AIM-listed Applied Graphene Materials holds its AGM on 18 December 2018 and with the elevated awareness of AIM governance standards, it's worth taking a look at AGM's AGM disclosures to better understand the differences between what's expect of main and junior market companies.

Good governance disclosures and financial reporting support open and effective dialogue between a company’s board and shareholders. Reflecting these concerns, the London Stock Exchange recently amended AIM Rule 26 to require companies to adopt and report on compliance against a recognised corporate governance code. The Board of Applied Graphene Materials has adopted the QCA Code of Corporate Governance and considers the Company to be "fully compliant with all principles contained in the Code". But is that objectively a good enough standard?

For many years the QCA has insisted on carve-outs for smaller companies on the grounds of "cost". But cost to whom? Particularly when shareholders pay the price when things go awry. 

AGM has been through a number of significant changes in the past year - a new CEO was appointed in August 2018 and a new joint CFO and company secretary arrived on October 2018. 

Audit Disclosures

The Group’s external auditors PwC, who were first appointed in the 2015 financial year, but resigned in June 2018. As a result , the Audit Committee undertook a tender process which resulted in RSM being appointed as the new auditors.

Audit appointments of such short duration are rare, and unfortunately there are no details about the the resignation in either the annual report or AGM circular. Although no non-audit fees were paid during the year under review, the fees paid for non-audit services did exceed those for audit related services in preceding financial years. Disappointingly, the company has also made no disclosure regarding the establishment of an internal audit function.

Board Composition

AGM's board has no women directors and non-independent non-executive Mike Townend sits on both the Audit and Remuneration Committees - institutional investors typically prefer both committees to be comprised solely of demonstrably independent directors. Further, according to the annual report disclosures, Townend attended less than 75% of Board and Committee meetings during the year. There are often good reasons why directors cannot attend meetings, but in the case of AGM, no explanation has been provided in the annual report. Shareholders may also be concerned to see that the chair of the Audit Committee also chairs the Remuneration Committee and that the Group has not put its remuneration report forward shareholder approval. And with a five concurrent directorships and chairing three committees, a shareholder might reasonably ask if this over-boarding leaves enough hours in the day to focus on the changes AGM has been through?

For many years lower governance and disclosures standards for AIM companies have become "generally accepted governance standard".  Nevertheless, smaller companies can and do achieve excellent governance standards and disclosure that go beyond the minimum. In an "ordinary year" AGM's disclosures might have been sufficient, but after the changes that AGM has been through, perhaps it's time for investors to be more demanding?