August 21, 2024 Wates Principles favoured by large private companies
In January 2024, the Financial Reporting Council (FRC) issued an update to its corporate governance code which applies to all companies with a premium listing on the London Stock Exchange. Flexible in nature and with a ‘comply or explain’ model at its heart, this code could also be adopted by other entities.
But it is by no means the only option for companies looking for corporate governance guidance. The Quoted Companies Alliance (QCA) corporate governance code was drawn up with the needs of AIM companies in mind. As with the FRC code, its flexible nature enables it to be suitable for other organisations.
Large private companies may also look towards the Wates Principles for their governance arrangements. Launched in December 2018, the Wates Principles provide “a framework to help companies to meet legal requirements while promoting long term success.” This code was designed to provide a corporate governance structure for large private companies which meet either or both of the following criteria:
- more than 2,000 employees;
- a turnover of more than £200 million, and a balance sheet of more than £2 billion.
Research led by the University of Essex released by the FRC in August 2024 has revealed that the Wates Principles continue to be the most commonly adopted code amongst large private companies. The research was released as part of a wider review into the ways in which companies are using the code. This builds on an earlier study, enabling researchers to highlight ongoing strengths and weaknesses in company adoption of the code.
On a positive note, the latest research reveals an overall improvement in company disclosures. For example, more companies reported on the way in which their business practices were aligned with their purpose. On the other side of the coin, the researchers found there was a tendency for ‘boilerplate disclosures’ in place of comments which specifically linked board activities to purpose, strategy, culture and values. This finding isn’t confined to companies following the Wates Principles, with other reviews making the same observation in respect of companies which have adopted other codes.
Commenting on the review Mark Babington, the FRC’s Executive Director of Regulatory Standards said: “The research highlights the need for increased transparency and accountability among large private companies, particularly as they are a driver of growth in the UK and have a significant impact on the economy and on wider stakeholders.”
Elemental provides specialist corporate governance services to organisations including governance framework reviews and boardroom evaluations and training.
