The Wates Corporate Governance Principles for large private companiesPrint publication
Large private companies will soon be subject to new corporate governance obligations. The Wates Principles are intended to help companies comply with these new obligations.
On 10 December 2018, the Financial Reporting Council (FRC) issued a press release announcing that it had published the Wates Corporate Governance Principles for Large Private Companies. The Wates Principles have been developed by a coalition established by the FRC and chaired by James Wates CBE following a consultation which was launched by the FRC on 13 June 2018.
The Wates Principles are intended to help large private companies to meet their obligations under the Companies (Miscellaneous Reporting) Regulations 2018, which require large private companies to disclose their corporate governance arrangements for financial years beginning on or after 1 January 2019. The new reporting requirement applies to all companies that satisfy either or both of the following conditions: (i) the company has more than 2,000 employees; and/or (ii) the company has a turnover of more than £200 million and a balance sheet total of more than £2 billion. Large private companies will need to include a statement in their directors’ report which states:
- which corporate governance code (if any) the company applied in the financial year
- how the company applied that code
- if the company departed from the code, how it departed and why
The Wates Principles comprise six principles together with guidance under each principle. They adopt an ‘apply and explain’ approach, so that boards should apply each principle by considering them individually within the context of the company’s specific circumstances.
The six principles are:
- principle one – 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
- principle two – 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
- principle three – Director 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
- principle four – 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
- principle five – 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
- principle six – Stakeholder relationships and engagement: Directors should foster effective stakeholder relationships aligned to the board’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.
Large private companies which are required to prepare a statement of corporate governance arrangements are not obliged to apply the Wates Principles. There are other options such as the UK Corporate Governance Code and the Quoted Companies Alliance corporate governance code. The corporate team at Walker Morris can help you understand which code might be most appropriate for your company.