On 13 November 2023 the Quoted Companies Alliance (QCA) published a revised QCA Corporate Governance Code 2023 (QCA Code).
The QCA Code, which is applied by nearly 900 companies (including 93% of AIM-listed companies and many companies on the Main Market), has been updated to address emerging investor demand for good corporate governance in a number of ESG-related areas, which are a prominent focus throughout the revised QCA Code. It maintains its ten-principle structure and its core tenet of flexibility, but expects greater consideration of those principles both inside and outside of the company.
The QCA has clarified its expectation for companies to consider how it applies each principle in the revised QCA Code and provide clear and well-reasoned disclosures to shareholders explaining the approach taken (including, if relevant, where it has chosen not to apply the QCA Code).
The revised QCA Code will apply for financial years beginning on or after 1 April 2024, with initial disclosures against the revised QCA Code expected to be published during 2025. The QCA has clarified that there will be a grace period of 12 months to allow companies time to apply the updated principles.
Some of the key changes made to the QCA Code include:
Wider stakeholder interests and ESG responsibilities (Principle 4):
- increased focus on "the workforce" as a key stakeholder, recognising the necessity of an engaged, motivated workforce to deliver shareholder value. Companies should ensure their practices towards employees are consistent with their values
- environmental and social issues, including those relating to or stemming from climate change, should be integrated into strategy, risk management and business models. Companies should provide qualitative and quantitative disclosure in their annual reports and accounts regarding any ESG issues it has identified as being material to it, with reference to a company's purpose, strategy and business model
Board independence and composition (Principles 6 and 7):
- the provisions in the back end of the 2018 QCA Code regarding director independence have been introduced to the principles of the revised QCA Code. It is recommended that at least half of the board comprises independent non-executive directors (INEDs), with a bare minimum of two INEDs. Key board committees should comprise a majority of INEDs and should aim for full independence
- the inclusion of a new non-exhaustive list of indicators of independence that the board should consider when determining independence. Such indicators include a director's shareholding, length of tenure, commercial relationships with company and/or incentive arrangements
- boards are required to reflect on their own levels of diversity, ensuring that they possess the requisite knowledge and skillset while avoiding groupthink. Consideration should be given to factors such as socio-economic backgrounds, nationality, educational attainment, gender, ethnicity and age
- boards should ensure they have the necessary skills and experience to fulfil governance responsibilities, including in relation to cyber security and sustainability matters such as climate change
Succession planning (Principle 8):
- succession planning for both executive and non-executive directors, as well as senior management and key staff is now a vital task for the board (with assistance from its nomination committee). No member of the board should become indispensable and board membership should be periodically refreshed
- the skills, experience, capabilities and background required for directors and senior management to support the next stage of a company’s development should be identified and factored into succession planning
- companies should disclose in their annual report and accounts their succession planning processes, including any indicative timelines for expected appointments
Remuneration (Principle 9):
- a new principle on remuneration has been included, although its provisions broadly align with the QCA's guidance on remuneration published in 2000. The new principle recommends that: (1) the board establishes an effective remuneration policy; (2) pay structures for senior management are easy to understand and align with shareholder values; (3) the annual remuneration report and remuneration policies should at least be put to an advisory shareholder vote (i.e. a non-binding shareholder vote); and (4) new or significant amendments to existing employee share schemes or long-term incentive plans to be subject to shareholder vote
Availability of the QCA Code:
The QCA Code is not freely available online but is available to download from https://www.theqca.com/ for QCA members (free) and for non-QCA members (at a cost of £450).
New QCA Code Badge:
The QCA has also introduced a new QCA Code Badge which will be used to indicate an Official User of the QCA Code. Anyone that has bought a verified copy of the revised QCA Code can display the QCA Code Badge on their company website and/or in their annual report. It is intended to become a recognisable mark for investors and wider stakeholders and to improve the integrity of the QCA Code.
If you have any questions regarding the revised QCA Code or would like to discuss the application of the updated principles, please get in touch with your usual Taylor Wessing contact.