New QCA Corporate Governance Code provides the answer for AIM companies adjusting to new rules

TheQuoted Companies Alliance has revised their QCA Corporate Governance Code for small and mid-size quoted companies in the UK.

The QCA Code includes 10 corporate governance principles that companies should follow, and step-by-step guidance on how to apply these principles effectively. It has been put together by the QCA’s Corporate Governance Expert Group and a standalone Working Group comprising leading individuals from across the small & mid-size quoted company ecosystem.

The revision of the QCA Code is especially timely and relevant. London Stock Exchange has recently announced a change in the AIM rules so that all AIM companies will be required to apply a recognised corporate governance code and explain how they do so from September 2018.

QCA research indicates that currently over half of the 900+ companies on AIM refer to the QCA Code. There is also a significant minority of AIM companies that currently do not apply any code.

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Why workers’ votes promote good corporate governance

A consensus is emerging that votes at work promote good corporate governance, argues Ewan McGaughey. Here he outlines behavioural, qualitative and quantitative evidence, and explains that votes at work in Britain have among the longest, richest histories in the world.

The UK is about to stop shareholders monopolising votes for company boards, with worker voice. Currently, asset managers control most shareholder votes in public companies. They have systemic conflicts of interest, because shareholder votes can influence companies to buy asset managers’ financial products (e.g. defined contribution pensions). But now this is changing. One small step, following government consultation, is that the Financial Reporting Council will write new ‘comply or explain’ rules in the UK Corporate Governance Code, so that listed companies introduce: (1) ‘a designated non-executive director’ responsible for employee engagement, (2) ‘a formal employee advisory council’ or (3) ‘a director from the workforce’.

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Corporate governance reporting – major change is on the way

The 2017 Building Public Trust Award for Corporate Governance Reporting showed there is some very good governance reporting in the FTSE 350, but it also confirmed that there is a relatively small group of companies that are consistently ahead of the pack – and not all of them FTSE 100 companies, it should be noted. However, there are still too many very similar looking governance reports where much of the content could apply to any company.

What the really good reporters have been doing for a number of years is to shift the focus of their reporting away from just describing the governance processes and procedures. Instead their priority is to show how those processes and procedures have been applied. So, for instance, if there has been a major corporate development in the year – like M&A activity or changes to strategy – the governance report gives an insight into how the board and its committees were involved. Good ways to do this include case studies or the chair’s introduction to the governance report. The governance process can also be discussed alongside the disclosures of the event itself, with appropriate cross-referencing from the governance report. The key is to show what outcomes were achieved through the governance processes and, therefore, what value they added.

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Directors: A warning from the CMA – Competition Law Compliance Matters

On 10 April 2018, the UK’s Competition and Markets Authority (CMA) announced the disqualification of two directors in connection with a company’s involvement in a cartel.

This is the second occasion in the last 18 months in which the CMA has secured director disqualifications in respect of companies’ infringements of UK and/or EU competition law.

This most recent case highlights the CMA’s policy of holding directors personally responsible for competition law compliance, and confirms that company directors risk disqualification when the law is breached.

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The CEO/Chairman debate continues

Corporate France is bucking the global trend of splitting the roles of chairman and CEO, with Thomson Reuters data showing a steady growth in the number of French companies that have merged the posts in the past 15 years.

Almost three quarters of listed French companies tracked by Thomson Reuters now have or have had one person holding both positions, compared to 60 percent in the United States and fewer than 20 percent in Britain, Germany and Japan, according to an analysis of more than 6,500 companies. [MORE]

Corporate governance depends on shareholder oversight

The concept of corporate governance accountability unravels if shareholders sacrifice control. Read this article from the Financial Times.

Today’s quotation:

“If grass can grow through concrete, then love can find you at any time in your life.” Cher

Future trends that we should already be planning for

As a systems thinker I have long had an interest in the future. I notice what is going on and integrate observations with different trends, and draw conclusions.

It is amazing how many major developments I have been able to foresee, or at least wonder about before they happened.

Some years ago I was on the board of the South African Business Club in London. If there was an important visitor from South Africa, there was a good chance that they would address one of our meetings. One was Clem Sunter, who introduced us to his scenario planning model. It is very simple, yet very powerful, and we use it as one of our core processes in Brefi Group.

As a result, I am always delighted to learn about other people’s analysis of trends into the future.

Here are some trends I learned from Judy Piatkus:

1. Demographics

The world’s population is getting older. It is rapidly becoming urbanised, people are having smaller families. The new generation of baby boomers are wealthy and have a significant disposable income.

2. Technology

Medical developments are allowing people to live longer. In future people will have 50 year careers. Look out for the long term impact of nanotechnology and IT in general. Facebook and YouTube have been with us only since 2005. New energy resources or the use of different energy resources will impact on the environment, global politics and distribution of power.

3. Connectivity

4 billion people have phones. Connectivity allows learning about other people’s lives. Private lives become public. iPad and tablets to be a major new learning tool.

4. Companies getting smaller

More people becoming part time or freelance, huge growth in networking. A move towards project working based on the Internet. Multiple streams of income. No need for fixed overheads or staff.

5. Everybody is powerful

Customers will tweet or write on Facebook. Importance of transparency. Activists and lobbying movements operating through social networking and use of the Internet.

6. Power shift west to east

USA in debt/individual states on verge of bankruptcy. Massive migration. Cultures mixing and connecting.

7. Environment

Looking for new ways to do things. Everybody thinking about the planet/environment – all in the last five years. Sustainability.

You can find out more about scenario planning at www.brefigroup.co.uk/facilitation/scenario_planning.html

Manage relations with stakeholders

In the last article we considered the increasing need to take account of the interests of stakeholders.

In many cases this requires a relationship, and relationships require communication.

The first stage is to establish processes to ensure that the organisation and the board are able to monitor relations with shareholders and other interested parties.

The second is to ensure that communications with shareholders and other interested parties are effective.

Companies should have some form of formal or informal market and competitive intelligence system by which they collect, collate and interpet information. Directors should ensure that this includes information about their key stakeholders.

The purpose of collecting information about stakeholders is to improve decision-making and to evaluate problems and opportunities to allow early action. It should also be capable of evaluating the cost and benefit of managing or mismanaging such relations.

Since stakeholders are mainly closely involved with the organisation some information can be collected through good personal relations, though it is also desirable to obtain information from independent third parties, including by monitoring the media.

As with all information collection, the board needs to monitor both its effectiveness and its cost-effectiveness.

Communication from the organisation to shareholders and stakehloders can be more formal, with particular emphasis on the content of the annual report and statements to the press and stock market. In some cases this needs to be carefully managed to ensure that some shareholders are not given privileged information; directors should make sure they are familiar with Stock Exchange rules on such matters.

It is in the interest of an organisation to maintain a pro-active and positive public relations strategy. In addition to the specific needs of shareholders and stakeholders, it should promote its vision, mission, values and policies, together with good (and bad) news about new investments, best practice, significant orders, corporate social responsibility, etc.

The chairman and chief executive will play a significant role here, but it is a responsibility of all directors to act as ambassadors for their organisation.

  • Shareholders will mainly want to know if the company is making a profit in order to be confident that they can get returns on their investment.
  • Customers will wish to know when what they want is available, what the price will be, whether the quality of the good or service meets their expectations and what they can do if it does not.
  • Suppliers will wish to know when their supplies are required and where, and in what format, they should be delivered. They may also want to know that their contracts are being honoured and that they will be paid on time.
  • Employees will want information on things like what they must do and how they are performing; any changes and how they may be implemented; human resource issues such as contracts, health and safety, grievance and discipline; meetings and actions from these meetings.
  • The local community may also wish to know how they will be affected by actions that the organisation and its managers may take.

Although much of this information relates to organisation and management matters and the detail is of no direct interest to the board, the board should ensure that communications, and thus relations with stakeholders, are adequate.

Corporate governance

Does the board monitor relations with shareholders and other interested parties and ensure that communications are effective?

  • Relations are reliable, efficient and ethical?
  • Relations are relevant for decision-making?
  • Communications are relevant, consistent, accurate and cost-effective?
  • Communications are likely to meet legitimate expectations in terms of their quantity, quality and timing?
  • Communications are unbiased with regard to particular parties and in accordance with the the needs of commercial security and Stock Exchange compliance requirements, where appropriate?

Richard Winfield is the independent authority on director development. He helps directors and boards become more effective by clarifying goals, improving communication and applying good corporate governance.

This article is part of a free e-course for directors at http://www.brefigroup.co.uk/directors/director_development_and_training_e-course.html

Today’s quotation:

“No man ever listened himself out of a job.” Calvin Coolidge

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