UK Proposes Governance Rules for Private Companies

UK Proposes Governance Rules for Private Companies

British financial watchdog group unveils six principles for large firms.

By Eve Tahmincioglu

The British financial watchdog group this week released six principles for large private companies, in an effort to have firms start taking corporate governance as seriously as their publicly traded counterparts.

The Financial Reporting Council (FRC) principles include governance recommendations on a host of shareholder and stakeholder issues such as executive pay and social issues.

The move was prompted by recent private company failures that impacted employees and communities. It was also a response to UK governments paper titled  the Green Paper, Corporate Governance Reform in 2016 that looked at the role of corporate governance at private companies and whether they should be required to meet certain basic board standards. Those standards were to be in lieu of actual mandated governance requirements for private companies; requirements that companies listed on exchanges have to abide by.

James WatesThe principles — titled The Wates Corporate Governanc Principles for Large Private Companies — were put together by the Coalition Group, chaired by James Wates, head of family-owned construction company Wates Group, and guided by the FRC.

In the report, Wates stated that:

I believe that good business, well done, is a force for good in society. But that doesn’t come automatically. Companies need clarity of purpose, grounded in social value, and a good steersman to help them deliver that value.

Here’s an overview of the principles of a successful board:

  • To promote the purpose of a company, and ensures that values, strategy and culture align with that purpose.
  • Composition with 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.
  • A clear understanding of accountability and terms of reference. Policies and procedures should support effective decision-making and independent challenge.
  • To promote the long-term success of the company by identifying opportunities to create and preserve value, and establishing oversight for the identification and mitigation of risks.
  • To promote executive compensation structures aligned to the sustainable long-term success of a company, taking into account pay and conditions elsewhere in the company.
  • 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 stakeholder relationships based on the company’s purpose.

You can see the entire document here.

Many of the principles in the report are must-haves for the winners of Private Company Board of the Year.