This week the Government published draft regulations which require companies with more than 2000 employees or a turnover of more than £200 million and a balance sheet total of more than £2 billion to include a statement about their corporate governance arrangements in the directors’ report. These provisions apply for financial years beginning on or after 1 January 2019.
The statement, which must be published on a website, must state which corporate governance code, if any, the company has applied and how. The provisions will not apply to companies that already produce a corporate governance statement (i.e. premium/standard listed and AIM companies).
The FRC have produced for consultation the Wates Corporate Governance Principles (“Wates Principles”) intended to help large private companies comply with the new legislation. The proposed Wates Principles are voluntary and companies can choose to adopt the most appropriate code for them or none but if none, they must explain why this is the case and what arrangements have been made. Comments on the Wates Principles are requested by 7 September 2018.
The Wates Principles
The draft Wates Principles, which adopt the “comply and explain” approach, include the following:
- Purpose and Composition: the requirement for a balanced and effective board i.e. sufficient (in size and structure) to meet the strategic needs and challenges of the organisation;
- Responsibilities: a company should establish formal and robust internal processes to ensure systems and controls are operating effectively;
- Opportunity and Risk: a board should consider and assess how the company creates and preserves value over the long-term including an assessment of risk mitigation and identify opportunities for innovation and entrepreneurship;
- Remuneration: executive remuneration structures should be aligned to the sustainable long-term success of a company; and
- Stakeholders: (i) the board should present a fair, balanced and understandable assessment of the company’s position and prospects and make this available to its material stakeholders on an annual basis, and (ii) companies should develop methods that enable them to engage meaningfully with their workforce.
It is expected that these Principles will be widely adopted and become a commonly used code of practice for a broad range of private companies (BEIS).
View the Wates Corporate Governance Principles – consultation paper