On 26 July 2018, AIM Regulation published an Inside AIM update responding to certain questions and concerns received from market participants regarding how best to prepare existing AIM companies for the corporate governance changes coming into force on 28 September 2018.
On 8 March 2018, the London Stock Exchange announced the introduction of a new 'comply or explain' corporate governance regime which requires each AIM company to include on its website:
"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. This information should be reviewed annually and the website should include the date on which this information was last reviewed". (AIM Rule 26)
New applicants to AIM have had to state which corporate governance code they intend to follow from 30 March 2018, but otherwise will have until 28 September 2018 to fully comply. Existing AIM companies have until 28 September 2018 to adopt a recognised corporate governance code and to implement the new corporate governance disclosure requirements.
Timing of disclosure
As mentioned above, an AIM company will need to review its corporate governance disclosures once a year. AIM Regulation have stated that they would expect that most companies would do this in conjunction with the preparation of their annual report and accounts. For those AIM companies that are not due to produce an annual report before 28 September 2018, disclosure should be made on their website by that date.
Location of disclosure
AIM Rule 26 requires the disclosures to be made on the AIM company's website. The information should be clearly presented and easily accessible from the 'AIM Rule 26' landing page on the AIM company's website. It is possible for the AIM company to incorporate the disclosures by reference, for example, by referring to a clearly delineated corporate governance section of its annual report. Wherever the disclosures are located they should be available free of charge and the disclosure on the AIM Rule 26 section of the AIM company's website should clearly state where the information can be found.
What is a recognised corporate governance code?
No list of recognised corporate governance codes has been prescribed, as the London Stock Exchange believes it is preferable for each AIM company not to be limited in deciding which code best suits its needs, taking into account its specific stage of development, sector and size. That being said, AIM Regulation refers to the QCA Corporate Governance Code and the UK Corporate Governance Code as established benchmarks for AIM companies, clearly indicating that these two codes would be accepted as being appropriate for AIM companies to follow.
Where an AIM company has a dual listing it may be appropriate for that AIM company to choose an appropriate corporate governance from its home jurisdiction, so long as it complies with the other requirements (disclosures available on its website and reviewed annually).
AIM Regulation states that it will be for AIM companies (and, by extension, their advisers) to ensure that they keep abreast of changes to the recognised corporate governance code that they apply.
Corporate governance and investor engagement
AIM Regulation note that "good corporate governance is not simply about codes or rules; it involves strong leadership, a positive culture, robust systems and risk management". Consequently, it believes that disclosure is an essential part of the process to ensure that company representatives protect the interests of the company and its shareholders. These new requirements are designed to provide information to shareholders and enhance engagement between them and the boards of AIM companies. It will be for investors and shareholders to determine whether the code followed (including any instances of non-compliance with that code) is appropriate for the relevant AIM company.
Consequences of non-compliance
The full range of usual sanctions under AIM Rule 42 will be available to the London Stock Exchange in the event of non-compliance by an AIM company (these include fines, public censure and cancellation of listing). Therefore, it is imperative that AIM companies comply with these new requirements to avoid the risk of significant reputational damage to the AIM company, its directors and advisers.
Osborne Clarke comment
Increased corporate governance rightly continues to be a hot topic for AIM companies (which we discuss more generally here).
By introducing a "comply or explain" regime in relation to corporate governance for AIM companies, AIM companies are being brought into line with the corporate governance regime of those companies listed on the premium listing segment of the Main Market. It's worth noting that there will soon be more stringent corporate governance disclosure requirements incumbent on AIM companies than for standard listed companies on the Main Market.
Please get in touch with one of our experts if you are considering which corporate governance code to follow or should you wish to discuss the contents of this article further.