United States: NAPF: Corporate Governance Policy For AIM Companies

Although AIM companies are not subject to the Combined Code, the Guidelines are based on this and the NAPF Policy and Guidelines. In addition, NAPF consulted with the Quoted Companies Alliance with the aim of ensuring consistency between the Guidelines and the Quoted Companies Alliance Corporate Governance Guidelines for AIM Companies (the "QCA Guidelines").

NAPF recognise that the degree of compliance by companies with corporate governance regimes should be reflective of a company’s size, stage of growth and complexity of its business. For instance, NAPF expects a large company on the AIM market to comply with the provisions of the Combined Code or, where appropriate, to explain any non-compliance. On the other hand, NAPF recognise that small growth companies should not be unnecessarily burdened with inappropriate guidelines and should instead concentrate on growing their businesses.

Companies are expected to disclose their corporate governance policies, including biographical details of directors and details of board committees.

NAPF consider the functions of Chairman and CEO to be different, such that the two roles should be kept separate. Where this is not the case, the company should provide details of the exceptional circumstances which cause the roles to be combined in addition to providing a forward-looking statement explaining the intentions to separate the roles. The Guidelines do foresee circumstances where a company may take a pragmatic approach, where a vote against a concentration of such powers in one person might be considered detrimental to the company.

The preferred approach is that the CEO should not become Chairman of the same company. However, should this happen, the company must disclose in its annual report its reasons for the appointment and describe the selection process.

The Guidelines make it clear that the appointment of a SID is required where a company has a combined Chairman and CEO. In other circumstances a SID is encouraged but not required.

For larger boards at least two independent directors are required, excluding the Chairman. For smaller boards (e.g., those with no more than four directors), the Guidelines require there to be at least two nonexecutive directors (at least one of whom should be independent), comprising not less than one-third of the board, one of whom may be the Chairman.

The Audit, Remuneration and Nomination Committees should be comprised solely of independent nonexecutive directors. At the least, there should be a majority of independent directors on all committees. The Chairman may be a member of the Audit Remuneration and Nomination Committee (not as Chairman) provided that he/she meets the test of independence.

The Guidelines make it clear that a significant component of senior management’s remuneration should be linked to an individual’s performance. Appropriate disclosure should be made of the performance conditions attaching to any bonuses or long-term incentive plans. Companies are strongly encouraged to put their Remuneration Reports to a vote at the company’s annual general meeting.

The Guidelines recognise the difficulties which may be encountered by AIM companies looking to comply with the Combined Code and QCA Guidelines. In response to this, the Guidelines state that independence may be compromised if a director has a beneficial or non-beneficial shareholding of more than three percent of the Company’s issued share capital, or if remuneration is paid other than through cash or shares, excluding historical one-off grants (provided the quantum is not considered to be material). In addition, the Guidelines also place emphasis on the importance of the board evaluation of succession-planning policies, such that these should be disclosed in the company’s annual report.

The Guidelines intend to support the principle of the Pre-emption Group that a waiver of pre-emption rights should be limited to 5% of the issued share capital per annum. However, the Guidelines do recognise that there are often good reasons for smaller companies to seek a more extensive waiver of pre-emption rights. To this end the Guidelines suggest that companies consult with key shareholders in advance (providing them with a full justification) of issuing shares above the 5% annual limit and should account for its usage in the next annual report.

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