UK: Updated QCA Corporate Governance Code For Small And Mid-Size Quoted Companies

Last Updated: 4 June 2013
Article by Emily Watson


On 1 May 2013, the Quoted Companies Alliance (QCA) launched its new Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 (the "2013 Code"). The 2013 Code updates and replaces the Corporate Governance Guidelines for Smaller Quoted Companies 2010 (the "2010 Code") to reflect developments in corporate governance. It aims to set a standard of minimum best practice for smaller quoted companies (that is, companies outside the FTSE 350).

Greater emphasis on delivery of growth in long term shareholder value

The QCA notes that, since publication of the 2010 Code, much has developed in corporate governance, leading it to update its guidelines. In particular, the governance of companies and the relationship between companies and their shareholders has become a matter of much greater scrutiny.

The 2013 Code still sets out 12 broad principles (formerly guidelines) for good corporate governance, which are largely unchanged in substance from those in the 2010 Code; the QCA clearly recognises that improving corporate governance is about changing behaviour/culture, not the Code itself. The QCA's view remains that the objective of corporate governance is to deliver growth in long term shareholder value by maintaining a flexible, efficient and effective management framework within an entrepreneurial environment. In an effort to get this message across, the principles have been re-ordered to place a greater emphasis on the delivery of growth in long term shareholder value.

Clear reporting

Like the 2010 Code, the 2013 Code recommends that a prescribed minimum number of matters be included in a company's annual report, or on its website, as part of explaining how the company achieves good governance. The requirements of those minimum disclosures remain substantively the same as those in the 2010 Code. However, the key message from the QCA is that while companies adopting the principles are expected to report on a "comply or explain" basis, they should explain how they are governed in practice, rather than simply reiterate published guidance – companies really do need to move away from boiler-plate disclosure. Corporate reporting should focus on the primacy of shareholders and the need to communicate clearly with them, enabling the shareholders to have confidence that the board is acting in their best interests on the basis of properly informed decisions.

Effective board, roles and responsibilities

The 2013 Code contains a new section on the six broad characteristics of an effective board, with a particular emphasis on the central role of the chairman. The QCA consider that an effective board:

  1. works as a team led by the chairman;
  2. has a chairman who demonstrates his responsibility for corporate governance;
  3. develops and clearly articulates the strategy of the company;
  4. evaluates its performance and acts on the conclusions;
  5. regularly informs and engages with shareholders; and
  6. has a balance of skills, experience and independence.

The 2013 Code retains sections on the roles and responsibilities of various actors in a small or mid-size quoted company, in connection with good governance, with a new section on the role of the executive directors. This provides that the executive directors are charged with the delivery of the business of the company within the strategy set by the board. They are required to work with the chairman and non-executive directors in an open and transparent way, keeping them up-to-date with operational risks and issues.


Provisions on director independence are also included which now place greater emphasis on remuneration in shares and on the independence of directors representing major shareholders as issues that might affect a director's judgement; for example, if nonexecutive directors are to participate in a company's share option scheme the shareholders should be consulted and their support obtained.

The QCA also notes that, a company should have at least two independent non-executive directors.

The QCA has deleted from the section on independence its earlier statement that, post-IPO, on the rare occasions that non-executive directors are to participate in a company's share option or performance-related pay scheme, they should have different performance conditions from the executive directors and should be required to hold their shares for a minimum of 12 months after leaving office. The 2013 Code notes that shareholders have different views on this and such arrangements must be considered on a case-by-case basis, with shareholders consulted and support obtained.

Copies of the new 2013 Code can be purchased through the QCA's website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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