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The Quoted Companies Alliance Corporate Governance Code for small and mid-size quoted companies (“qca Code”)

September 4, 2015
I. PREFACE: The QCA Code helps to put into practice the best governance model for smaller and mid-size quoted companies in UK within current legal and regulatory requirements and encourage positive engagement between such companies and their shareholders. The QCA Code adopts key elements of the UK Corporate Governance Code (the UK Code), current policy initiatives and other relevant guidance and then applies these to the needs and particular circumstances of small and mid-size quoted companies on a public market.  This includes standard listed companies and those on AIM and the ICAP Securities and Derivatives Exchange. The UK Code applies to all premium listed companies. The QCA Code is constructed around a statement of twelve broad principles and a set of minimum disclosures. II. WHAT IS GOOD CORPORATE GOVERNANCE? Good corporate governance inspires trust between a public company and its shareholders; it creates value by reducing the risks that a company faces as it seeks to create growth in long term shareholder value. Without trust, there will be no appetite from shareholders to invest further or remain shareholders. In reducing the risks, so the cost of capital is reduced. Good corporate governance promotes and maintains good behavior. Good corporate governance incorporates proportionate risk appraisal and management, prudent decision making, open communication and business efficiency. III. OBJECTIVE OF CORPORATE GOVERNANCE 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. 1 Corporate governance represents a dynamic relationship between shareholders, the company and its directors. The shareholders are at the apex of that relationship, which is, in turn,  influenced by a number of external factors and voices, including employees, regulators (and the legal framework) and social responsibility. IV. CORPORATE GOVERNANCE AS A FEATURE OF RISK MANAGEMENT Good governance processes should reduce the risk of poor decisions being made or decisions being made for the wrong reasons. High quality, appropriate governance processes will enable a board to act efficiently and effectively and reduce the risk of uncommercial or inappropriate board decisions being made. There is no benefit to a company, its shareholders or employees of creating irrelevant and cumbersome arrangements which are not suitable for the business. Indeed, to rely on process alone creates a false sense of security. Prudential risk management for a business comes from collective decision making, transparency and accountability, all of which are demanded by good governance processes. V. DEMONSTRATING GOOD CORPORATE GOVERNANCE In the absence of high quality reporting, existing or potential shareholders may conclude that a company’s board is not fully committed to safeguarding their interests. Clear disclosure is important, not only to the company’s shareholders, but to all of the company’s stakeholders, as due diligence from customers and suppliers often begins with the annual report and other public filings. As good corporate governance is fundamentally about culture rather than procedure, demonstrating the quality of a company’s corporate governance can prove to be difficult to communicate in writing. Corporate reporting should focus on the primacy of shareholders and the need to communicate clearly with this audience. To do this effectively requires the time commitment of the chairman and the team supporting him. VI. THE PRINCIPLES OF THE QCA CODE:
  1. Setting out the vision and strategy
  2. Managing and communicating risk and implementing internal control
  3. Articulating strategy through corporate communication and investor relations
  4. Meeting the needs and objectives of your shareholders
  5. Meeting stakeholder and social responsibilities
  6. Using cost effective and value added arrangements
  7. Developing structures and processes
  8. Being responsible and accountable
  9. Having balance on the board
  10. Having appropriate skills and capabilities on the board
  11. Evaluating board performance and development
  12. Providing information and support
  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
  6. Has a balance of skills, experience and independence
VIII. DIRECTORS’ INDEPENDENCE It may not be possible in small and mid-size quoted companies to meet all of the independence criteria set out in provisions of the UK Code. Regardless, it is important for an effective board of a small and mid-size quoted company to foster an attitude of independence of character and judgment. A company should have at least two independent non-executive directors. Small and mid-size quoted companies may find it difficult to meet the UK Code requirement of independence and therefore, for those companies, the chairman may count as one of the independent directors, provided he was independent at the time of appointment. Independence of character and judgment and being able to demonstrate this to shareholders in an objective manner rely on the quality of the individual: this cannot be determined by a checklist. Companies should explain both in their annual report and in discussions with shareholders the reasons why they consider directors to be independent. Shareholders are unlikely to be convinced by boilerplate disclosure. IX. ROLES AND RESPONSIBILITIES IN CONNECTION WITH THE GOVERNANCE OF A COMPANY:
  1. The Chairman – As we have already stated, the governance role of the chairman is key.
  2. The Senior Independent Director – The key elements of the role of the senior independent director are to:
    • be a sounding board and intermediary, as necessary;
    • chair the (usually annual) meeting of the non-executive directors without the chairman being present; and
    • show leadership in relation to succession planning and, in particular, lead the search for a new board chairman.
  3. The Non-Executive Director - Non-executive directors participate in all board level decisions and play a particular role in the determination and articulation of strategy. Non-executive directors should both challenge and inspire executive directors, thereby ensuring the business develops, communicates and executes the agreed strategy and operates with reference to the risk management framework.
  4. The Executive Directors – The executive directors of a company are charged with the delivery of the business of the company within the strategy set by the board. All executive directors should work with the chairman and the other non-executive directors in an open and transparent way, keeping them up to date with operational risks and issues to ensure that the business remains aligned with the strategy.
  5. The Members of the Audit Committee – The audit committee plays an essential role by providing confidence to shareholders through the annual report and accounts and other relevant public announcements of the company. The committee should challenge both the external auditors and the management of the company and review and establish the need for internal audit, including, where required, making the appointment of a head of internal audit.
  6. The Members of the Remuneration Committee – Remuneration arrangements should be designed to align with and support the implementation of company strategy and effective risk management for the long term. It is the role of the remuneration committee to ensure that this principle is applied and to have regard to the views of shareholders.
  7. The Members of the Nomination Committee – The nomination committee should work closely with the board and the chairman to identify the skills and experience required for the next stage in the company’s development. It should keep a close eye on succession plans and the possible internal candidates for future board roles.
  8. The Company Secretary – The company secretary should act as the conscience of the company. The company secretary plays a vital role in relation to both legal and regulatory compliance and ensuring good governance. As part of this role, the company secretary should assist the chairman in preparing for and running effective board meetings, including the timely dissemination of appropriate information.
  9. Shareholders – Shareholders should concern themselves with the corporate governance of the companies in which they have invested. The UK Stewardship Code reflects the evolving best practice of engaged shareholders.Engaged shareholders will carefully consider the disclosures made by the company and come to reasoned judgements on a case-by-case basis. Shareholders will wish to engage with the company when governance concerns arise.
  1. Chairman’s Governance Report
  2. Audit Committee Report
  3. Remuneration Committee Report
  4. Details of Directors
  5. Relevant Skills and Experience
  6. Independent Directors
  7. Committees
  8. Meetings and Attendance Records
  9. Risk Management and Internal Control
  10. Performance Evaluation
  1. Information Summary
  2. Summary of Strategy
  3. Description of Roles
  4. Matters Reserved for the Board
  5. Non-Executive Appointment Terms
  6. Terms of Reference: Audit and Remuneration Committees
  7. Terms of Reference: Nomination Committee
  8. Role of External and Internal Advisors
  9. Published Material
  10. Results of Shareholder Voting
XI. THE EFFECTIVE APPLICATION OF THE QCA CODE: The guidance set out in the QCA Code represents a minimum standard for small and mid-size quoted companies. Boards should identify how each of the principles of the QCA Code facilitates the delivery of good governance. The corporate governance statement should explain the corporate governance structures and procedures that the company has in place, together with an analysis of their effectiveness. Consequently, where boards choose to diverge from the QCA Code, companies should provide clear and well-reasoned explanations of why a different approach is appropriate.
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