New Code launched for corporate governance of large private companies

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14 Dec, 2018

A new code for the corporate governance of large private companies has been launched.

In June 2018 the Government introduced secondary legislation (The Companies (Miscellaneous Reporting) Regulations 2018) which requires all companies of a significant size that are not currently required to provide a corporate governance statement, to provide a corporate governance statement, to disclose their corporate governance arrangements.  This applies for periods commencing on or after 1 January 2019.

The Coalition Group was asked to prepare principles to help those companies which are subject to the thresholds comply with the new reporting requirement.  By explaining the application of these Principles large private companies will be able to meet their obligations under The Companies (Miscellaneous Reporting) Regulations 2018. 

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.

A company which chooses to adopt the Wates Principles should follow them using an “apply and explain” approach in a way that is most appropriate for their particular organisation. Boards should be able to explain, in their own words, how they have addressed each of the principles in their governance practices.

By providing broad principles with supporting guidance, the intention of the Wates Principles is to move beyond a tick box approach to describing and explaining how the company’s governance practices achieve the principles and demonstrate the desired outcomes. This approach offers increased transparency for stakeholders and links to the other new reporting requirement on how the directors have discharged their section 172 duty. Cross-referencing is encouraged – there is no need to duplicate information.

There is no obligation on companies to adopt these principles but the intention is that the Wates Principles provide an approach to corporate governance that offers sufficient flexibility for a diverse range of companies without being too prescriptive.

A press release the Wates Corporate Governance Principles can be found on the Financial Reporting Council (FRC) website.  Our related Governance in brief publication is available here.

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