IoD Responds to Analysis of Application of Wates Governance Principles to Large Private Enterprises

The Financial Reporting Council (FRC) and the University of Essex have just released their first assessment of how large private companies are meeting their new governance reporting requirements.

Under the Companies (Miscellaneous Reporting) Regulations 2018, large companies with more than 2000 employees and/or a turnover of more than £200 million and a balance sheet of more than £2 billion sterling must now publish a corporate governance statement for financial years on or after January 1, 2019. In this statement, they can choose to refer to their application of the Wates Principles or to the recommendations of another governance code. business.

Commenting on the report’s findings, Dr Roger Barker, Director of Policy and Corporate Governance at IoD, said:

“Although this is only the first year that large private companies have been subject to these new governance requirements, it is nevertheless disappointing that a third of the companies examined in the study did not publish a report on corporate governance. ‘business.

“Furthermore, less than a third of the companies surveyed chose to use the Wates Principles as a benchmark for good governance, despite adapting the Principles to their specific context.

“There is an urgent need to understand why so many companies – all of which are significant entities – have not found it necessary to disclose their governance arrangements. A credible governance framework is an essential means of gaining the trust of stakeholders and society at large, not only for listed companies but for all types of organisations. Therefore, the lack of meaningful governance disclosure is a missed opportunity for both the companies themselves and the broader business community.

“Among companies that have issued a corporate governance statement, the report painted a mixed picture in terms of the quality of information. A number of companies were highlighted as demonstrating a significant level of disclosure on specific issues and deserve credit for taking governance seriously.

“However, in general there was a lack of detail on how governance principles were applied in practice. Disclosure of corporate purpose was highlighted as an area where many companies need to up their game.

“Going forward, there is still work to be done to convince some large private companies that good governance is an opportunity and not a burden. The pandemic may have disrupted the plans of some to be more active in this area. But, as we emerge from the pandemic, we must encourage entities of all sizes to develop a governance base that is proportionate and clearly communicated to stakeholders.

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