News Update

Corporate Governance Roundup

Following significant corporate collapses in 2018 that received wide attention, such as Carillion and Patisserie Valerie, corporate governance will continue to be a matter of significant focus in 2019, for both boards and investors. Below is a summary of corporate governance highlights for the upcoming year.

AIM Companies – Wide Adoption of QCA Governance Code

Last year saw the change in AIM Rule 26 to require AIM companies to adopt a recognised corporate governance code. This change became effective from 28 September 2018. Previously, AIM companies had the choice of either noting on their website which corporate governance code they followed or merely stating they did not follow a code and setting out their own arrangements. Now, companies must adopt a recognised code. The two principle choices are the QCA Corporate Governance Code (the “QCA Code”) or the FRC’s UK Corporate Governance Code (the “UK Code”), although a company also may adopt an alternative code such as the one of its home country. Both the QCA and the FRC issued updated codes in the Summer of last year. In general, the QCA Code is less prescriptive than the UK Code, which is mandatory for companies listed on the Premium List of the LSE.

In December 2018 the QCA announced the results of a website survey regarding the adoption by AIM companies of a corporate governance code. They found that 89% had decided to follow the QCA Code, 6% the UK Code and 5% a variety of other codes.

The QCA also intends to update its Audit Committee Guide for Small and Mid-Sized Quoted Companies, with an issuance of the new Guide expected in the Spring of 2019. The Guide will provide updated guidance on best practice for audit committees, which should be of particular interest in light of the recent financial difficulties experienced by prominent UK listed companies.

New Reporting Requirements

The UK government has introduced a number of new reporting requirements for UK companies for financial years beginning on or after 1 January 2019. Although in practice the first reporting will not begin until 2020, affected companies this year should begin preparations for their new obligations. The new reporting requirements are set out in The Companies (Miscellaneous Reporting) Regulations 2018 (the “Reporting Regulations”).


Large Private Companies

A very large private company will need to include a statement in their Directors Report covering the following:

  • Which corporate governance code, if any, the company applied in the financial year
  • How the company applied the corporate governance code
  • If the company departed from the code, the reasons why and what corporate governance arrangements were applied


This new reporting rules affects any private company that has either (a) more than 2,000 employees globally or (b) has a turnover of more than £200 million globally and a balance sheet total of more than £2 billion globally. Companies expected to be caught by the new rules include:

  • Portfolio companies of private equity firms
  • Large family businesses
  • Large subsidiaries of publicly traded companies, including UK subsidiaries of parent companies listed on foreign stock exchanges


In addition, in December 2018, the Wates Corporate Governance Principles for Large Private Companies was issued. These principles are designed to help very large private companies to comply with their new reporting rules.


Large Companies (Quoted or Private Companies)

Section 172(1) Statement — The Reporting Regulations also require certain UK companies to state in their Strategic Report how the directors have complied with their duty to, in good faith, promote the success of the company for the benefit of its members as a whole. The statement must have regard to the six factors set out in Section 172(1) of the Companies Act 2006.

As further guidance, the GC100 issued in October 2018 its Guidance on Directors’ Duties, to provide practical advice on directors’ duties under Section 172.

Engagement with Suppliers, Customers and Others — Companies also must make a statement in the Directors’ Report regarding how the company has regarded the need to foster the company’s business relationship with suppliers, customers and others.

The above new rules affect “large” UK companies, quoted or private, that satisfy two of the following criteria: (i) turnover of more than £36 million, (ii) balance sheet total of more than £18 million or (iii) more than 250 employees.


Engagement with Employees

All UK companies with more than 250 UK employees, including quoted or private companies, must make a statement in the Directors’ Report summarising how directors have engaged with employees and taken account of their interests.


Remuneration Reporting for Quoted Companies

Quoted UK companies with more than 250 UK employees must publish a table in the directors’ remuneration report showing the ratio of the CEO’s remuneration to each of the median, 25th quartile and 75th quartile of their UK employees (FTEs).

In addition, all quoted companies will be required to report:

  • Any discretion exercised in the award of directors’ remuneration
  • An illustration of the effect of future share price increases on executive pay outcomes


Companies listed on AIM are not “quoted” companies and so are not subject to these new remuneration reporting obligations.


Key Contact

Peter Kohl
Head of Corporate
+44 20 7539 7082
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