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LSE takes AIM on corporate governance

LSE takes AIM on corporate governance

The London Stock Exchange (LSE) announced on 8 March 2018 a change to the AIM Rules for Companies requiring that all AIM admitted companies report against a recognised corporate governance code at least annually.


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The London Stock Exchange (LSE) announced on 8 March 2018 a change to the AIM Rules for Companies requiring that all AIM admitted companies report against a recognised corporate governance code at least annually.


There are approximately 30 Isle of Man incorporated AIM PLC’s with a number more operated from the Island but incorporated in other jurisdictions.


Effective from 28 September 2018 companies will be required to provide “details of a recognised corporate governance code that the board of directors of the AIM company has decided to apply, how the AIM company complies with that code and where it departs from its chosen corporate governance code an explanation of the reasons for doing so” on the company’s website. Newly admitted companies from 30 March 2018 will be required to state which code they intend to follow.


This represents a step change in disclosure of corporate governance arrangements for AIM admitted companies, where previously companies could make an election that no formal corporate governance code had been adopted or was required. Whilst this had to be disclosed, and companies may have made passing remark regarding their compensatory corporate governance arrangements, without a set benchmark or framework, this provided for wide interpretation and flexibility in the arrangements adopted. This option will no longer be allowed.


This requirement will increase the obligations on both companies and their Nominated Adviser to ensure that the composition of the board, its effectiveness and accountability is appropriate to ensure responsibility for the long term success of the company in delivering shareholder value.


The AIM Rules do not stipulate a specific or list a range of corporate governance standards that companies must adopt. However, we would expect that this rule change will lead to AIM companies, where they have not done so already, adopting and reporting against one of the following recognised corporate governance frameworks:


  • The Financial Reporting Council: UK Corporate Governance Code (2016);
  • The Association of Investment Companies: Code of Corporate Governance (2016); or
  • The Quoted Companies Alliance: Corporate Governance Code for Small and Mid Size Quoted Companies (2013) (an updated version is scheduled for release in April 2018)


It is currently a requirement of the LSE Listing Rules that companies listed on the Main Market follow the FRC’s UK Corporate Governance Code. Given the nature of businesses admitted to AIM (i.e. generally earlier stage or smaller public companies) it may not be appropriate to adopt the full UK Corporate Governance Code, however, both the AIC and QCA Codes are founded on similar underlying principles tailored to reflect size, and therefore proportional costs of implementation, or where specific functions may not be relevant (e.g. executive / non-executive Board composition). The new AIM requirement does provide flexibility for companies to explain where in certain instances they have not adopted all of the underlying code principles. However, it is specifically noted by AIM that good corporate governance is supported by meaningful explanation of arrangements. As a result this certainly shouldn’t provide for companies to just identify areas of non-compliance or adopt boiler plate responses. It is undoubted that even where companies choose not to improve or modify their governance arrangements that this additional requirement will add transparency to arrangements in place and also allow investors a greater ease and ability to benchmark management efficacy.


Whilst AIM Rule 26 requires companies to disclose the information on the company’s website we would also expect an impact within annual reports, given certain requirements of these codes and also the Annual Report’s key place in shareholder dialogue.


We would therefore anticipate developments in regard to how AIM boards report on:

  • their vision and strategy for the business;
  • the principle risks and uncertainties affecting the business and their responsibility for managing and communicating risk and implementing internal controls to mitigate business risks; and
  • the composition, skills and capabilities of the Board and how this has been evaluated.


This update continues the broader trends around increased transparency, focus on governance and insight being provided to shareholders regarding how risks and conflicts of interest are assessed and managed. We would expect that as a result of this new rule a number of Isle of Man based companies may use the opportunity to reflect on their current governance models, analyse gaps and assess whether they continue to be appropriate in the current marketplace.

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