Private limited companies are the most widely recognised corporate structure in the UK, yet they do not currently follow a formal corporate governance code or have the same reporting requirements and accountability as public companies, but this is set to change for large private companies.
The new regulations will require companies of a significant size to disclose details of all corporate governance arrangements in their directors’ reports, and on their websites, including if they follow any formal codes, such as the Wates Corporate Governance Principles.
The Principles have been established by a Coalition Group lead by the appointed chair, James Wates CBE. James Wates is also the Chairman of one of the UK’s largest family-owned construction firms, the Wates Group, based here in Surrey.
The Wates Principles will apply to private companies that meet the following criteria:
- more than 2,000 staff; and/or;
- turnover above £200m and a balance sheet of more than £2bn.
The Principles will follow the same basis as the UK Corporate Governance Code to “comply or explain”. They are therefore not compulsory but any deviations will need to be justified.
There are six draft Principles, each supported by a short explanation. These are as follows:
- 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 risks.
- Remuneration: a board should promote executive remuneration structures aligned to the 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 stakeholder relationships based on the company’s purpose.
Companies that meet the criteria must publish a statement of their corporate governance arrangements in their directors’ report. This includes subsidiaries of listed companies and subsidiaries of parent companies that prepare a consolidated directors’ report. In circumstances where a subsidiary (but not the parent) meets the criteria, and the parent prepares consolidated group accounts, the parent company would not have to publish a corporate governance statement in the group directors’ report.
The public consultation of the draft Principles and guidance will close on 7 September 2018. The final Principles and guidance are expected to be published in December 2018 and will apply to companies with a reporting period starting on or after 1 January 2019.
Guidance can be found by clicking here
The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP