The importance of corporate governance for private companies
Paul George, Executive Director, Corporate Governance & Reporting Division, FRC writes:
Private companies are the most common type of corporate structure in the UK, accounting for over 96 per cent of all companies. They employ vast numbers of people, contribute significant revenue to the economy and are the backbone of British society. Their economic and social significance can be as great as that of publicly listed companies. But unlike their listed counterparts there has been very limited visibility of their corporate governance – until now.
Private companies benefit from limited liability status but are not subject to the same reporting requirements and accountability as publicly listed companies. But just like public companies, if problems occur in large private companies they can affect a wide range of stakeholders including customers, the workforce, pensioners, suppliers and the community. Trust in business has been dented following several high-profile failures, and there is keen public interest in seeing companies operate with higher standards, greater transparency and accountability, and fair treatment of stakeholders.
These drivers have led to the development of the draft Wates Corporate Governance Principles for Large Private Companies. The Principles have been developed by a coalition of organisations chaired by James Wates CBE. They propose six principles to assist large private companies to demonstrate effective governance in particular to help those companies caught by expected new legislation and other companies who aspire to demonstrate good governance: Purpose; Board Composition; Board Responsibilities; Opportunity and Risk; Remuneration; and Stakeholders. They will set the standard of expected behaviour and transparency for the UK’s largest private companies to aspire to.
We live in an age where the public expects business to operate to ever higher standards. It is no longer acceptable to be perceived to operate behind a veil of secrecy. Media and politicians in particular are quick to call out instances where they see unacceptable practices. Social media very quickly fuels concerns when things start to go wrong within companies. Business needs to regain the high ground. That’s true of all companies. Trust, respect and confidence are vital to the long-term success of businesses whether they are private or public.
UK corporate governance has a well-earned reputation globally and is a significant factor in the attractiveness of listed British businesses to investors around the world. Many large private companies operate effectively in the public interest. The Wates Principles will introduce a set of common corporate governance standards that will help reinforce the UK’s deserved reputation as a great place to do business.