The UK’s Financial Reporting Council (FRC) has published a consultation on a set of six principles which large private companies will be encouraged to follow to inform and develop corporate governance practices.
Known as the Wates Corporate Governance Principles for Large Private Companies, the publication was developed following the release of a UK Government Green Paper in 2016 which investigated the role of corporate governance in large private companies and asked whether such companies should meet minimum corporate governance reporting standards.
In January 2018, the UK’s secretary of state for business, energy and industrial strategy Greg Clark established the coalition group, chaired by James Wates, to develop the principles for public consultation.
The six principles in the report 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.
- 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 and the final version of the Wates Principles for Corporate Governance will be published in December 2018.
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