By Charlie Strickland
The Quoted Companies Alliance (QCA) published its updated Corporate Governance Code in November of last year. With effect from 1 April 2024, companies will have a 12-month period in which to ensure compliance. Though created for quoted companies, this code is enormously useful for all small businesses wanting to establish good governance. Any SME with an aspiration of being admitted onto AIM or ISDX or who are preparing for sale or private equity investment will benefit from following the advice laid out in this guide.
Why adopt the code?
The corporate landscape is littered with successful, fast growing companies whose corporate governance has not kept up with their growth and led them to difficulties which, when they were a smaller company, simply did not get the scrutiny. The QCA Code is specifically designed for small and medium sized companies and is deliberately less prescriptive than the FRC’s UK Corporate Governance Code which is a requirement of companies with a premium listing.
As such, it is widely used by AIM listed companies (93% according to its own data) but also a considerable number of standard listed companies (over 25%) as well. It is a great framework for any company, listed or otherwise, that wants to give a little more structure to its governance regime without allowing that governance to snuff out the very agility and entrepreneurial zeal which got it to where it is now. Companies wishing to improve their reporting and decision-making processes could do far worse than use this relatively brief framework to help improve how they deal with an important subject which can often feel like a little bit too much to bite off and consequently never gets done, until it might be too late. Good corporate governance is good business and implementing some simple and easy to work frameworks is a good way to start the journey and ensure you are well positioned for future success.
The QCA Code sets out 10 broad principles aimed at longer term shareholder value. It provides guidance around how these principles may be implemented in a practical and pragmatic manner. I would be happy to discuss the Code and how it could be applied should you wish, but for today we are focussing on the updates which are on the horizon.
So, to help you get prepared for the updated Code, I will set out the principal changes in the new code and flag up some actions you might need to take to be ready for the 2025 financial year. If you would like some help analysing your corporate governance and implementing a compliance programme in your business, contact me on charlie.strickland@thelegaldirector.co.uk or have a look at our Compliance Blueprint.
What are the key changes?
- There is a greater focus on corporate culture. (Principle 2)
- Additional protections to protect minority shareholders are included, with Principle 3 recommending a relationship agreement be put in place with controlling shareholders.
- There is more focus on workforce engagement and climate related issues as well as an expectation that social and environmental issues will be integrated into the strategy. (Principles 3, 4 and 10)
- There is a greater concentration on internal controls and assurance. (Principles 5 and 8)
- Board composition and particularly independence moves to a principle rather than being something of an afterthought at the end of the old Code. Diversity is also mentioned where it was not previously. There remain no quotas, however. (Principle 6)
- Succession planning is widened to include contingency planning for key staff. (Principle 8)
- The code determines that remuneration policies should align with the purpose, strategy and value and recommends that shareholders are provided with an opportunity to vote on both the remuneration report and policy. (Principle 9)
- Environmental and Social matters are now a key theme which flow through the whole revised code with an expectation on Boards to provide quantitative and qualitative reporting on these matters.
What to do next
It is worth downloading the revised code and supporting documents from the QCA website. (This is free for members.) You will need to decide which board members will be responsible for stakeholder engagement. Make sure to minute your decisions.
Assess your succession planning for executives and non-executives against the revised code, looking closely at the composition of the Board to ensure it has the necessary skills and experience and meets the independence criteria that has been introduced.
Review your existing shareholder agreements and ensure that you have relationship agreements in place with all controlling shareholders.
Appoint someone to review your policies and procedures from an ESG perspective and take responsibility for reporting to the Board on these matters. This is something we can support you with.
How can TLD help?
We developed our Compliance Blueprint to help businesses gain useful insight into the effectiveness of their current compliance programmes. Considering the imminent changes detailed in the new QCA Corporate Governance Code, one of our experienced Client Legal Directors would assess your current compliance, identifying and prioritising potential programme enhancements.
They would then implement a system to manage ongoing compliance in the face of a changing regulatory environment and schedule regular reviews of your programme including policies, procedures and training.
If you would like more information about our Compliance Blueprint, you can contact me on charlie.strickland@thelegaldirector.co.uk or have a look at our website.
