“I believe that good business, well done, is a force for good in society,” said Wates Group chairman James Wates at the launch of the self-titled corporate governance code for large private companies in the UK.

“Principles are a tool for large private companies that helps them look themselves in the mirror, to see where they’ve done well and where they can raise their corporate governance standards to a higher level,” he added.

The principles that set the framework for the code include purpose and leadership, board composition and responsibilities, risk management, remuneration and stakeholder engagement.

Janet Williamson, TUC senior officer for corporate governance, pointed out that recent corporate scandals impacting on staff and their ecosystem of suppliers and customers have “battered” companies’ reputation.

They “are not just a few bad apples but the hard edge of wider trends in business and employment models”, said Williamson.

The recognition that the Wates Principles gives to the importance of a company’s social and environmental footprint—in line with the expectations upon public companies—shows that good governance is “not an optional extra”.

Questions

But, while the code aligns itself with directors’ responsibilities under the Companies Act, questions to be answered include: how seriously will these new principles be followed and reported on?

“In one sense, large private companies will have to take governance reporting seriously as it will be a regulatory requirement,” suggested Institute of Directors’ head of corporate governance Roger Barker. “However, it remains to be seen how meaningful this reporting will be.”

Without the same level of scrutiny from swathes of shareholders, Barker says it will be “interesting” to see how compliance and reporting will be monitored by regulators, industry participants and the media.

Private companies that “embrace” this new framework of governance transparency stand to benefit from a significant boost to their reputation, believes Barker. “However, those that choose a minimal, compliance-driven approach may not necessarily be subject to significant challenge, at least in the short term.”

As Barker suggested, other stakeholders will have to fill the void of institutional investors—and the TUC’s Williamson said that her organisation will be proactive in monitoring and engaging on compliance.

Benefits for workers

“The principles can help reset the relationship between companies and key stakeholders, including their workforce,” said Williamson.

“For trade unions, the potential benefit for workers is clear. We also believe there’s a strong business case for putting the principles into practice. And we will work with the FRC and others to put that case to business and persuade as many firms as possible to make it happen.”

Tracey Brady, MD of investor services firm Link Asset Services, said the principles “are not a silver bullet”, but “will encourage more robust decision-making and help directors comply with their existing statutory duties”.

Whether other parties will use the principles to help drive improvements, or whether the companies themselves will leverage them to drive change, remains to be seen.