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Directors' know how is a monthly article, which highlights key rule changes, proposed changes and market updates so that you know what is coming down the track.

European Commission re-approves Enterprise Management Incentives (EMI)

The European Commission has announced that is has approved under EU state aid rules the prolongation of EMI until 6 April 2023. The assessment undertaken ruled that the scheme’s continuation was necessary to support UK SMEs attract and retain talented and skilled personnel.

Determining that EMI contains a number of safeguards, such as a cap on the value of the share options that can be subject to the tax advantage both at the employee and employer level, the European Commission is satisfied that potential distortions to competition are limited.

HMRC will publish a Bulletin as soon as it has received its confirmation letter from the European Commission regarding the terms of the approval, as well as guidance on new EMI options that have been established and/or granted between 7 April 2018 and 15 May 2018.

European Commission proposes new rules to ease access to public markets for smaller companies

The European Commission has proposed new rules to give small and medium enterprises (SMEs) better access to financing through public markets as part of its Capital Markets Union agenda.

This follows its public consultation on building a proportionate regulatory environment to support SME listing which the European Commission held in February 2018 (one which the QCA played an active role in – you can read our full response here).

The proposals come in two forms:                                                        

Specifically, the European Commission proposes, among other things, to:

  • Adapt current obligations to keep registers of persons that have access to price-sensitive information so as to avoid excessive administrative burden for SMEs, while ensuring that competent authorities can still investigate cases of insider dealing; and
  • Allow issuers with at least three years of listing on SME Growth Markets to produce a lighter prospectus when transferring to a regulated market. 

The European Commission hopes that the proposals will reduce the administrative burden and the high compliance costs faced by SME growth market issuers whilst maintaining a high level of market integrity and investor protection; boost liquidity in publicly listed SME shares; and facilitate the registration of multilateral trading facilities as SME Growth Markets.

The proposal for a regulation amending the market abuse and prospectus rules will now be discussed by the European Parliament and the European Council (the body comprised of EU heads of government).

The draft delegated regulation bringing technical adjustments to MiFID II is now out for public consultation with a response deadline of Thursday 21 June 2018. Please send any views you have on the draft delegated regulation to Callum Anderson at

Board Intelligence-ICSA: The Governance Institute cost calculator highlights the true costs of board meetings

Board Intelligence and ICSA: The Governance Institute have unveiled a jointly developed cost calculator which reveals the true costs borne by companies in organising and executing board meetings.

The cost calculator aims to help boards and those who support them improve the efficiency and effectiveness of board reporting. It covers the two main processes involved in producing and reading board packs:

  • The time spent preparing, reviewing, compiling and distributing board and committee papers; and
  • The time spent by board and committee members reading those papers.

ACCA publishes report on the tenets of good corporate governance

The ACCA has published a report on the tenets of good corporate governance, which investigates how corporate governance should contribute to the long-term success of businesses.

The report identifies five main tenets:

  • The relationship between companies and society: Aligning the company's vision with that of society will support your company’s long-term prospects. Companies making an effort to be a genuine part of the society they operate in will help them navigate challenges more effectively, while also creating value from opportunities. You should approach this as a formal part of the strategic planning process with methodologies, frameworks and constant review processes that are appropriate to your company. Measuring progress through appropriate key performance indicators and instilling a corporate culture that aligns all levels of the organisation with a shared vision will help achieve this.
  • Diversity and balance in organisations: Diverse viewpoints allow companies to consider a broader set of scenarios, as well as take into account the perspectives of a greater number of stakeholders. This will enable better decision-making in the long run. To enhance diversity, companies may opt to recruit non-executive directors, invite additional stakeholder voices as guests in board meetings, or other similar ways of meeting with stakeholders.

    A company’s leadership should also be balanced, including a broad range of people, at all levels. Yet this should address balance separately. For example, in the case of gender balance, if half of the boardroom or the executive team is not made up of women, all things being equal, companies should review whether the problem lies in recruitment processes or the management of women’s career progression.

  • Enabling an effective board: Not only should each board member possess specialist skills, but she/he must also be capable of using that specialist knowledge in the wider strategic context of the organisation. The board must be able to identify what is happening in the world and deciding how to respond; recognise what the company should do to achieve its objectives; and determine how it can create value sustainably.

    Boards must also be able to recognise its distinct role in the company vis-à-vis the executive team. That is, to monitor the long-term progress and give stakeholders confidence, while taking actions to steer the company’s direction. It is not the board’s task (except in certain circumstances) to review all the company’s information.

    The chair should facilitate discussion and debate, enabling each individual board member to challenge and question. They should promote diverse views being voiced and heard by encouraging, listening and validating individual board members’ opinions, even where their views are different from others.

  • Executive remuneration: Companies should approach the challenges related to executive remuneration with two things in mind: the mismatch between pay and performance and the increasing sense of inequality in society.

    Remuneration committees must regularly review how executive pay is structured and assess whether it aligns with the company’s overall purpose, value and mission, particularly if the executives’ pay structure is very different from that for the rest of the company.

    Companies should ensure that pay structures accurately reflect performance and that contribution is rewarded. KPIs, both financial and non-financial, may be used strategically.

  • Gatekeepers of corporate governance: Adopting good corporate governance practices involves more than just companies and their shareholders; the wider public – who hold their money in pension funds, insurance and savings – and policymakers also need to play their part.

    Companies should effectively communicate its purpose to internal and external stakeholders, so that they are able to respond to challenges appropriately, while cultivating a clear corporate culture and facilitate a better understanding how it is run.

The revised QCA Corporate Governance Code was published in April 2018 and provides a practical, outcome-oriented approach to corporate governance that is tailored for small and mid-size quoted companies in the UK.

QCA members can download – and non-members purchase – a copy of the QCA Corporate Governance Code here.

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