Corporate Governance: FRC publishes reporting insights on the Wates Principles

In early December, the Financial Reporting Council (FRC) published its Reporting Insights on the Wates Corporate Governance Principles for Large Private Companies. This is the first report published by the FRC on the Wates Principles since it assumed oversight responsibility for them on 1 January 2025. 

The FRC hopes that its review will help companies in the next reporting year to think more widely about the Wates Principles and the corporate governance framework which they support. 

Summary

The FRC's review:

• found generally strong reporting on risk management and stakeholder engagement; but
• identified some areas for improvement in reporting on purpose, board composition and remuneration.

See FRC Insights below for the detail.

Who should be interested in this review?

Private companies currently reporting against the Wates Principles will benefit from reading the review and considering how they approach corporate governance reporting for the current financial year. Helpfully, the FRC makes it clear that: “There is no one way to do governance, it will always be a function of the way the board is led and the company’s culture, reflecting the maturity of the company – and to some extent the sector it operates within. We encourage companies to be transparent and bold in their reporting which will build trust with their stakeholders and lead to more successful organisations.”

Which private companies and unlisted public companies are required to publish a statement of corporate governance arrangements?

The requirement for certain private companies and unlisted public companies to publish a statement of corporate governance arrangements is contained in The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.

The reporting requirement applies to companies which satisfy either or both of the following conditions:

• more than 2,000 employees; and/or

•  turnover of more than £200 million and a balance sheet total of more than £2 billion.

The Wates Principles (see below for the detail) were prepared to help in-scope companies comply with this obligation. 

The Wates Principles

The six Wates Principles 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.
• Director 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 decisions.

FRC Insights

These can be summarised into the good, the bad and the ugly (with apologies to Sergio Leone).

The Good

Feedback received by the FRC indicates that:

• the Wates Principles provide a valuable corporate governance framework for large private companies; and
• the Wates Principles are particularly beneficial for organisations preparing for an IPO or seeking to enhance their governance practices more broadly. 

The FRC also identified some transparent and informative reporting in the corporate governance statements which they analysed.

The Bad

Reporting against Principles One (Purpose and Leadership), Two (Board Composition) and Five (Remuneration) continues to lack meaningful insight from many reporters.

The Ugly

The FRC also noted that the coherence and consistency of disclosures was likely impacted by various sections of the annual report being prepared by different individuals and teams.

The FRC encourages companies to:

• consider the annual report as a cohesive and integrated document;
• make use of cross-references; and
• reduce duplication within the report.

All of this in the FRC's view should make it easier for the reader to navigate and engage with the report.

Wates Principles vs the UK Corporate Governance Code?

The FRC has also produced an explainer illustrating the Wates Principles “Apply and Explain” approach, covering how and why it differs from the UK Corporate Governance Code for listed UK companies (UKLR 6 sets the requirements for companies with shares listed in the equity shares (commercial companies) (ESCC) category. 

How can we help?

If you would like to discuss this review or corporate governance in general, please speak to your usual contact at Burges Salmon or Nick Graves, head of the firm's Corporate Department.

Since bringing the Wates Principles in-house at the FRC, we've engaged with both companies and users of governance reports to understand how we can better support meaningful disclosures. This review reflects that feedback, providing practical examples and clear guidance to help private companies tell their governance story more effectively. The flexibility of the 'Apply and Explain' approach remains the framework's greatest strength, and we want to help companies use it to build stakeholder trust through clearer, more outcome-focused reporting. (Mark Babington, FRC Executive Director of Regulatory Standards)