Is the UK model working?

director, remuneration, budget, contracts not in the ordinary course of business, significant acquisitions or disposals, and decisions concerning raising capital.

An audit committee should be established and all non-executive directors should be members of that committee, one of whom must be the chairman. The QCA considers that if a company has only two non-executive directors, it should be sufficient for those directors to constitute the audit committee.

Companies should seek to define clearly the role which each nonexecutive director is to fulfil. This may involve discussions with major shareholders to identify areas of perceived board weakness which the appointment of a new non-executive director should address.

One year is seen as the optimum notice period for executive directors. It is likely that the bonus element of a director’s remuneration will form a more significant part of his overall package than in a larger listed company.

On remuneration committees, the QCA supports the Combined Code principle that remuneration committees should consist wholly of independent non-executive directors, although QCA has stated that remuneration committees should be able to invite individual executive directors to join meetings as appropriate.

So where do the smaller quoted companies need to focus their efforts? Typically, their greatest compliance challenges tend to be in the following areas:

establishing and maintaining effective internal audit functions

non-executive directors: quality and quantity on the board

CR initiatives and disclosure

Turnbull compliance: risk management and internal control systems.

On a positive note, Grant Thornton’s review found that the FTSE 250 companies are taking the spirit of the Code to heart, providing explanations why they may not be compliant with the Code, in line with the comply-or-explain approach. However, for the smaller company, not to mention AIM companies, a significant challenge remains.

Governance versus performance and listings

Alternative Investment Market (AIM) quoted companies

In the UK, AIM is a capital market for smaller companies, outside the FTSE All-Share market, and is not as heavily regulated. AIM provides the opportunity for smaller companies to raise capital in a public market, without committing to the fully listed market and suffering the associated compliance and listing costs. This lighter touch to regulation, coupled with the significant number of small start-up companies, brings with it a greater risk for the investor.

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