Corporate governance is important and beneficial for private companies, too
November 22, 2022
Corporate governance can seem like a daunting task for any organization to undertake. Some organizations do it because they fall within specific codes, others consider doing it, but the thought and the process overwhelms them to a point of choosing to do the bare minimum, or nothing at all. It is important for companies to view corporate governance as a core element within the business, as it creates a clear set of principles by which to run and, where necessary, improve the running of the business, such as transparency, stakeholder engagement (including shareholders, the workforce as well as the public), risk management, market confidence and trust.
The Wates Principles which were introduced in December 2018 encourage all large private companies (more than 2,000 employees OR a turnover of more than £200 million and a balance sheet of more than £2 billion), to disclose their corporate governance arrangements (i.e. how the codes are applied). These principles are designed to be flexible enough to help companies which had not formerly been required to publish a corporate governance statement to establish a corporate governance framework for their business. If companies choose to adopt them, the proposed approach is ‘apply and explain’ which allows Boards to explain, in their own words, how they have addressed each of the principles in their governance practices within their Company, and if necessary, to explain areas of non-compliance.
There are six high level corporate governance principles, which are supported by practical guidance to eliminate the tick-box exercise approach. They are:
It may initially seem difficult to implement. However, having attended ‘The Wates Principles – Next steps in good practice and reporting’ event at the Financial Reporting Council in October 2022, and listening to some company representatives on their transition towards adopting the principles, their journeys were not smooth, but the Wates Principles did help their companies to identify potential gaps in their corporate governance.
Having advised firms on their corporate governance, we can advocate that the flexibility and the ‘apply or explain’ approach helps businesses tell their unique story, realizing that the information required is something they were in the process of doing or already doing, just not documented in a structured manner. It is our view that the Wates Principles assist companies to be more transparent, to build trust with stakeholders and to have better corporate governance.
Our consultants’ areas of expertise include corporate governance. Should you want to have someone help you explore more on corporate governance, please contact Yolanda Roach.