A spate of high-profile corporate governance controversies, with fallout from the BHS scandal leaving a particularly sour taste, has rocked public trust in private business. To arrest declining trust levels, the FRC and a coalition of organisations chaired by James Wates, Chairman of the Coalition Group, produced The Wates Corporate Governance Principles for Large Private Companies encompassing businesses which employ over 2,000 staff or which have turnover of more than £200 million and a balance sheet of more than £2 billion. The six principles, operating on an apply or explain basis, are relevant to businesses whose financial year begins on or after 1 January 2019.
The Wates Principles
- Purpose – the board should promote the purpose of a company, and ensure that it aligns with the organisation’s values, strategy and culture.
- Composition – a board should have an effective chair and a balance of skills, backgrounds, experience and knowledge. The size of the board should reflect the scale and complexity of the business.
- Responsibilities – a board should have a clear understanding of its accountability, and policies and procedures should support effective decision making.
- Opportunity and risk – a board should promote the long-term success of the company by identifying opportunities to create value and overseeing the management of risk.
- Remuneration – the board should promote executive remuneration that contributes to sustainable long-term success.
- Stakeholders – the board should foster effective engagement and communication with stakeholder groups, including employees.
Companies which choose not to apply the Wates Principles must disclose what governance arrangements they do have in place and why the company considers these to be appropriate.
Key comments from the launch event in December 2018:
James Wates CBE – Chairman of the Coalition Group
- “Good business, well done, is a force for good in society.”
- “It [greater levels of trust in business] can only be achieved if companies think seriously about why they exist and how they deliver on their purpose.”
Janet Williamson – Senior Policy Advisor, Trades Union Congress
- “A company’s relationship with its stakeholders is an essential part of good corporate governance not an optional extra.”
Hugh Clarke – Non-Executive Chair, Institute for Family Business
- “Well developed and defined purpose is an essential foundation stone for long-term economic growth.”
The Luminous view
At the December launch event, James Wates stated that the principles provide “a tool for large private companies that helps them look at themselves in the mirror, to see where they've done well.” Although large private companies are not legally bound by the principles, they have significant impact on society and a diverse set of stakeholders who depend on their continued existence.
The Wates Principles will provide benefit to business and society alike; yet for many private companies, the increased emphasis on corporate governance is uncharted territory.
Here are our top tips for better reporting:
- Educate stakeholders by ensuring it is clear why your company exists and the value it creates for stakeholders. Ensure senior managers, the general workforce and affiliated businesses are aware of your culture and act accordingly.
- Transparency is key. Where a company experiences controversy, tackling it head on and maintaining an open line of communication can do wonders for levels of trust.
- A well-thought-out risk policy is not only indicative of long-term viability but helps to build stakeholder confidence in the management.
- Wherever possible, take steps to foster diversity. Highly diverse companies contain a wider spectrum of views and often experience higher levels of success.
If you'd like some initial advice on how best to put the Wates Principles into practice, please get in touch.