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In March, the Department for Business, Energy and Industrial Strategy (BEIS) proposed a series of recommendations to strengthen UK auditing, corporate reporting and governance systems.
Measures proposed by the government department included new reporting and record requirements to increase director accountability and ensure that the regulator has effective investigative and civil enforcement powers to retain directors of public interest entities (PIE) – a Companies that follow an EU regulated mark like FTSE or Aim – to account for violations of their corporate reporting and auditing obligations. In addition, the government has made two proposals to expand the definition of PIEs to include large private companies and large alternative investment market (AIM) companies.
Under the proposed proposals, private companies would be classified as PIE regardless of whether they are listed on a stock exchange. Option one would mean that private companies with more than 2,000 employees or sales in excess of £ 200 million and assets over £ 2 billion would be classified as PIE. Under option two, companies with more than 500 employees and sales in excess of £ 500m would be categorized as PIE. AIM companies with a market capitalization of over € 200m (£ 171m) and Lloyds syndicates would also be PIEs.
A survey conducted by the Quoted Companies Alliance (QCA), an independent membership organization that supports small and medium-sized listed companies, in collaboration with market research firm YouGov, asked 166 small and medium-sized companies and 52 institutional investors between May 10 and June 2 about their For views on the BEIS audit and consultation on corporate governance reform.
The survey found that 90% of companies and 81% of investors felt that the proposals had the potential to discourage people from holding or seeking a position on the board of directors. It also found that 87% of companies and three quarters of investors agreed that the government’s proposal to expand the definition of a PIE was “too burdensome and costly”.
Meanwhile, nearly two-thirds of companies (58%) said they were likely to reassess the value of their listing.
Tim Ward, QCA Chief Executive, said, “The small and mid-cap community has been greatly encouraged by the response from the Lord Hill Review and the Treasury Department earlier this year. This BEIS consultation did exactly the opposite. It is both weird and disappointing that we discussed earlier in the year how to make listing in the UK more attractive and a few weeks later proposed reforms that could lead to company deletions.
“In order to avoid irreversible damage, it is important that only companies are targeted that are genuinely in the public interest and have the resources to adopt the reforms. The government must take a patient, proportionate and evidence-based approach. It should focus first on the largest companies that are of real public interest and most likely to be reformable. The effectiveness of these reforms should then be assessed before the relevant rules are applied to a wider range of companies, possibly with a transition period. If reforms are rushed instead, an important part of the UK economy will be hampered at a time when it needs to thrive the most. “
A BEIS spokeswoman said: “Our consultation sets out incremental reforms to strengthen corporate reporting, accountability and auditing to reduce the risk of business failure, safeguard jobs and protect the UK’s reputation as a prime investment destination.
“We welcome all responses to our consultation on auditing and governance reform and will examine them carefully and respond in due course.”
