‘Good business, well done, is a force for good in society.’
James Wates CBE
‘Corporate governance’ and ‘private companies’ haven’t historically been two terms found in the same sentence, due in part to the fact that private companies have been left to their own devices on all things governance related – that is, until now.
‘But is this needed?’ I hear you cry. Well let’s examine the current landscape…
Private companies account for over 96% of all companies in the UK and naturally contribute significantly to our economic and social prosperity. Broadly speaking though, much of their internal practices avoid the level of scrutiny that a company trading on the London Stock Exchange would be subject to under the UK Corporate Governance Code.
Why are the Wates Principles needed now?
The collapse of the large, privately owned retailer BHS in 2016 and the loss of 11,000 jobs drew public attention to the need for greater transparency and accountability for private companies. In an age of social media where bad news can spread like wildfire, it can no longer be accepted that a business can operate ‘under the radar.’
The financial landscape is also changing. Historically, these larger private companies would look towards a stock market listing as an expected step in their evolution. However, buoyant venture capital funding, together with a potential pre-BREXIT ‘wait-and-see approach,’ is keeping companies private longer. Gone is the dependency on capital markets for equity, and there seems to be a certain prestige with being labelled a ‘Unicorn.’
In order to recognise these developments, and to restore trust between business and the wider community, James Wates CBE and the FRC were tasked with designing a corporate governance framework for large private companies to follow, ultimately known as The Wates Principles.
- Purpose and leadership
- Board composition
- Board responsibilities
- Opportunity and risk
- Stakeholder relationships and engagement
The principles recognise that there is a variety of large private companies in the UK, with differing management and ownership structures meaning a ‘one-size-fits-all’ approach is not appropriate. Many of these types of businesses have thrived from their agile working practises, so limiting anything that stifles this is an important element which has also been considered.
As Wates points out, ‘We have kept them (Wates principles) flexible and high-level, with guidance provided not as requirements, but to help companies understand how they can apply the principles. After all, good corporate governance is not about box-ticking.’ 1
Agreed, corporate governance should not be perceived as a box-ticking exercise but a means of earning the trust and confidence of all stakeholders including customers, suppliers, employees and the wider community. It can also be argued that they can also act as a source of competitive advantage – after all, everyone wants to be associated with a business that is well managed, right?
If these principles remain flexible and high-level, I have no doubt that large private companies will embrace this new voluntary framework and that the implementation of a common set of corporate governance principles will help produce a positive impact on UK business.
If you’d like to learn more about how Shareworks supports UK private companies, feel free to drop me a line.