On 10 December 2018 a new corporate governance code, The Wates Corporate Governance Principles for Large Private Companies, was launched. The principles provide a framework to support a private company meet their legal requirements whilst also promoting the long-term success of the business. Sir James Wates CBE, chaired a coalition group which developed the principles.
The Wates Principles focus on six key areas:
Principle one: 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.
This aligns with the duty placed on Directors under s172 of the Companies Act 2006 to promote the success of the company. Directors should act with integrity and lead by example, setting the tone from the top.
Principle two: board composition
An effective board requires an effective chair and a balance of skills and expertise. Directors should have sufficient capacity to contribute effectively, and the size of the board should align to the scale and complexity of the business.
Principle three: director responsibilities
The board and each director should be clear on their responsibility and accountability. Any policies and procedures should support effective decision making and there should be robust challenge from the board.
Principle four: opportunity and risk
The board should promote the long-term success of the company by identifying opportunities to create and preserve value. The board also has overall responsibility for strategic decision making and effective risk management and their role requires them to oversight risk and how risk is managed.
Principle five: remuneration
The board should set remuneration practices that align to the long-term sustainable success of the company. Remuneration should be fair and help retain high-quality staff. The board should establish clear policies on remuneration structures and practices, which should also take account of the pay and conditions of the wider workforce.
Principle six: stakeholder relationships
Directors should foster stakeholder relationship aligned to the purpose of the company. The board is responsible for engagement with a variety of stakeholder groups and should take into account the views of its stakeholder when taking decisions.
The Wates Principles offer all companies that are not subject to a formal corporate governance code the opportunity to consider their approach to governance and actions they take to demonstrate how they meet the Principles. A large company can use the Principles as a way of demonstrating its compliance with its obligations under The Companies (Miscellaneous Reporting) Regulations 2018. The Wates Principles also align with principles found in the UK Corporate Governance Code 2018 which many listed companies seek to follow.
However, there is a clear distinction between the Wates Principles and the UK Corporate Governance Code and that is that the Wates Principles are completed on an “apply or explain” basis rather than a “comply or explain” basis and the key focus for a large private company is to demonstrate how they have applied the Principles and this is often reported through their annual report.
Large private companies continue to play a significant role in society and many already comply with much of the UK Corporate Governance Code because it makes good business sense to do so. The introduction of the Wates Principles provides additional clarity for companies to demonstrate that they are well managed and aligned to a clear purpose.
