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AIM companies’ risk management improving, but many must evaluate boards more effectively, says new report

AIM listed companies’ risk management is improving but many still have some way to go especially in disclosing how well their board is performing says a new report produced jointly by the Quoted Companies Alliance (QCA) and UHY Hacker Young. For example, only 46% of AIM companies report the findings of their mandatory board evaluation reports to shareholders in their annual reports.

The QCA/UHY Hacker Young report highlights that while major advances have been made in in recent years on corporate governance at AIM companies, there are still a number of shortcomings in how boards communicate with shareholders about their effectiveness. Areas in which businesses most frequently fail to meet required standards include:

  • Just 56% report to shareholders on how their board members update and improve their skills
  • 54% give information on what time commitment is required of the company’s board members

While the number of firms reporting in brief on their board evaluation reports has risen to 46% from just 8% two years ago, shareholders are increasingly demanding greater transparency.

Martin Jones, partner in our London office, comments: “Expectations from investors about the information they receive from listed companies rise every year. AIM companies must do more to ensure they are transparent about how effectively their boards are functioning.

For shareholders in small-caps, the quality of the leadership team can be a crucial part of their decision to invest. Reassuring those investors that the board of directors is adding value and that the directors are working to improve their skills benefits everyone.”

The QCA Corporate Governance Code, adopted by around 90% of AIM companies, commits businesses to:

  • Ensuring that between them the directors have the necessary up-to-date experience, skills and capabilities
  • Evaluating board performance based on clear and relevant objectives, seeking continuous improvement

All AIM companies now have effective risk management
The QCA/UHY Hacker Young report highlights the significant corporate governance improvements made by AIM companies in recent years, including:

  • 100% of AIM companies have now embedded effective risk management throughout their organisations
  • 94% describe in detail the roles and responsibilities of the Chair and any other board members 
  • 92% publish their Remuneration Committee reports as part of their annual reports
  • 86% clearly describe their succession planning strategies for board members

Adds Martin Jones: “AIM is a very different market in corporate governance terms than it was a decade ago. The junior market’s companies have earned a much better reputation for transparency and quality of reporting to shareholders in recent years.

Investors now have much more confidence in AIM companies than they did in the last financial crisis. That confidence has contributed to the market weathering the COVID storm so well. However, there is still significant room for improvement and AIM companies must not rest on their laurels.”

The UHY Hacker Young/QCA AIM Good Governance Review 2020/21 can be downloaded here.

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