AIM Rule 26 changes - the story so far

Sarah Bell Sarah Bell

Following the AIM Rule 26 governance update last year, AIM companies must now state which governance code they adopt when designing their governance arrangements to drive business performance.

In a press release on the changes, the London Stock Exchange stated that the new requirements are intended to provide information to investors to enhance the engagement between investors and the boards of AIM companies. Given this clear statement of intention, companies would be minded in considering their disclosures from this lens.

We examined AIM Rule 26 disclosure of the top 100 AIM companies (Top 100) by market cap - here are our key findings.

Code choice

From a review of top 100 AIM companies disclosures, two governance codes are commonly referred to: the FRC UK Corporate Governance Code (the FRC Code) and the Quoted Companies Alliance Code (the QCA Code), both of which were revised last year. The new FRC Code is shorter and sharper than its predecessor1 . Likewise, the new QCA code is succinct and easier to follow2 . The challenge for companies is knowing which to follow.

Prior to introduction of Rule 26, our analysis of the report and accounts 75 of the largest AIM companies found that two thirds either voluntarily adopted, or aspired to adopt, aspects of the FRC Code. Our subsequent review of the now mandatory adoption statements of the AIM 100 shows this has fallen, with only 27 referring to the Code, with all but two of those remaining stating adoption of the QCA Code.

So what has caused this huge swing away from the FRC to the QCA Code? We can't speak for companies, however, the QCA Code is self-described as `easy to follow’ and tailored to smaller companies3 and several companies have stated the latter as being the reason for their adoption of the QCA code. A vast majority of companies have not given any reason for their choice of code.

While there is no requirement to explain why a code is chosen, it is good practice to do so as this demonstrates transparency and intentional decision-making, particularly for those making it for the first time. Anecdotal feedback suggests most companies recognise they are some way off full compliance with the FRC Code and rather than not complying and having to explain the reasons, they have instead opted for the greater flexibility afforded by the QCA Code. This is evidence of a compliance/tick-box mindset as opposed to an intentional governance choice. The latter approach would instead see a company happy to explain departures from the provisions of whichever code it has chosen.

The size of the company also appears to play a part - the 27 who are still following the FRC Code are concentrated among the largest by market cap. Furthermore, Hurricane Energy, one of the two companies that made the switch from the QCA Code to the FRC Code, specifically gave its size as a reason for the switch. Quoting from its AIM Rule 26 statement:"In 2017, given the company's size, the board decided to follow the principal provisions of the UK Corporate Governance Code 2016 (The Code) on a comply or explain basis, commensurate with the standards expected by stakeholders of Premium Listed companies." Therefore, unwittingly, the choice of code can be a signalling effect to aligning governance with strategy.

Trends in disclosure

AIM Rule 26 requires disclosure on a website of the code chosen and explanation for departures.

For FRC Code adopters, disclosure is via a statement of compliance with the Code and explanations of areas of departure. For QCA Code adopters, more commonly found is a listing of each principle and how the company applies each principle. It should be noted that the QCA Code includes guidance on what and where to disclose information required.

When considering the starting point, there is cause for cheer but there are still areas of improvement. These have been highlighted for the adopters of each Code below:

FRC Code

  • The responsibility of the chair and other key members is not provided
  • Insufficient level of explanations provided (these include explanations of compliance and/or non-compliance including adjudged level of compliance i.e partial or full compliance)

QCA Code

  • Code requirements include a chair’s introduction; companies either do not comply or provide the bare minimum.
  • Provide comprehensive chair’s statement covering all required elements
  • Overly lengthy disclosures - focus on quality over quantity
  • Non-provision of an index - required where disclosures are to be found in different locations
  • No/limited explanations of non-compliance - this includes explanations of non-compliance and adjudged levels of compliance

The benefits of choosing the right code

The best governance arrangements should be aligned to a company's strategy to ensure they are fit to meet future challenges. Companies should be deliberate in their choice of code and communicate their reasons to stakeholders. Should you be revising your current approach, consider the pros and cons of each code and more importantly how can you turn its adoption to your advantage, moving away from the perception of tick box compliance. Ultimately when governance is intentionally designed to support strategic decision-making and effective disclosure is provided, stakeholder engagement is improved and it becomes an integral contributor to the creation and retention of value. We have produced a high level code comparison to assist you with your decision-making process5.

We can assist you with this and other new reporting updates, including additional guidance applying from January 20196. To find out more, please contact Sarah Bell


  1. A UK Corporate Governance Code that is fit for the future, FRC, July 2018
  2. 'Shorter and sharper' code for smaller quoted companies published, Out-Law Pinset Masons, April 2018
  3. New Corporate Governance Code Released, Quoted Companies Alliance, April 2018
  4. AIM Rule 26, Hurricane Energy, December 2018
  5. AIM governance - which code is for you?, Grant Thornton, July 2018
  6. Why governance matters for large private companies, Grant Thornton, January 2019


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