Introduction

In a significant move, the National Association of Pension Funds (NAPF) has published two new corporate governance policies, dealing with policy and voting guidelines for investment companies and AIM companies. This bulletin examines the latter guidelines (the 'Guidelines'). As many of you will be aware, NAPF is the voice for workplace pension provision in the UK - member schemes hold assets of around £800bn and account for more than 20% of investment in the UK stock market.

That NAPF has now turned its 'guideline-making' attention to the AIM market is noteworthy. However, as stated in the introduction to the Guidelines, the increase in the number of companies admitted to AIM, their increasingly international character and the appearance of larger companies alongside the more traditional smaller capitalisation stocks has meant that this market has been attracting greater interest among institutional investors, including pension funds. NAPF believes that higher standards of corporate governance will mean that AIM companies will be better able to manage their growth and attract a greater institutional following.

What Do The Guidelines Say?

The starting point for the Guidelines has been the Combined Code (the key source of corporate governance recommendations for companies listed on the main market), the NAPF Policy and Guidelines which are based on it, and the Quoted Companies Alliance (QCA) guidelines (a set of guidelines intended as a minimum standard which most companies should be able to follow). The basic premise of the Guidelines is to match the standard of corporate governance with the size of company - therefore the Guidelines state that companies at the top end of AIM market capitalisation range are expected to comply with the provisions of the Combined Code (or explain non-compliance), whilst at the other end very small companies should focus on growing their business and providing good levels of disclosure in their annual report and accounts without the burden of compliance with inappropriate guidelines.

The approach of the Guidelines is to state what the Combined Code says about a particular issue, then what the QCA guidelines say and, if relevant, the existing NAPF policy, and then go on to say what the NAPF AIM Policy is.

Issues addressed by the Guidelines include:

David Paterson, head of corporate governance at NAPF, states that the Guidelines have been designed to help companies develop corporate governance policies which are consistent with investor expectations and support their business strategies. "Investors need to be flexible but we should make it clear to these companies what is expected of them and these new guidelines are designed to do just that." What with a hint of unease around at the moment about AIM, prompted by events such as a spate of profit warnings, the LSE's March trading update showing that the number of AIM debutants has slowed, and some less than complimentary comments made about the market - including Roel Campos' (an SEC Commissioner) likening of it to a "casino", anything that adds to the impression (and reality) of a well-regulated, well-run market should be welcomed. It will now be interesting to see to what extent the Guidelines are followed.

The Guidelines can be found here.

© Davenport Lyons 2007. All rights reserved.
This document reflects the law and practice as at May 2007. It is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.