Why Governance is Critical for AIM Companies

In 2018, the LSE changed the rules for AIM-listed companies. Recognising the importance of good governance for business development and public trust, it introduced a new requirement under AIM Rule 26. AIM companies must now comply with a recognised corporate governance code, such as the UKCGC or the Quoted Companies Alliance (QCA) code.

But what is governance? Investopedia defines it as “the system of rules, practices, and processes by which a firm is directed and controlled … Since corporate governance provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

“The best time to implement good governance – which will become increasingly necessary as a company grows – is at the outset. More importantly, governance is about much more than compliance. It can effectively add value to a business by ensuring it’s well-run, well-organised and well-supported. Governance Today suggests 3 key strategic reasons why good governance matters:

1. To preserve and strengthen stakeholder confidence: Transparency about decisions and strategies, clear communications and management accountability are critical for keeping stakeholders appraised about your organisation’s actions and how it does it.
2. To provide the foundation for a high-performing organisation: Good governance makes it easier to arrive at effective strategies for growth and performance. It also makes it easier to monitor and manage performance.
3. To ensure the organisation is well-placed to respond to a changing external environment: Systems to discover and share opportunities, respond to external events (such as economic uncertainty, climate change, and geopolitical conflict) will help ensure your business’s long-term sustainability.

At a more granular level, good governance can help with specific business functions and processes, such as:

• Board succession planning: A well-maintained board skills matrix can enhance board recruitment and succession.
• Business expansion: managing growth, diversification, IPOs and mergers & acquisitions.
• Identifying opportunities such as new markets, products, services and territories.
• Optimising production and operations by mitigating risks and inefficiencies, and identifying opportunities for improvement.
• Reputation management: Improving public transparency and demonstrating a commitment to company values.
• Security (including IT security): physical and virtual security is critical for any modern business; good governance provides transparency and enhances risk management, crisis response planning and resilience.
• Supply chain management: Deeper insights into partner organisations improves risk management and identifies opportunities for improvement.
• Workforce optimisation: Identifying needed skills and improving worker engagement.