New FRC guide aims to improve governance in private companies
New guidance for the corporate governance of large private companies has been published by the Financial Reporting Council on Monday, aiming to encourage a wide range of companies to increase transparency and build public trust.
The new code offers guidance covering six areas: purpose and leadership, board composition, board responsibilities, opportunity and risk, remuneration, and stakeholder relationships and engagement.
It was drawn up over 12 months by group of organisations chaired by James Wates of Wates Group, with secretariat support from the FRC. As well as the CBI and the IoD, the group includes the British Private Equity and Venture Capital Association, the Climate Disclosure Standards Board, the Institute of Business Ethics, ICSA, the Institute for Family Business, the Investment Association, governance expert Mark Goyder, and the Trades Union Congress.
"I believe that good business, well done, is a force for good in society," Wates said. The Wates Corporate Governance Principles are a tool for large private companies that helps them look themselves in the mirror, to see where they’ve done well, and where they can raise their corporate governance standards to a higher level.”
The six principles are:
Purpose and Leadership – An effective board develops and promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose.
Board 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.
Board Responsibilities - The board and individual directors should have a clear understanding of their accountability and responsibilities. The board’s policies and procedures should support effective decision-making and independent challenge.
Opportunity and Risk - A board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks.
Remuneration - A board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company.
Stakeholder Relationships and Engagement - Directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions.
Reporting against these principles will take effect on 1 January 2019.
Speaking on behalf of the government, Greg Clark, the Business Secretary, said: “The UK is rightly recognised as having a leading business environment and responsible business practices, which are fundamental to making the UK one of the best places in the world to work, invest and do business.”
The new code from the FRC is aimed at preventing situations such as the collapse of BHS, where the retailer entered administration in 2016, putting 11,000 jobs at risk, after owner Sir Philip Green washed his hands of the whole business a year earlier.
The government’s Pensions Regulator decided to pursue Green as it saw him liable to the crash of schemes from BHS such as the pension scheme for its workers that were not properly handled for years before going into administration, while Dominic Chappell, who took over BHS and decided to pay himself a £540,000 salary in 2016 despite the company going bust, was later convicted for failing to provide information to the regulator and ordered to pay an £87,000 fine earlier this year.