10 December 2018 | Herpreet Kaur Grewal
A new code for the corporate governance of large private companies has been launched by the Financial Reporting Council.
The code provides a framework to help private companies meet legal requirements and promote long-term success in the sector.
'The Wates Principles' encourages companies to adopt a set of key behaviours to secure trust and confidence among stakeholders in order to "benefit the economy and society in general".
These Principles are part of a number of changes made this year to the UK corporate governance framework. They have been developed by a coalition established by the Financial Reporting Council (FRC) and chaired by James Wates CBE. By explaining the application of these principles, large private companies will be able to meet their obligations under The Companies (Miscellaneous Reporting) Regulations 2018.
James Wates CBE, chairman of Wates Group, said: "I believe that good business, well done, is a force for good in society. The Wates Corporate Governance Principles are a tool for large private companies that helps them look themselves in the mirror, to see where they've done well, and where they can raise their corporate governance standards to a higher level. Good corporate governance is not about box-ticking. It can only be achieved if companies think seriously about why they exist and how they deliver on their purpose then explain - in their own words - how they go about implementing the principles. That's the sort of transparency that can build the trust of stakeholders and the general public."
The six principles are:
- Purpose and leadership: An effective board develops and promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose.
- Board composition: Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the company.
- Board responsibilities: The board and individual directors should have a clear understanding of their accountability and responsibilities. The board's policies and procedures should support effective decision-making and independent challenge.
- Opportunity and risk: A board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks.
- Remuneration: A board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company.
- Stakeholder relationships and Engagement: Directors should foster effective stakeholder relationships aligned to the company's purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.
Reporting against these principles will take effect on 1 January 2019.
Business secretary Greg Clark said: "These principles drawn up in consultation with businesses, investors and unions further strengthen our business framework. From defining a company purpose at board-level to embracing a diversity of skills and backgrounds in the boardroom. I expect to see our bigger private businesses build on the work they are already doing and take action to support and adopt these practical steps to ensure our businesses continue to inspire public trust and confidence."
Stephen Haddrill, CEO of the FRC, said:"Large private companies impact widely on society and play an important role in the UK economy. Through promoting positive corporate behaviours these principles have the potential to help restore trust in business and contribute to long-term sustainable growth in the UK economy."