The Quoted Companies Alliance (QCA) recently issued a survey of companies and investors on the BEIS audit and corporate governance reform consultation. The results show that company directors are worried that the proposals will have an overwhelmingly negative impact by impeding growth, making directorships less attractive, reducing diversity and shifting the focus of boards from business performance to compliance. Overall, it is likely companies will reconsider their listing on the public markets.
Headline results show:
1. 59% of companies believe the reforms will have a negative impact on their growth, just 2% believe the reforms will have a positive impact.
2. Nine-tenths of companies (90%) and four-fifths of investors (81%) believe that the proposals have the potential to deter prospective individuals from seeking directorships, or existing directors retaining their directorships.
3. Nearly 9 in 10 companies (87%) and three quarters of investors (75%) agreed that the current proposals to expand the definition of a PIE would be too onerous and costly.
4. Nearly two thirds of companies (58%) indicated that they would be likely to re-evaluate the worthwhileness of their listing.
The QCA shares the community’s concerns which is reflected in their response to the proposed reforms, submitted to BEIS on 8th July. The QCA response is centered on two overarching concerns within the proposals which are (a) to expand the definition of a Public Interest Entity (PIE) to companies on AIM with a market capitalisation of €200m and (b) the automatic extension of the scope of the reforms.
The QCA instead proposes that:
1. The definition of a PIE should initially incorporate all FTSE 350 companies and then, if considered appropriate following our proposed approach to implementation, could be extended to other large companies (both public and private) with:
1. over 500 employees; AND
2. a turnover of more than £500 million; OR
3. a market capitalisation exceeding 1bn (on a market agnostic basis)
2. The automatic extension of the scope of the reforms should be removed and there should be a more thoughtful approach to implementation, which includes greater segmentation, a proper impact analysis, a proper assessment of which other companies are in the public interest and the adoption of a transition period.
Tim Ward, Chief Executive of the QCA said:
“The small and mid-cap community has been very encouraged by the Lord Hill Review and Treasury’s response earlier this year. This consultation from BEIS has had precisely the opposite effect. It is both peculiar and disappointing that we started the year discussing how to make listing in the UK more attractive and, a matter of weeks later, reforms are proposed that could lead to companies delisting.
To prevent irreversible damage it is essential that only companies really in the public interest and with the resources to adopt the reforms are targeted. The Government needs to adopt a patient, proportionate, evidence-based approach. It should first focus on the largest companies, which are of real public interest and the most capable of adopting reforms. There then should be an assessment of the effectiveness of these reforms before potentially applying the relevant regulations to a wider scope of companies, with a transition period.
If, instead, the reforms are rushed through, a key part of the UK’s economy will be impeded at a time we need it to be thriving the most.”