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Public Companies Update September 2005
2 QCA CORPORATE GOVERNANCE GUIDELINES FOR AIM COMPANIES
In July 2005, the QCA launched its corporate governance guidelines
for AIM companies. The reason behind the QCA Corporate Governance
Guidelines is that the Combined Code does not apply directly
to companies quoted on AIM and there are no formal alternative
guidelines for AIM companies. The QCA Corporate Governance
Guidelines are a simple set of guidelines, intended as a minimum
standard which most AIM companies should be able to follow.
2.1 Key Principles
Key principles of the QCA Corporate Governance Guidelines
include matters such as:
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There should be a formal schedule of matters
reserved for board approval (a specimen list is included
in the appendices to the guidelines). |
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Information appropriate to enable the board
to discharge its duties should be provided to the board
in a timely manner. |
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Internal controls should be reviewed at
least annually. The review should cover all material controls
including financial, operational and compliance controls
and risk management systems. |
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The roles of chairman and chief executive
should not be held by the same individual. If they are,
there should be a clear explanation of the board procedures
which provide protection against the risks of concentration
of power within the Company. |
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A company should have at least two independent
non-executive directors (one of whom may be the chairman).
A list of factors potentially prejudicing a director's
independence is included in the appendices to the guidelines.
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All directors should be submitted to re-election
at regular intervals. Re-election should be subject to
continued satisfactory performance. |
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Audit, remuneration and nomination committees
should be established (the audit and remuneration committee
should each have at least two members, who should all
be independent non-executive directors). |
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There should be dialogue with shareholders
to establish mutual understanding of the company's objectives.
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The QCA Corporate Governance Guidelines do not lay down any
provisions as to the duties of shareholders as the QCA believes
that shareholders' duties and obligations stated in the Combined
Code should apply to all AIM companies.
2.2 Reporting on Corporate Governance
In this section the QCA recommends such that an AIM company
should either publish an annual corporate governance statement
that states how it achieves good governance, published on
the company's website (with a reference in the annual report
and accounts as to where the information can be found) or
include its annual corporate governance statement in its annual
report and accounts.
An AIM company should also either (i)describe in its corporate
governance statement how each of the QCA Corporate Governance
Guidelines are put into practice or, (ii)as the QCA Corporate
Governance Guidelines have been designed to be achievable
by all AIM Companies, if the Guidelines are not complied with,
explain how the features of good governance are being achieved.
In addition, a company should describe any corporate governance
procedures and standards which it applies over and above the
basic level of the QCA Corporate Governance Guidelines.
As well as the generic description, an AIM company's annual
report should include the following basic disclosures:
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a statement of how the board operates; |
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the identities of the chairman, chief executive,
senior impendent director and members of the relevant
committees; |
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the identities of the directors considered
to be independent (and the reasons why the board has reached
its decision where there are factors which might appear
to prejudice that status); |
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any performance evaluation procedures applied;
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names and biographical details of directors;
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the number of board and committee meetings
held, and attendance records - it is expected that the
Board will meet monthly; |
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statements of responsibility by the directors
and the company's auditors; |
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a statement by the directors that the company
is a going concern, with supporting assumptions and qualifications
as necessary; and |
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(where the auditor provides significant
non-audit services) an explanation of how auditor objectivity
and independence are maintained. |
In addition, a number of documents should be available for
display including the terms and conditions of appointment
of non-executive directors and the terms of reference of the
audit, remuneration and nomination committees. These should
be available for inspection on the AIM company's website or
by shareholders on request.
2.3 Conclusion
In view of their size, most AIM companies do not have nomination
committees, and it is recognised that many AIM companies do
not have two truly independent directors. However, both of
these have been included in the QCA Corporate Governance Guidelines.
As the QCA Corporate Governance Guidelines have incorporated
these recommendations from the Combined Code, it will be interesting
to see how rigorously the QCA Corporate Governance Guidelines
are applied or whether AIM companies will continue to assess
their corporate governance compliance against the Combined
Code.
Hard copies of the QCA Corporate Governance Guidelines are
available from the QCA.
If you require further information on any matter covered in
this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall , Richard
Norton, or Adrian
Mayer (Cheltenham), Catherine
Drew or Geoff
Sparks (Guildford) or Peter
Elliott (Oxford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
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