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Corporate governance principles for large private companies

Jun 14, 2018
The Financial Reporting Council (FRC), on behalf of James Wates CBE, has published a consultation on corporate governance principles for large private companies. Development of the principles follows the UK Government’s 2016 Green Paper and the BEIS Select Committee’s report of April 2017, which considered the need for improved transparency and accountability in this area.

Known as the Wates Corporate Governance Principles for Large Private Companies, the principles are the result of significant debate and exploration, including a review of similar codes in other countries and consultation with experts and representative bodies. Large private companies will be encouraged to follow six principles to inform and develop their corporate governance practices and adopt them on an ‘apply and explain’ basis.

James Wates CBE, Chair of the Coalition Group that developed the principles, said: "Good business well done is good for society. Private companies are a significant contributor to the UK economy, providing tax revenue and employing millions of people. They have a significant impact on people’s lives, and it is important they are well-governed and transparent about how they operate.

"These principles will provide a flexible tool for companies of all sizes, not just those captured by the new legislative reporting requirement, to understand good practice in corporate governance and, crucially, adopt that good practice widely. The principles are about fundamental aspects of business leadership and performance."

The six 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; and
  • 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.
The consultation is open until 7 September 2018. Responses should be sent to corporategovernanceprinciples@frc.org.uk. The final version of the Wates Principles for Corporate Governance will be published in December 2018.

Source: Financial Reporting Council.