Firms should always be on best behaviour

AIM enables companies to raise money, not just at the time they join the market, but also when they need to expand at later stages.

The market is a fantastic laboratory where there are over 1,000 experiments being conducted. Companies will both succeed and fail, and many will develop slowly and perhaps not provide the returns that the initial investors expected. They will be taken over, leave the market or morph into a different type of company.

The success of AIM is based on having a high profile so that companies are aware of it, having sufficient rules to engender investor confidence and protection but not so many as to put off the companies. The London Stock Exchange operates the market based on a set of guiding principles. The principles and rules are applied by the companies under the guidance of their trusted nominated adviser, their Nomad, who seeks to ensure that a company operates as expected on the market.

The lack of prescriptive rules means that good practice develops through the advisory community applying some version of the regulations laid down for the main market of the London Stock Exchange, through the influence of direction provided by the AIM regulatory team and also by guidance produced by my organisation, the Quoted Companies Alliance.

We publish a Corporate Governance Code which is developed by our Corporate Governance Expert Group. This code is not what companies can get away with but a set of principles developed by the sector for small and mid-size quoted companies. Our expert group comprises of representatives from companies, investors, accountants, lawyers amongst others. It is designed to be sufficiently flexible so that companies can use it in different ways to reflect the various stages of development across the range of AIM companies.

Similarly we provide guidance for Audit and Remuneration Committees. We provide a context within which both committees can operate. Our Remuneration Committee guide has been recently revised. It provides a framework in which the Remuneration Committee can operate (it’s worth a read!).

But if companies and their Remuneration Committees do not speak to and then listen to their owners, the shareholders, then they will find that the pressure for changing a board will be intense.

To appreciate this, it is necessary only to read recent headlines concerning how certain larger companies are run. This is the sort of story is appearing more and more in the news, rather than business pages.

Remuneration policies should, as our guide says, align the interests of the executive directors with the interests of long-term shareholders. This does not always happen. There must be a clear and open dialogue between companies and their shareholders, often facilitated by the company’s Nomad.

Without this we may see more proscriptive rules which shackle companies and prevent them from concentrating on what they should be doing best, creating sustainable long-term value for shareholders, including, but not exclusively, the board of directors. It’s the choice of the market, principles or rules.

Market behaviour should not be about what companies can get away with. For me it’s about developing and promoting good practice in every area of a company’s operations, including remuneration.