Gary Gray
In June 2018, the Wates Corporate Governance Principles for Large Private Companies were published as part of a UK Government consultation exercise, with the final principles expected to be revealed in December 2018.
The Wates principles are intended to provide a dedicated framework to large private companies to guide and direct them in matters of good corporate governance.
It is hoped that the principles will further promote the UK’s reputation as a global leader in corporate governance by enhancing transparency and accountability within its largest private companies, and ultimately helping to improve public trust in business.
The UK’s corporate governance framework already provides a series of codes by which companies can adopt and implement effective measures of control. The strongest of such corporate governance and reporting requirements apply to publicly listed companies.
The Companies (Miscellaneous Reporting) Regulations 2018 will require large companies (defined as those with either more than 2,000 employees or having a turnover of more than £200 million and balance sheet of more than £2 billion) to disclose which corporate governance code, if any, they applied during the financial year in question, and how they applied the code. If there had been any departures from the requirements of the code, these must also be disclosed, for financial years beginning on 1 January 2019 onwards.
The reporting practice which flows from The Companies (Miscellaneous Reporting) Regulations 2018 will require companies to adopt an “apply and explain” approach to the disclosure of how the Wates Principles are applied, including explaining any deviation from them.
Companies that adopt the principles are expected to apply them fully, rather than extracting principles from several different codes. Equally, it is not intended that guidance be applied in a “tick-box” manner. Those who adopt the principles will be encouraged to provide a written explanation in the directors’ report and company website of how the application of the principles has resulted in improved corporate governance outcomes. Nothing in the principles is intended to override responsibilities of directors set out in the Companies Act 2006.
Whilst there will be some time before the publication of financial statements which will include the relevant statements on how the code has been applied, there will be interest in the approaches taken by those large private companies who don’t presently adhere informally to any of the other existing codes. It is hoped that those large private companies falling within the remit of these new regulations will embrace the spirit of this new code, providing those dealing with such companies a greater level of transparency into the decision making and engagement practices from the application of the Wates Principles.
Gary Gray is head of company secretarial services at Burness Paull LLP.
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