Have new rules made AIM a less risky place?

We report on new rules producing a dramatic improvement in corporate governance on the junior market.

Companies listed on the Alternative Investment Market (AIM) have seen a dramatic improvement in corporate governance since the introduction of new rules last year, a report argues.

According to the study, carried out by accountancy firm UHY Hacker Young and the Quoted Companies Alliance (QCA), AIM firms have improved governance on several fronts. They found that over the past year 84% of companies now identify independent directors, up from 58% last year. At the same time, 98% of companies detail how they plan to engage with shareholders, up from 56% last year. Moreover, 84% detail the number of meetings of the board and its directors, up from 58%.

These improvements come after the introduction of tighter rules for AIM-listed companies last year. The new rules required firms listed on the market to disclose how much they have complied with their chosen corporate governance code. Firms that fail to comply are required to explain why.

Investors that choose to invest in individual shares are often drawn to Aim, viewing it as offering access to young and dynamic companies that are potentially able to provide rapid capital growth.

There are also added tax incentives to investing in the market.

Since its launch in 1995, over 3,600 companies from around the world have listed. One of the market's most notable success stories in recent years has been online fashion retailer ASOS (LSE:ASC), which has gone from a market cap of £14 million at launch to £2.51 billion today.

However, AIM has less stringent rules for listing than other markets, such as the London Stock Exchange. As a result, the market has also gained a reputation for hosting companies with poor corporate governance, which can often end badly for shareholders.

The new rules, however, are improving the market, says Martin Jones, a partner at UHY Hacker Young. He says:

“The majority of AIM companies have successfully overhauled their corporate governance reporting to meet the new requirements.”

However, the report found there was still a lot of room for improvement. Less than half of AIM-listed companies identify the qualities and capabilities of their board member, while only 48% of businesses make public the succession planning of board members and senior management.

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