In a recent video interview, Keith Hiscock talked with Tim Ward of the Quoted Companies Alliance (QCA).
The QCA is an independent membership organization. It operates on a not-for-profit basis, and its sole purpose is to champion the interests of UK small and mid-size listed companies across all markets. Through the interview, Tim explains the QCA code, the importance of public markets, tax advantages and the QCA’s campaigning work.
Here, we offer an edited transcript of the interview. You can watch the video of the full presentation here.
I’m very pleased to be joined by Tim Ward, who is the Chief Executive of the Quoted Companies Alliance. Let’s start with the obvious one first, Tim. So for those who don’t know, what is the purpose of the QCA, and who are the members?
Thank you very much, Keith, for inviting me to talk to you and your viewers.
The Quoted Companies Alliance is an independent membership organisation. We’re not for profit, so we are not commercially driven, and our sole purpose is to champion the interests of UK small and mid-size listed companies across all markets.
We’ve got about 300 members, of which 200 are listed companies, mainly on AIM but also on the main market and Aquis. The remainder are what we call advisory members, made up of fund managers, research houses such as Hardman, accountants, lawyers, nominated advisors, stock brokers, registrars – so quite a variety of organisations. The 300 organisations really add up to the ecosystem of the small and the mid-sized quoted market.
One of the things you’re famous for is your governance code, so for those who don’t know about governance codes could you just explain what they are, what it is and what the purpose of it is?
Well, that’s a tall order in itself, to explain the whole world of governance, but our code is quite simple. We produce a Corporate Governance Code, the QCA Code, and it’s been adopted by nearly 90 percent of companies on the AIM market. It’s a code of governance so it’s a way of helping companies to demonstrate that they are organised, structured and behave in the right way.
The key thing is that they disclose that on their website, in their annual reports, so that private investors, retail investors, as well as institutional investors, can see how a company is organised. It’s very much principles-based, so that companies at different stages of development, and of different sizes, can relate to those principles and describe what they do in relation to those principles. We recommend how they apply the principles and recommend certain disclosures.
You’re also a champion of public markets. In the broader round, why do you think it matters whether a company is public or private?
Look at the last nine months, in terms of this terrible pandemic, companies in the public markets have been able relatively easily to raise finance, whereas companies encumbered by debt have found it much more difficult. Typically, private companies have found it difficult. They have used government loans, but they have ended up with more debt, whereas public companies have been able to use equity in order to raise their finance and equity in itself is permanent capital – shareholders can’t ask for their money back, whereas banks can and do – so I think the fundamental difference between debt and equity is absolutely paramount.
Also, if you are a public company, listing on the London Stock Exchange, you get the kite mark, which is highly regarded because of the transparency of the market, producing prospectuses, announcing results, all of that – it sets you up so that if you’re pitching for a contract and there’s a private company involved, you can say “we’re listed” and that has cachet. It also enables companies to involve their employees so that they can take part in share plans and enjoy the growth of the company.
It’s a currency for companies to be able to make acquisitions so they can grow, but the overarching thing, which the government and the Treasury see, is that it’s a great means of wealth distribution. It’s not just the rich getting richer; it’s you and me and others taking part and sharing in the success of the UK economy. Public markets play a huge role in the UK economy. With the companies we represent, we’ve worked out that it’s about 3 million employees and the tax take for the Exchequer is something like £26.5 billion, so public equity and companies on those markets are incredibly important to the UK economy.
Now that leads us on to the role of the QCA as an industry body in public consultations. Could you tell us about some of the consultations you’ve been involved in and you are involved in at the moment?
The QCA basically does three things. As well as the campaigning, we aim to inform, so with our members we try and marry our companies with investors so they can learn about how investors work. We put out a lot of surveys and information. With the QCA Code, we also publish a guide for audit committees and rem codes. The information forms a lot of evidence that we use in our consultation responses.
A recent survey looked at how important retail investors are, but the campaigns that we work on can be very technical. For instance, looking at the market abuse regulation, the way brokers and companies sound out investors ahead of a deal. Some cover very technical things like the contents of prospectuses, but also more generally we have more overarching campaigns. There’s a current consultation being conducted by the Treasury, a listing review, looking at the rules for companies and trying to see whether they can improve to make the public markets more welcoming, more attractive, so that more companies join the market at the lower end, but also some of these tech companies at the higher end. Companies are getting larger before they list, they have much more of a choice – they probably have an international choice, so we want to make sure that our markets are competitive when compared to, say, the New York Stock Exchange, NASDAQ, Hong Kong and the like.
We are also looking into other technical things, like the structure within prospectuses. We’re in talks with the Financial Conduct Authority as to whether we can create an alternative to a prospectus, a public offering document, which will enable companies to more easily produce documentation at a lower cost, and therefore involve retail investors more in IPOs and in further fund raisings, because at the moment they’re effectively locked out. There are some changes recently, with Primary Bid, but we see that sort of documentation, that sort of cost, as being prohibitive, and we want to open up the market to all.
That’s a good lead-in to my next question, which is this: lots of people watching this video will be retail investors and they’ll be saying to themselves, “well, the members of the QCA are companies and advisors. Why would you care about retail, why does it matter?”
There are three answers to that, and it’s liquidity, liquidity, and liquidity.
Retail investors are so important, particularly at the smaller end. Retail investors have different time horizons, different ways of looking at companies, and some have ‘buy’ attitudes, some have ‘sell’ attitudes when they see a company’s results – that’s what creates liquidity, that’s what creates the share price and the value of the company. A company that’s really successful as investor relations with institutional investors is likely to end up, in our world, with four or five key investors who have large stakes in the company, but if they believe in the company they’re not going to be selling the shares – they might buy more but they do that in large chunks, so day-to-day the trading of the retail investor in smaller companies, mid-sized companies, in Lloyds bank, create the liquidity. So retail investors are incredibly important, and one of the reasons for asking YouGov to do a survey of retail investors was to really get the companies – our members and others – to really think about the importance of retail investors, who they are, what they’re looking for.
I see our QCA Code, in terms of the recommendations about disclosures on websites and annual reports, as really being aimed at retail investors, because typically retail investors do not get the opportunity to quiz the management after six-monthly results, annual results, that sort of thing. They are reliant on other information and we’ve certainly seen companies improve the quality of their websites, their investor pages, and I think setting out our 10 principles in our code really does drive disclosure across all the things that we think are important.
We have said on many occasions, looking at the work we’ve done on liquidity, that for most companies, most days of the year, the share price is set by small trades and ignoring the people behind that – which are most likely retail investors – is really very short-sighted.
Now that leads me on to the final question, which is around the fact that companies listed on AIM have got several tax advantages – Stamp Duty exemption and IHT relief perhaps more importantly for some of them. Do you think these reliefs are under pressure as the government desperately casts around for any sorts of revenue at the moment? Would it matter if those exemptions and privileges went, and where do you think the Treasury’s mind is on this at the moment?
It’s a big subject and it’s an incredibly important one for AIM and the smaller Aquis markets, because obviously they do benefit from the exemption from Stamp Duty and the incentive that inheritance tax relief is provided. There’s a huge amount of money in IHT funds, predominantly I think at the higher end of the AIM market; the safer companies, the ones which are steadier in terms of their growth, paying dividends, that sort of thing.
With that wall of money, what that has done – because again, people have different mortalities, different ways of looking at the market, the IHT funds themselves make changes to their portfolios – that creates liquidity, and it creates a substance within the market which I think is critical. Certainly the sense I get is that the Treasury do recognize the fact that this is one of the pillars of the AIM market and the success of it.
Every time I’m involved in anything to do with looking at IPOs, the future of markets, that sort of thing [I look at the taxes]. I was on an EU IPO task force earlier this year, and one of the recommendations is tax incentives for small and growth companies. Now, when you look at the taxes, was IHT relief really designed for companies on quoted markets? Maybe at the smaller end, not necessarily at the larger end, and I think that if you were starting again you wouldn’t probably come up with IHT relief as a key incentive for a growth market, but if you take that pillar away, be careful what you wish for – because you could find the whole market comes tumbling down and it’s really difficult to forecast what would happen, but it is something I would really fear if it was removed. It would move the market back to being like every other European market, which typically are not successful: there are very few other markets across Europe which have small company, growth company content. We’ve got something – let’s keep it.
Have a look at the QCA website to read up on everything mentioned here – news, articles and the YouGov surveys we talked about. It’s a great source of information.