Have AIM Rule 26 changes been effective?

Have AIM Rule 26 changes been effective?

UHY Hacker Young and Quoted Companies Alliance have said that more needs to be done in this area

The introduction of Alternative Investment Market (AIM) Rule 26 changes in September 2018 has resulted in “better corporate governance disclosures”, UHY Hacker Young and Quoted Companies Alliance (QCA) have recently announced. However, further progress still needs to be made in this area.

According to new findings from the new Corporate Governance Behaviour Review, before this change only 24% of listed AIM companies explained how the board ensures that their company’s ethical standards are recognised. This has since risen to 80%.

Furthermore, previously, only 10% of the qualifying AIM companies made any reference in the chair’s governance statement to the company’s culture, such as consistency through their strategy and business models. 10% has increased to 62% since change has been introduced – a huge improvement over just a few months.

“However, the research reveals that AIM companies are also falling short in other new corporate governance requirements,” UHY Hacker Young and QCA’s report stated.

For example:

  • 30% of AIM listed companies have failed to describe the roles and responsibilities of the chair, CEO or board members.
  • A further 88% do not provide any description of the board’s performance and how this is measured, such as through regular performance metrics.
  • 42% of these companies do not identify their independent directors.
  • 34% also do not detail any director compensation or benefits awarded to them each year.

Communication in each of these areas is key when reassuring company shareholders or attracting investors, as well as complying with the corporate governance code.

Martin Jones, partner at UHY Hacker Young, said: “Despite improvements in recent years, and, as a result of the new AIM rule, the research has exposed that AIM companies still have a lot of work to do in bringing corporate governance up to required levels.”

Although these rule changes only came into force a few months ago, these requirements are essential for AIM listed companies to follow in order to fully comply with the corporate governance code.

“Companies must either disclose how they have complied with each principle under their adopted code, or explain why they have not,” UHY Hacker Young and QCA’s report continued.

Jones added: “New rule changes have acted as a catalyst for AIM companies who have had to fast-track the implementation of new corporate governance procedures. Although this would have put added pressure on some smaller businesses, the net result is undoubtedly positive.”

Tim Ward, CEO at the QCA, concluded: “Corporate governance continues to improve amongst AIM companies and has come a long way in the last five years. This latest research should act as a steer for companies when reviewing their own procedures.

“With MiFID II resulting in a decrease in research available on small and mid-caps, companies need to take action to ensure that they are using channels like their websites to best effect in communicating with investors. It is these investors that are the ultimate arbitrators of whether a company is demonstrating that it is well-governed.”

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