UK Governance Principles Could Inform All Private Companies
A set of principles that were part of a new law in England requiring large private companies to disclose their corporate governance plans could provide a framework for privately held firms beyond the UK.
The new mandate, which went into effect Jan. 1, and the principles that sprung from the process are known as the Wates Corporate Governance Principles for Large Private Companies.
A recent paper by EY analyzing the law looks at the Wates guidelines and states that they “are high level enough to provide flexibility in the context of a wide variety of ownership structures and there are a number of benefits of using the principles as a tool for engagement and improving governance practices.”
The Wates six principles include:
- 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.