2. Corporate Governance

Question 1

2. Corporate Governance - complying with spirit

Answer 1

• Chapter 7 of the Listing Rules
• A company should ensure that it complies with the spirit of the Listing Principles and Premium Listing Principles contained in Chapter 7 of the Listing Rules.
• Their purpose is to ensure that listed companies “pay due regard to the fundamental role they play in maintaining market confidence and ensuring fair and orderly markets”. (LR 7.1.2G)
• Prior to flotation, company should particularly consider the following principles:
  • LP 1: a listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
  • PLP 5 - requires all holders of the same class of shares that are in the same position to be treated equally
  • PLP 6 - equires that listed companies promptly communicate information in such a way as to avoid the creation or continuation of a false market.
• The board must therefore ensure that it has procedures in place to ensure that all inside information (both positive and negative) is communicated to the market by way of announcement before it is disseminated informally to shareholders, suppliers, journalists etc.

Question 2

Corporate Governance - DTR

Answer 2

• DTR 7.2: corporate governance statement: - THIS IS LAW/applicable to all listings
  Issuers are required to produce a corporate governance statement which must be either included in the directors’ report: DTR 7.2.1
  • DTR 7.2.2R: requires the corporate governance statement to contain a reference, among other things, to the corporate governance code to which the company is subject. For companies with a premium listing of shares, this will be the UK Corporate Governance Code
  • DTR 7.2.3R requires that, where it departs from the code, the company must explain which parts of the code it departs from and the reasons for doing so (this is known as the “comply or explain” principle)
  • DTR 7.2 also sets out a number of other matters which must be disclosed in the corporate governance statement e.g. in relation to the company’s share capital.

Question 3

Corporate Governance - LR and UKCGC

Answer 3

• The UK Corporate Governance Code sets out a number of specific corporate governance requirements. Unlike DTR 7.2, the UK Corporate Governance Code does not form part of the LPDT Rules and does not have the force of law.
• However, all companies with a PREMIUM LISTING of shares (or those who are to be so listed) need to take into account the detailed contents of the UK Corporate Governance Code. This is because in its Annual Report, each company with a premium listing of shares must explain how it has applied the principles of the UK Corporate Governance Code (LR 9.8.6R(5) and LR 9.8.7R) and, in respect of the UK Corporate Governance Code provisions, make a “comply or explain” statement stating whether or not it has complied with the UK Corporate Governance Code and, if not, the extent to which it has not complied and the reasons why (LR 9.8.6R(6)).
- All listed companies (whether their shares are premium or standard listed) must comply with DTR 7 relating to corporate governance. In addition, a company with a premium listing of shares must comply with LR 9.8.6R(5) and (6) relating to the UK Corporate Governance Code.
- In addition, a company preparing itself for a premium listing of shares should aim to be in full compliance with both the UK Corporate Governance Code and DTR 7 by the time it lists so that it meets the standards expected by potential investors.