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Wates corporate governance principles for large private companies

08 January 2019

The Financial Reporting Council (FRC) has published new (voluntary) corporate governance principles designed for large private companies. The Wates Principles are intended to be the key code for companies that will be required to publish a Statement of Corporate Governance Arrangements for periods beginning on or after 1 January 2019 (ie companies that have 2,000 employees and/or a balance sheet total of more than £2bn and turnover of more than £200m).

As private companies have no reliance on the public equity markets, the focus on shareholder protection and communication is a less important aspect of corporate governance. In general, shares are held by a smaller group of more involved investors and the objectives and actions of the company may be more heavily influenced by the needs of those individuals. Therefore, the six Wates Principles focus more on wider stakeholder needs as follows:

  • 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.

How will companies applying the Wates Principles report their arrangements?

Companies within the scope of the requirement to publish a Statement of Corporate Governance Arrangements (as we highlighted in Business Edge in July 2018) and that choose to apply the Wates Principles, will need to present disclosures on an ‘apply and explain’ basis. The guidance within the Wates Principles requires boards to apply each principle in the most appropriate manner for the company’s specific circumstances. Companies should then be able to explain how those principles have been addressed in clear, concise and entity-specific language. The intention of the Wates Principles is to move away from a ‘tick box’ or ‘comply or explain’ approach to implementing and describing governance arrangements. 

Read - The Wates Corporate Governance Principles for Large Private Companies.