A new code for the corporate governance of large private companies has been launched, providing a framework to meet legal requirements and to promote long-term success among private companies
The Financial Reporting Council (FRC) has set out the final details of its plan to raise corporate governance standards for private companies.
The tougher regime was created for the FRC by construction group chairman James Wates to help prevent major private company corporate failures.
It outlines plans to restore trust in businesses with a boardroom code that sets out the main executive’s purposes, structure and remuneration, which should be aligned to the long-term success of the firm and reflect pay elsewhere in the business.
This new reporting requirement applies to all companies that either employ more than 2,000 staff or have over £200m revenue.
The Wates Principles report seeks to encourage these companies to adopt a set of key behaviours to secure trust and confidence among stakeholders and benefit the economy and society in general.
Commenting on the Wates Principles report, James Wates 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.”
The six Wates Principles
- 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.