The Quoted Companies Alliance (the "QCA") represents small and mid-cap quoted companies outside the FTSE 350 including those on AIM and PLUS Markets. The QCA works to help improve investment in small and mid-cap quoted companies through promoting vibrant, healthy and liquid capital markets[1].

The QCA's twelve basic guidelines

1. structure and process

2. responsibility and accountability

3. board balance and size

4. board skills and capabilities

5. performance and development

6. information and support 7. cost-effective and value-added

8. vision and strategy

9. risk management and internal control

10. shareholders' needs and objectives

11. investor relations and communication

12. stakeholder and social responsibilities  

Supporters of good corporate governance have long been making the argument that good governance processes strengthen and enhance boards and will lead to better decisions and risk management. The QCA believes all smaller quoted companies should be able to follow its new guide which has been developed with the endorsement of the Financial Reporting Counsel and through the lens of the UK Corporate Governance Code and the UK Stewardship Code (applicable to larger listed corporate and institutional shareholders).

The QCA Guide[2] is designed to act as the bridge between the UK Corporate Governance Code and those smaller and medium sized companies listed on any UK market for which the strict requirements of the UK Corporate Governance Code may not be practicable or appropriate. The QCA Guide supersedes the previous QCA Guide for AIM companies issued in 2007.

The QCA Guide seeks to encourage companies to embrace governance in a holistic manner and to steer away from a "box ticking" approach. It is for each company to consider and adopt the appropriate governance arrangements for it, whilst considering and accommodating the themes of the market and the views of that company's investors.

A company's governance arrangements should evolve as it progresses: this is particularly the case for growing companies within the small and mid cap sector. The following key themes are particularly noteworthy:

Four key themes from the QCA Guide

  • flexible approach
  • clear communication between board and shareholders
  • collective responsibility of the board
  • overall aim to increase value for shareholders

"Comply or explain" remains the mantra running through UK corporate governance: it is for a company to consider and justify why it may not adopt a specific governance standard. As good governance further embeds itself into the decision making procedures of businesses, the need and benefit of transparent and descriptive governance reporting will also develop. Flexibility and adaptability remain key: each company is different and its governance will evolve in response to different market forces.

The QCA Guide highlights the need for a strong, skilled and balanced board which must perform at its very best when the business is put under stress.

The most progressive of the guidelines are guidelines 11 and 12 which emphasise the importance of a reporting framework being in place between the board and the shareholders so that there is a mutual understanding between the parties of the circumstances of, and constraints on, each company. A breakdown in communication between the board and the shareholders will create mistrust, distance and may well destroy shareholder value.

We believe that the pragmatic and digestible QCA Guide will set an acceptable and widely recognised governance standard for the small and mid-cap sector and facilitate moves towards greater corporate transparency and accountability. In turn, this should nurture a balanced and trusting relationship between directors and the shareholders to whom directors are accountable.