New corporate governance guidance for smaller companies published

The revised Corporate Governance Code for Small and Mid-Size Quoted Companies (purchase required) has been produced by the Quoted Companies Alliance (QCA), an independent membership organisation for small to mid-size companies. QCA's guidance is intended for companies with a standard listing on the Stock Exchange; or listings on the Alternative Investment Market (AIM) or ICAP Securities and Derivatives Exchange.

"As AIM companies and those with a standard listing on the UK's main market aren't covered by the UK Corporate Governance Code, it is particularly valuable to have this guidance on what is the best practice for these markets," said corporate law expert Martin Webster of Pinsent Masons, the law firm behind Out-Law.com. "The flexibility allowed by the QCA guidelines works to the advantage of both companies and their investors."

The first QCA Code was published in 2010. The document adapts elements of the UK Corporate Governance Code, current policy initiatives and other relevant guidance to reflect the needs and circumstances of smaller, less complex quoted companies. It sets out 12 principles and a set of minimum disclosures, and encourages companies to consider how or whether they should apply each principle to their own governance and reporting procedures.

Unlike the UK Corporate Governance Code, there are no requirements for companies to formally disclose how they will comply with the QCA Code. However, the QCA asks companies adopting it to report certain minimum disclosures on a 'comply or explain' basis. When doing so, the QCA said that companies should explain how they are governed in practice rather than merely reiterating the published guidance, and should focus on the need to communicate clearly with their shareholders.

Among the changes included in the latest version of the QCA Code are a greater emphasis on the delivery of growth in long-term shareholder value, and greater consideration of the characteristics of an effective board. This section also includes a new section on the role of the executive director, and updated provisions relating to an assessment of a director's independence particularly where directors receive some of their pay in the form of shares. Companies should explain in both their annual reports and in discussions with shareholders why they consider directors to be independent, the QCA said.

Share plans expert Matthew Findley of Pinsent Masons said that it was "not unexpected" that the QCA had restructured its Code to place greater emphasis on the delivery of long-term growth in shareholder value. The Enterprise and Regulatory Reform Act, which received Royal Assent last week, will introduce binding shareholder votes over executive pay policy from October this year.

"It is helpful for the smaller companies to see trends and initiatives picked up in the 2013 QCA Code in a way which is relevant to their particular circumstances," he said. "The QCA clearly recognises that a 'one size fits all' approach to governance will not always work for these companies and its approach is to be welcomed in promoting good governance amongst smaller quoted companies."

Edward Craft, chair of the QCA Corporate Governance Expert Group which led on the revision of the Code, said that encouraging "further positive engagement between companies and shareholders" had been the group's priority throughout.

"This is why we have focused on the importance of companies explaining why they do what they do, rather than merely reiterating published guidance," he said. "Good disclosure and open dialogue are necessary to achieve good governance and to maintain trust between companies and shareholders."