Only one third published statements in accordance with Wates principles, according to FRC study.
The failure of one third of large private corporates to publish corporate governance reports following the introduction of new UK disclosure requirements has been described as “disappointing” by the Institute of Directors.
Non-listed firms with £2 billion-plus balance sheets are required to publish a corporate governance statement for financial years from January 2019, referencing either their application of the Wates Principles or a comparable code.
But a study published last week by the Financial Reporting Council (FRC) found that approximately one third of the 1,200 firms assessed had not yet published a corporate governance report, while a further third did not used the Wates Principles to benchmark their governance arrangements.
Dr Roger Barker, the IoD’s Director of Policy and Corporate Governance, said the study’s findings were “disappointing”, adding that there was a “pressing need” to understand the firms’ lack of communication on governance.
“A credible governance framework is a key means of winning the trust of stakeholders and wider society, not just for listed companies but for all kinds of organisations,” he said. “The absence of meaningful governance disclosure is a missed opportunity for both the companies themselves and the wider business community.”
Barker also said the published corporate governance statements “painted a mixed picture”, noting a general lack of detail from firms on how governance principles were being applied in practice.
The Wates Corporate Governance Principles were developed specifically to help large private firms to provide corporate governance statements in line with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018. Its six principles include purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder relationships and engagement.
The FRC said its research, conducted with the University of Essex, showed that privately-held firms were “grasping the spirit” of the Wates Principles in their governance reporting, with the principles being used “as a tool for self-reflection and improvement”.
“Our research found that companies have been providing good levels of disclosure in terms of general information about their formal policies but relatively lower levels of disclosure when it came to how these policies are applied in practice,” it said.
Peter Swabey, Policy and Research Director at the Chartered Governance Institute of UK and Ireland, said the pandemic had impacted the adoption of the Wates principles.
“This report offers encouraging early indications that most of these large private companies are seeking to go beyond mere compliance with the regulations and offer meaningful reporting to their stakeholders about their governance,” he said, adding that the report also offered examples of good practice and guidance for future improvement.
The IoD’s Barker also recognised that the pandemic may have caused disruption to the efforts of private firms to implement the processes needed to produce corporate governance statements, but said more work was needed to highlight the upsides of communicating good governance practice.
“As we emerge from the pandemic, we must encourage entities of all sizes to develop a governance foundation that is proportionate and clearly communicated to stakeholders,” he said.
UK premium listed companies are subject to the Financial Conduct Authority’s Listing Rules, which require a statement of how firms have applied principles set out in the UK Corporate Governance Code.