The principles are essentially a corporate governance code for private companies. However, they take a very different approach to the FRC Corporate Governance Code which sets out a list of requirements users have to comply with or explain non-compliance. Instead James Wates CBE (Chairman of Wates Group) has developed six core principles and asked companies to explain their application of these in their annual report.
The ‘Wates Principles’ apply to UK Companies that meet one of the following two criteria:
- More than 2,000 employees; or
- Both a turnover of more than £200m and a balance sheet of more than £2bn.
The six principles to explain compliance with in the Director’s report are:
- 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.
- Board Composition - Effective board composition requires an effective chair and a balance of skills, backgrounds, 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.
- Board 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.
- Opportunity and Risk - 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.
- 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.
- Stakeholder Relationships and Engagement -Directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decision.
Channel Island entities are currently not required to apply the Wates Principles but if they have UK subsidiary groups or individual entities that meet the two criteria above then they would have to apply the code.
KPMG’s report on the Wates Principles can be read here and the Wates Principles themselves are available here.