The UK Financial Reporting Council has published a consultation on corporate governance principles for large private companies. Large private companies are defined as all companies that do not have an existing corporate governance reporting requirement and satisfy either or both of the following conditions:
o more than 2000 employees;
o a turnover of more than £200 million, and a balance sheet of more than £2 billion.
The six principles 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.
These principles are also referred to as the Wates Principles and are the result of significant debate and exploration, including a review of similar codes in other countries and consultation with experts and representative bodies. Large private companies will be encouraged to follow six principles to inform and develop their corporate governance practices and adopt them on an ‘apply and explain’ basis.
This new reporting requirement will apply to financial years beginning 1 January 2019 with reporting to start in 2020. The consultation is open until 7 September 2018.