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The Wates Principles and governance in large private companies

What do the Wates Principles consist of?

Risk & Analytics|Corporate Risk Tools and Technology|Risk Management Consulting
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By Frederick Gentile | February 9, 2021

This report outlines the reporting conditions that apply to large private companies.

The requirement to comply with corporate governance guidelines and regulations has always been viewed as the exclusive domain of UK listed companies. Since the inception of UK Corporate Governance Code (the Code) in 1992 by the Cadbury Committee, following several major corporate scandals associated with governance failures in the UK, the Code has undergone a number of iterations and is today overseen by the Financial Reporting Council.

Throughout its career the Code’s guiding principles have been directed at listed companies in particular but with an eye on the business community at large. Other than complying with the requirements of the Companies Act 2006 and other relevant legislation, private companies have always benefited from the privileges of limited liability status and therefore not subjected to the same level of reporting and accountability.

As of June 2018 this position has changed.

New legislation

In June 2018 the Government introduced secondary legislation. The Companies (Miscellaneous Reporting) Regulations 2018 now requires all companies of a significant size, that are not currently required to provide a corporate governance statement, to disclose their corporate governance arrangements as set out below:

Section 26 (1) and (2) of the Regulations1 require that the directors’ report must include a statement which states:

  1. a) which corporate governance code, if any, the company applied in the financial year; and

    b) how the company applied any corporate governance code reported under sub-paragraph (a); and

    c) if the company departed from any corporate governance code reported under sub-paragraph (a), the respects in which it did so, and its reasons for so departing.

  2. If the company has not applied any corporate governance code for the financial year, the statement of corporate governance arrangements must explain the reasons for that decision and explain what arrangements for corporate governance were applied for that year.

This new reporting condition applies to private companies that meet either or both the criteria set out below.

The company has more than 2,000 employees.
A turnover of more than £200 million, and a balance sheet of more than £2 billion.

Unravelling legislation can be complex and confusing thus the Government commissioned a group of industry leaders (The Coalition Group) to prepare principles to help those companies which are subject to the thresholds comply with the regulations.

This group has developed The Wates Principles2, which introduce an approach to good corporate governance that offers sufficient flexibility for a diverse range of companies to explain the application and relevance of their corporate governance arrangements, without being unduly prescriptive.

To read the full guidance on how things will change and who this will affect, please fill in form on the right to download the full guidelines.

Footnotes

1 https://www.legislation.gov.uk/uksi/2018/860/regulation/14/made?view=plain

2 https://www.wates.co.uk/who-we-are/corporate-governance/

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