The Financial Reporting Council (FRC), the UK’s audit regulator, has published a code for the corporate governance of large private companies aimed at helping them meet legal requirements and achieve long-term success.
It comes in response to concerns that while privately-owned companies are not subject to the same level of reporting and accountability requirements as publicly listed companies, their economic and social significance can be as great – and when problems occur there are comparable risks to a wide range of stakeholders.
The code was developed by a coalition established by the FRC and chaired by James Wates, chairman of Wates Group, the privately-owned construction company.
It was intended to help companies comply with recent UK regulations on governance reporting, the FRC said, and applied to companies with more than 2,000 employees, or a turnover of more than £200m (€221m) and a balance sheet of over £2bn.
The code listed six “Wates Principles”, covering purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration, and 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.
- Boards should have a clear understanding of the views of shareholders including those with a minority interest. Boards will appreciate the importance of dialogue with the workforce and wider stakeholders around the company’s stated purpose and be proactive in ensuring it takes place.
- The board should establish clear policies on remuneration structures and practices which should enable effective accountability to shareholders.
- The board should present to stakeholders a fair, balanced and understandable assessment of the company’s position and prospects and make this available on an annual basis.
- Boards should ensure that there are channels to receive appropriate feedback from discussions with stakeholders.
Wates said: “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 how they go about implementing the principles. That’s the sort of transparency that can build the trust of stakeholders and the general public.”
Chris Cummings, chief executive of the Investment Association, the UK’s asset management trade body, added: “It is essential that both private and public companies operate with high standards of corporate governance to promote their long-term success and ultimately that of the UK economy. Recent instances of corporate failure and concerns over governance have damaged the public trust in business as a whole.
“These principles provide an important framework for private companies to articulate how they are delivering good governance and will help to build trust and confidence in the UK business community and wider society.”
The code is to take effect from 1 January 2019.