Corporate governance for large private companiesPrint publication
As already reported in this issue of Corporate Matters, large private and unlisted public companies will be required in the future to include a statement in the directors’ report about their corporate governance arrangements. To help companies comply with these new requirements the FRC has published for consultation the ‘Wates Corporate Governance Principles for Large Private Companies’.
On 13 June 2018, the Financial Reporting Council (FRC) issued for consultation a draft of the Wates Corporate Governance Principles for Large Private Companies (Wates Principles). These principles are designed to help companies comply with the draft Companies (Miscellaneous Reporting) Regulations 2018 which are due to come into force on 1 January 2019.
The proposed Wates Principles are voluntary and companies can choose to adopt the most appropriate code for them, or none at all as long as they explain why this is the case and what other governance arrangements have been made. More broadly, the FRC hopes that the Wates Principles will help companies of all sizes understand good practice in corporate governance and not just those caught by the new legislation.
There are six principles and each principle is supported by non-exhaustive guidance. The principles are:
- Purpose: an effective board promotes the purpose of a company, and ensures that its values, strategy and culture align with that purpose.
- 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.
- Responsibilities: a board should have a clear understanding of its accountability and terms of reference. Its policies and procedures should support effective decision-making and independent challenge.
- Opportunity and risk: a board should promote the long-term success of the company by identifying opportunities to create and preserve value and establish oversight for the identification and mitigation of risk.
- Remuneration: a board should promote executive remuneration structures aligned to sustainable long-term success of a company, taking into account pay and conditions elsewhere in the company.
- Stakeholders: a board has a responsibility to oversee meaningful engagement with material stakeholders, including the workforce, and have regard to that discussion when taking decisions. The board has a responsibility to foster good relationships based on the company’s purpose.
Responses to the consultation are requested by 7 September 2018 and we understand that the final principles and guidance will be published in December 2018.