AIM Listed? The Trend may not be your friend!

Governance Trends Aim Listed businesses should worry about …

Norman Broadbent’s Board practice understands the importance of governance to our clients, many of whom are listed on the AIM market (like we are).  As a smaller market with less stringent regulations, the AIM is often seen as a more speculative exchange with relaxed governance, but many organisations are working hard to change that – like the Quoted Companies Alliance, which  champions the interests of small to mid-size quoted companies. Their annual Good Governance review is always of interest, getting right to the heart of the issues affecting governance small and mid-cap businesses, and promoting best practice amongst its members. 2020’s report has highlighted some key trends for the year ahead.

While it comes as no surprise that the report’s authors identified COVID-19 as a major concern of Boards, they have also identified several other trends which were of interest to the Board Practice, aligning as they did with our experiences of current ‘hot topics’ for Leaders, Boards and Non-Executives. For example the growing attention paid to executive remuneration, which has become increasingly pertinent in the AIM and SmallCap space. The QCA report shows this is still a significant area of weakness when it comes to reporting, and it is particularly likely to be contentious in 2021 as individuals across organisations – from shareholders to employees –  will be looking to see that they really were ‘all in it together’ and that executives ‘shared the pain’ when it came to bonuses, temporary salary reductions and/or dividends. This comes after several years of increased scrutiny on the topic of exec remuneration in the AIM and SmallCap space, suggesting it is a trend which is only going to increase, so smart businesses are already improving their transparency in this area.

Interestingly, the authors also draw a link between transparency (or lack thereof) around remuneration and culture, which is a new area of concern for many investors. It has been apparent to Norman Broadbent for many years that possessing a strong and authentic company culture is a growing indicator of success. As truly high-quality talent becomes scarcer, businesses are differentiating themselves in the marketplace by increasingly sophisticated positioning around their Employee Value Proposition to appeal to the top candidates. We are seeing an increasing trend for these ‘cultural factors’ – such as flexible working, team socials, lifestyle benefits (as opposed to traditional, financial benefits like pensions and car allowances) acting as major draws for younger talent. The QCA report suggests that investors and shareholders are beginning to become aware of this trend also, so it is important for listed businesses to get it right.

Analysis of annual reports suggests that 96% of AIM listed businesses describe and align their culture with their values as part of the Chair’s corporate governance statements. However, this can often come across as an idealised description of values rather than an accurate depiction of workplace culture, lacking in any solid evidence or concrete grounding. A classic example is the statement “We value employee well-being and prioritise our teams’ mental and physical wellbeing,” without any descriptors of actual actions taken to support this. Culture is obviously difficult to monitor and report, however simply acknowledging this and outlining a methodology can put a business halfway to satisfying stakeholders’ curiosity.

Prior to Covid-19, an investor could simply visit a workplace if they wanted to form an understanding of the culture – to find out if the office is buzzy and collegiate, or quiet and focussed, for example. With people working remotely, it is both harder to maintain a coherent office culture and assess it. However, there are a few ways culture can be both monitored and reflected:

  • Employee engagement surveys – these should be regular and anonymous but offer a good insight for investors into how individuals feel the culture ‘fits’ them;
  • Figures on staff turnover and satisfaction;
  • Remuneration reports;
  • Attendance at ‘virtual’ team events, team meetings etc – a kind of ‘virtual walkthrough’

It will be interesting to see how these trends continue into 2021 with the ongoing challenges of COVID-19 and Brexit bearing down on businesses. The drive for greater transparency in disclosures from AIM and SmallCap boards will enable investors to make more informed decisions which can only be a good thing, for those Boards willing to be at the forefront of this incremental change.

If you’d like to know more about our Board Advisory Practice and how we may help you, please do not hesitate to contact in confidence Angela Hickmore, Group Managing Director, via angela.hickmore@normanbroadbent.com