HPC response to consultation on the Wates Principles for the governance of privately-owned companies
Large private companies should be subject to the same high standards of stakeholder engagement as publicly-listed counterparts
Earlier this year, the Financial Reporting Council issued the Wates Corporate Governance Principles for Large Private Companies. The principles set out six key aspects of governance on which large companies should report publicly:
- Purpose – An effective board promotes the purpose of a company, and ensures that its values, strategy and culture align with that purpose.
- Composition – Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the company.
- Responsibilities – A board should have a clear understanding of its accountability and terms of reference. Its policies and procedures should support effective decision-making and independent challenge.
- Opportunity and Risk – A board should promote the long-term success of the company by identifying opportunities to create and preserve value and establish oversight for the identification and mitigation of risk.
- Remuneration – A board should promote executive remuneration structures aligned to sustainable long-term success of a company, taking into account pay and conditions elsewhere in the company.
- Stakeholders – A board has a responsibility to oversee meaningful engagement with material stakeholders, including the workforce, and have regard to that discussion when taking decisions. The board has a responsibility to foster good relationships based on the company’s purpose.
The High Pay Centre has now responded to the FRC's consultation on these principles. We are strongly supportive of the proposed new reporting requirements - large private companies can have just as much an impact on society and the wider environment as their publicly listed companies. As such, we feel that certain principles should be more specific in terms of their requirements of the companies, so as to ensure that they engage with them in a meaningful way. For example, large private companies should be compelled to offer workers representation at board level in order to demonstrate proper stakeholder engagement. Companies should also be required to show how they measure their societal and environmental impact, and how they act on this information.
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