The Wates Principles for Large Private Companies - FAQs
Which companies do the Wates Principles Apply to?
The Principles offer all companies (not only private companies) that are not subject to other corporate governance codes or standards, a framework to assess and report upon their corporate governance.
Any company that is subject to the corporate governance reporting requirements of the Companies (Miscellaneous Reporting) Regulations 2018 can choose to use the Wates Principles as a means of compliance.
Why aren’t the Principles aligned with the UK Corporate Governance Code?
The Wates Principles take a different approach because they are for use by different types of companies than those which follow the UK Corporate Governance Code. In large private companies the ownership structure is different and there is a closer relationship between the shareholders, the management and directors.
Why are these Principles ‘Apply and Explain’, not ‘Comply and Explain’.
The Wates Principles require companies to think about their approach and explain what actions they have taken, and what outcomes have been achieved. This approach is aligned with that of the 2018 UK Corporate Governance Code, which requires companies to apply the principles (and comply or explain on the Provisions).
Why are subsidiaries required to report where their parent is subject to the UK Corporate Governance Code?
Subsidiaries are separate companies. Directors of all companies are subject to legal duties and it is right that a board of any company considers how it achieves long-term success and value. Subsidiaries should be able to explain their governance arrangements and how they relate to the parent company. It is important that there is clarity on the relationships and governance processes.
How do subsidiaries report if the parent company follows the UK Corporate Governance Code and fully applies it to the subsidiary?
Relationships between subsidiary companies and parents will differ widely. Many subsidiaries within a large group will be distinct entities and be run in a largely independent manner. The nature of a report prepared by a subsidiary to meet the requirements of The Companies (Miscellaneous Reporting) Requirements 2018 will depend on the governance structure applied across the group. Each group should consider their individual situation carefully.
Where a parent company clearly applies the UK Corporate Governance Code to a subsidiary it may not be necessary for the subsidiary to apply a different code or take specific additional action. In such circumstances the Annual Report and Accounts, along with the governance statement of the parent company, would need to fully explain the governance approach to its subsidiary. The parent should also ensure that the report encompasses information relevant to both the itself and the subsidiary.
The subsidiary company should report on the arrangements of the parent and how the relationship affects its governance. The subsidiary report would benefit from including hyperlinks to the parent company report to demonstrate the joined up approach to governance.