17 April 2019
Following up on previous articles regarding director’s duties, the Financial Reporting Council published in December 2018 the Wates Corporate Governance Principles for large private companies. The intention of these corporate governance principles is to enable those companies to measure themselves against these principles with a view to improving their corporate governance standards. This provides a framework for these companies to establish a solid footing in terms of their management and vision.
Jeremy Glen, Partner
Whilst aimed at large private companies, the principles are a useful reference generally for boards.
The Wates Principles do not override or substitute for the directors’ duties set out in the Companies Act, but are intended to support such duties.
The six principles are as follows:
- 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;
- Board 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;
- Directors’ Responsibilities: the board and individual directors should have a clear understanding of their accountability and responsibilities. The board’s policies and procedures should support effective decision-making and independent challenge;
- Opportunity and Risk: a board should promote the long term sustainable success of the company by identifying opportunities to create and preserve value, and establishing oversight for the identification and mitigation of risks;
- Remuneration: a board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company;
- Stakeholder Relationships and Engagement: directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.
It is recognised that a one size fits all approach does not work in relation to corporate governance, especially given the variety of management and ownership structures among large private companies. These principles then are intended to be a high level approach to good corporate governance that can be applied by any large private company, but allowing for flexibility for each to explain the application and relevance of their corporate governance arrangements.
As mentioned at the outset of this article, these principles are designed for large private companies but are relevant to companies of all sizes to enable them to consider and improve their own corporate governance arrangement.
The Wates Corporate Governance Principles provide guidance in relation to each principle which brings each into focus to enable companies to consider how they can be applied.
Contact: Jeremy Glen, Partner, firstname.lastname@example.org T: 0141 221 8012