The QCA Code 2023 (Code) is adopted by nearly half of the 950 Companies floated on AIM, a quarter of the main market and over three-quarters of Aquis listed companies, in addition to private companies looking to IPO in future.
This month saw the launch of the 2023 update to the Code, recommended for adoption for all accounting periods commencing on or after 1st April 2024. Meaning the first disclosures under the new Code will be made in 2025. The QCA has also put forward a 12-month transition period for the implementation of the new Code, meaning companies will have additional flexibility to adjust to the new Code and build the necessary capacity to apply its principles.
The modern Code was formally established in 2013 to provide a more flexible alternative for smaller companies to the UK Corporate Governance Code and was last revised in 2018.
The QCA advise the revision seeks to address new key issues, areas and themes that have come to the forum in recent years and seeks to align these proportionately with the expectations and interests of investors and other stakeholders. Feedback from market participants has led to additional clarity around elements of the previous version of the Code.
The revision puts additional focus on maintaining workforce satisfaction, engagement and motivation, ensuring practices towards its employees are consistent with the company’s values and recognises the need for feedback systems from the workforce as well as other relevant stakeholder groups.
Concerning independence, the updated Code recommends that at least half of the Board are independent non-executive Directors with a minimum of two independent non-executive Directors, which can include the chair assuming they were independent on appointment. What constitutes independence is a matter for the Board’s judgment and recommends the Board to consider the length of tenure, size of shareholding, prior and or current commercial contractual relationships with the Company or Executive director and significant incentive pay arrangements beyond the director’s fees when making a judgement on independence.
The prior guidance notes that non-executive Directors should rarely participate in performance-related remuneration schemes or have a significant interest in company share option schemes, without co-consultation of shareholders, has been added to the application criteria in the revised Code.
Principle 4, effective risk management, has been updated to include macro risks for Boards to consider, an additional disclosure requirement on risk governance and processes and further assessment of prospects and resilience statements.
The revised Principle 8, previously 7, extends succession planning to include contingency planning in case of departure or extended absence of key employees which should not be limited to Directors. Further in the Code Principle 7 asks the Board to ensure they have the necessary skills today and looking forward.
The revised Code speaks to the need for companies to satisfy investor needs, and expectations and to provide information on social and environmental topics, included in Principles 4 and 5 are references to climate change.
Diversity-specific references have been introduced in Principle 6 asking Boards to reflect on their diversity and to consider gender, ethnicity, nationality, age, educational attainment and socio-economic background amongst other considerations.
Former Principles have been combined to allow a new Principle 9 solely on Remuneration, notably absent from the 2018 version of the Code. The content is not new and almost entirely mirrors the remuneration committee guidance that the QCA published in 2000. This means the Code now calls for an annual remuneration report, that is subject to an advisory vote by shareholders on at least a tri-annual basis and for all share schemes to be put to shareholder vote.
Lastly, Principle 10 emphasises that Boards need to disclose all Shareholders’ votes clearly and transparently and provide an explanation for any significant level of descent.
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The information above does not in any way constitute advice. Seeking specialist expertise and support is highly recommended for all Company Directors.