle.

Companies should also consider whether a corporate governance zone should be established on their websites. This may be an effective approach to meeting the “prescribed” or “indicated” disclosure requirements of the new QCA Code and adequately communicating and reporting that to shareholders and other stakeholders.

Recent corporate failures demonstrate the importance of robust corporate governance for growing companies. Hopefully the new QCA Code will help small-cap companies meet that governance challenge.

Further information

If you would like any further information please contact Nick Graves.

Key contact

Nick Graves

Nick Graves Partner

  • Head of Corporate
  • Corporate Advice
  • Mergers and Acquisitions

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