By Andy Silvester
In this guest opinion piece, James Ashton, the chief executive of the Quoted Companies Alliance argues that governance improvements in the City – not least more use of the QCA Code – could be transformative for the Square Mile’s competitiveness
WITH all the talk that another Big Bang is needed to revive the City’s global standing, far less eye-catching catalysts for change get drowned out. That’s especially true if the conversation turns to governance, a somewhat amorphous discipline that sceptics often think stifles the vital economic growth the UK is currently grasping for, rather than fostering it.
In marking 10 years of the Quoted Companies Alliance’s own Corporate Governance Code, I am reminded of a conversation with the former John Lewis chairman Sir Charlie Mayfield, when he was leading a government taskforce designed to boost sluggish domestic productivity. Rather than electrifying performance at specific companies or certain industry sectors, better to nudge up behaviour across the piece, he reasoned.
And so it has been with the QCA Code, which emerged from guidelines originally drawn up in 2004 and became the first choice for Alternative Investment Market constituents when the London Stock Exchange asked them to apply a recognised governance code in 2018. Up until that point, almost half of AIM companies followed our code but many others did not pay good governance lip service.
Recent studies show how times have changed and better governance – really a catch-all for trust, integrity and setting the right tone from the top – has improved transparency and the quality of information shared with the market. AIM companies are now far more likely to detail their engagement with shareholders, directors’ relevant skills and independence, internal workings and succession planning. Non-executive directors, once non-confrontational or even non-existent, have greater clout to challenge founders. Rather than a recipe for boardroom battles, that contributes to growing confidence in a stock’s prospects.
Governance is too often reduced to a box ticking exercise that might as well be led by ChatGPT as one of the small cabal of proxy agencies, where “explain” instead of “comply” is increasingly looked on dimly. As an alternative to the Financial Reporting Council’s more prescriptive governance code, we are intensely proud to have played a small part in improving the quality of conversation between companies and investors, as well as offering a flexible guide for those businesses considering coming to market. Our code has found favour on the Aquis Stock Exchange too.
The simple plan features ten principles – including four focused squarely on delivering growth – with notes on their application and relevant disclosures. Drawn up by our members for use by members who naturally have fewer resources than the blue chips, the QCA Code sits alongside the family of guides we publish to encourage better boardroom behaviours, as well as our director training programmes, workshops and informal knowledge sharing.
Of course AIM is not perfect. Too many constituents are delisting; too few are coming to market; share-dealing liquidity is not what it should be. And it’s a lazy assessment when board composition is seen as the sole indicator of good or bad governance, but it’s true that we need more diversity among directors.
Even so, AIM today may contain fewer companies than a decade ago but they are better-run than many investors give the market credit for. And it’s become a magnet for retail investors who are sufficiently experienced to weigh the risks with the rewards. They account for 24% of the market.
The UK is still wrestling with its productivity puzzle, and getting governance right is a moving feast too – as the QCA’s recent report into ever-lengthening annual reports showed.
That’s why, five years on from our code’s last revision, we will spend the next six months consulting with our members and other relevant stakeholders on the changes required to make sure it remains fit for purpose for several years to come.
Our chief challenge is to help small and mid-sized quoted companies cope with multiplying ESG requirements that at once embrace good governance and threaten to dilute it. Over-prescriptive disclosure demands only serve to exclude growth companies from the capital flows they require to scale up.
We come to this project with no pre-conceptions. But given our experience of the gradual gains made since 2013, one thing feels about right: there is no Big Bang required.
James Ashton is chief executive of the Quoted Companies Alliance
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