Corporate governance on AIM
The corporate governance standards required for AIM companies have always been a grey area as there is no on-going requirement relating to corporate governance in the AIM Rules for Companies. The only requirement in the AIM Rules relating to corporate governance is that an AIM company must disclose the extent to which it complies with the relevant corporate governance regime in its admission document.
A new rulebook for nomads was issued in February 2007 which imposed an obligation on nomads to consider, with the directors of the company, the adoption of appropriate corporate governance measures. As with the AIM Rules for Companies, this obligation strictly only arises on a new admission and is not an ongoing duty. However, AIM companies should expect their nomads to keep a careful eye on the corporate governance measures adopted by the company in future.
For fully listed companies, the situation is clear; they should either comply with the Combined Code on Corporate Governance, or explain where they have not complied with the Combined Code. This ‘comply or explain’ approach gives companies some flexibility while setting out best practice corporate governance standards.
Compliance with all the provisions of the Combined Code is not appropriate for most AIM companies who instead state that they will comply with the provisions of the Combined Code to the extent they are practicable and appropriate for the size and stage of development of the Company. This is a standard statement in many AIM admission documents, but does not give much detail as to the actual level of compliance with the Combined Code, which varies widely among AIM companies.
In an attempt to clarify the level of corporate governance expected of AIM companies, the Quoted Companies Alliance (QCA), which represents quoted companies outside the FTSE350, published its Corporate Governance Guidelines for AIM Companies in 2005 (QCA Guidelines). The QCA Guidelines, which were last updated in 2007, are based on the principles of the Combined Code. The QCA believes all AIM companies should be able to comply with the QCA Guidelines, which are intended to be a minimum standard. However, they still include a requirement for a nomination committee and two independent non-executive directors, which many smaller AIM Companies do not have. The QCA adds that many AIM companies will be able to adopt a stricter corporate governance regime. The National Association of Pension Funds has also issued its corporate governance guidelines for AIM companies, which complement the QCA Guidelines.
In practice, the corporate governance standards adopted by AIM companies vary according to the size of the company. The larger AIM companies, which may aspire to become fully listed, tend to act like listed companies and either comply with the Combined Code, or explain the extent of any non-compliance. Smaller companies tend to have a more relaxed regime, with some specifically adopting the QCA Guidelines.
Although there is no obligation on AIM companies to maintain corporate governance standards, or even to report on them, all the guidelines recommend that AIM companies report on their corporate governance regime in their annual report. Investors increasingly will expect to see a statement dealing with corporate governance in the annual report and it may soon also be a specific requirement for this to be available on the company’s website.
The London Stock Exchange (Exchange) has recently announced it has privately censured four AIM companies and has also publically censured a fifth AIM company for breaches of the AIM Rules. These related to failure or delay in disclosing price-sensitive information to the market, disclosing misleading information to the market and failure to disclose information in an admission document. The companies were also criticised for not keeping their nomad sufficiently informed.
The announcements contain useful guidance from the Exchange as to how these issues should be dealt with and act as a reminder to other AIM companies of the importance of liaising with their nomads. If you would like more information on this please let us know. We anticipate that the Exchange will continue to enforce the AIM Rules for Companies rigorously.