Raising the bar on Corporate Governance for Private Companies
13 February 2019
Until now formal regulation of corporate governance for companies in Northern Ireland and the rest of the UK has been confined to quoted public companies. That is all set to change with the advent of the Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations), which came into force on 1 January 2019. For the first time in the UK some unquoted companies will need to formalise their corporate governance arrangements and make additional disclosures in their annual reports for financial years beginning on or after 1 January 2019.
The new voluntary Wates Corporate Governance Principles for Large Private Companies (the Wates Principles), published by the UK’s Financial Reporting Council (FRC) in December 2018 are intended to provide a framework to enable large private companies to comply with these new statutory reporting requirements, where they are not already voluntarily complying with another corporate governance code.
In summary, the Regulations will require companies which meet the relevant thresholds to include the following content in their annual accounts:
- “Large” companies – a statement on how they have had regard to the factors listed in section 172 of the Companies Act 2006 (the general duty to promote the success of the company).
- Companies with more than 250 employees in the UK – a statement on how the directors have engaged with the employees.
- “Large” companies – a statement on how the directors have fostered relationships with suppliers, customers and others.
- “Very large companies” – a statement on which corporate governance code has been applied and how.
Companies subject to the new reporting requirements should start preparing now, if they have not already done so, for the first actual reporting under the new Regulations in 2020. For companies that do not already have these in place, systems and processes will need to be established for the initiation, capture and recording of company policies and board practices that will enable the company to comply with the new reporting requirements. The Wates Principles will provide a framework for this for some companies; others will have recourse to other corporate governance codes and guidance as flagged above.