The impact of private companies on the UK economy
While stock market listed companies garner the lion’s share of the business news pages, private companies are a significant contributor to the UK economy. These businesses have a significant impact not just on the economy but on many people’s lives, and it is right that we expect from them high standards of corporate governance.
The Wates Corporate Governance Principles were developed in 2018 in response to government regulation requiring large private companies to publish a corporate governance report in their annual Directors’ Reports. More than just a tool for reporting, the Wates Principles serve as a mirror for companies to hold up to themselves – to assess their own governance and to make improvements. Companies that genuinely apply the principles and explain how they do so are not just jumping through regulatory hoops; they are actually improving their own governance – they are doing business better.
To satisfy the regulations, companies are free to apply a code of their choosing, so I am pleased that a research report recently published by the Financial Reporting Council reflects that more large private companies chose to report against the Wates Principles than any other option.
Of the more than 1,800 private companies in scope of the research, 547 chose to apply the Wates Principles.
When the government asked me to chair the coalition group that produced the Wates Principles, I was determined that they would be a tool that would be attractive to any of the very diverse companies that were covered by the regulation – whether family businesses, private equity owned, mutuals, subsidiaries of foreign entities, or other ownership models.
The Wates Corporate Governance principles for large private companies
The Wates Principles report seeks to improve corporate governance standards among private companies.
Wates Principles are a flexible framework for diverse companies
So we stuck to the core principles of good corporate governance that nearly everybody agrees on, providing a flexible framework that can be used both to illustrate the good work companies are already doing as well as areas where they need improvement.
Insights from the Financial Reporting Council’s research
The FRC’s research – the second such assessment of the quality of reporting by private companies following the Wates Principles – shows some strong and improving reporting practices, but many companies still struggle to define their company purpose and to link that purpose to strategy, culture and values. There is also much room for improvement in reporting on company-specific developments, rather than resorting to generic boilerplate text.
The key here is to be genuine and to apply the principles thoroughly. For example, to apply Principle One – Purpose and Leadership – keep in mind that the company’s purpose is not just a slogan; it’s got to be integrated into everything that the enterprise does.
Good reporting is not about borrowing language from other companies or keeping the same text year after year and just changing the numbers. It’s about articulating the unique challenges your company is facing and how you are addressing them.
Genuine, specific reporting gives stakeholders something that they can use to understand the business and see if they want to work with it. Good reporting communicates with, not at, the stakeholders – using clear language, and ultimately generating trust and understanding.
I know that businesses are doing great things for their workforce, business partners and communities, but often that is overlooked by government, the media and other commentators when a big corporate scandal hits. So it’s our responsibility in the business community to use the tools available to us, like the Wates Principles, to raise our standards and actively build trust. This helps to create the environment where government understands the value we provide and works with us as a partner in nurturing the economic impact we have.
Economic impact of companies using the Wates Principles
The 547 companies applying the Wates Principles have a combined annual turnover of more than £850 billion. Family businesses, as a sector, employ 14 million people in the UK and pay £200 billion in tax.
Business is the wealth generator for society. Doing good business is how we as a country achieve prosperity – creating jobs, delivering products and services that improve people’s lives, and generating the tax revenue that the government can invest in creating a fairer and more equitable society. Good governance, with the support of tools like the Wates Principles, should ultimately support us in delivering these powerful benefits.
