Newsflash – FRC insights on reporting by large private companies on the Wates Principles
The Financial Reporting Council (FRC) has released insights on reporting by large private companies on their application of the Wates Corporate Governance Principles for Large Private Companies (the Wates Principles). The report outlines key reporting trends and includes helpful examples of disclosure from companies of different sizes and levels of complexity.
The report is based on a review of the corporate governance statements of a sample of companies that have chosen to adopt the Wates Principles. The purpose of these insights is to assist organisations in improving the clarity, transparency and effectiveness of their disclosures. Additionally, the FRC offers suggestions on how to make reporting more straightforward and succinct.
The report draws out the following findings for each of the Wates Principles:
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Principle |
FRC reporting insights |
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Purpose and Leadership. An effective board develops and promotes the purpose of a company, and ensures that its values, strategy and culture align with that purpose. |
Reporting was generally of lower quality compared to reporting against other principles, often appearing generic without any specific detail or examples. Good reporting against Principle One sets out a company’s purpose and explains how it underpins other strategic decisions. Companies could consider demonstrating the role of the board in establishing and communicating the purpose of the company. |
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Board Composition. Effective board composition requires an effective chair and balance of skills, background, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the company. |
Transparent reporting on board composition is important to help stakeholders understand who is responsible for oversight of the company. This is an area where reporting was often boilerplate. Companies should focus on providing specific information and insights into the governance arrangements and board composition. In cases where a Board is lacking in diversity, companies should acknowledge any gaps identified and outline how they intend to address those. |
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Directors Responsibilities. The board and individual directors should have a clear understanding of their accountability and responsibilities. The board’s policies and procedures should support effective decision making and independent challenge. |
Companies are encouraged to set out their lines of accountability and explain who is responsible for decision making in the organisation. When reporting on board committees, disclosures should be clear, purposeful, and relevant, avoiding unnecessary length or duplication in the annual report. |
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Risk and Opportunities. A board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks. |
While many companies report on the role of the board in considering and assessing how a company creates value over the long-term, fewer companies report on processes in place to identify opportunities. Transparent reporting on these processes provides stakeholders with information to hold the company to account and enhances stakeholder confidence. |
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Remuneration. A board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company. |
Better reporting in this area would provide an insight into decisions regarding remuneration and how performance over different timeframes, short and long-term, is factored into remuneration decisions. Good reporting against remuneration also includes how pay levels are set. |
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Stakeholder Relations and Engagement. Directors should foster effective stakeholder relationships aligned to a company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions. |
Disclosures against this Principle are generally of a high standard, reflecting thoughtful and meaningful engagement. Companies that report most effectively on stakeholder engagement explicitly reference relevant parts of their section 172 statement and outline specific board decisions made during the reporting year, together with their outcomes. |
In general, the FRC encourages companies applying the Wates Principles to use this report as a resource to enhance the clarity of their governance reporting. This can be achieved by emphasising outcome-focused disclosures, incorporating cross-references and minimising repetitive information.
To read the full report click here.
'Apply and explain' vs 'comply or explain'
The Wates Principles continue to be the preferred corporate governance code for large private companies in the UK. In this context, the FRC has also issued a guide explaining the "apply and explain" approach of the Wates Principles, detailing how and why it differs from the UK Corporate Governance Code applicable to listed companies in the UK. The guide includes the following explanation:
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The Difference Explained |
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The Wates Principles (Apply and Explain): A set of six overarching principles that organisations adopt in a manner tailored to their specific circumstances, providing an explanation of their approach within their annual reports. |
UK Corporate Governance Code (Comply or Explain): Organisations are required to adhere to the Code’s provisions or justify any deviations by detailing alternative approaches and explaining their suitability. Additionally, they must outline how the Principles have been implemented. |
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Why the Difference Matters |
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For Private Companies: With diverse ownership structures such as family-owned, private equity, or sole proprietorship, and typically more direct stakeholder needs, this flexibility ensures that governance supports and enhances business performance. |
For Listed Companies: Shareholders depend on public information to evaluate and compare investment opportunities. Transparent public disclosures and consistent governance practices help maintain market confidence. |
Tracy Gordon
