Research looking at disclosures against the Wates Corporate Governance Principles for private companies finds an “over-reliance” on boilerplate reporting, with “high levels” of statements showing a  similarity between companies and between reports by the same company in different years.

However, researchers also found that the Wates Principles remain the most popular form of governance code for private companies, with 547 out of 1,815 companies in scope of the report using them.

The report, conducted by Essex University for regulators at the Financial Reporting Council (FRC), is the second assessment of the principles and their use.

It also concluded that while some elements of reporting had improved in 2020-21 compared with the previous year, some private companies also struggled with disclosures on key subjects such as purpose, the connection between purpose and strategy, culture and value and dealing with how stakeholder engagement affects boardroom decisions.

Sir James Wates, who developed the principles for the Financial Reporting Council, urged companies to reflect on the report’s findings.

“The improvement in the reporting quality we’ve seen in today’s report, while good news, shouldn’t distract companies from the need to reduce boilerplate reporting, which remains a primary concern.”

UK growth driver

Mark Babington, director of regulatory standards at the FRC, also drew attention to key issues. “The research highlights the need for increased transparency and accountability among large private companies, particularly as they are a driver of growth in the UK and have significant impact on the economy and on wider stakeholders.”

The Wates Principles were developed in 2018 and are not mandatory. It is, however, mandatory for private companies of a certain size to publish a statement on their approach to corporate governance. Companies applying Wates do so under an “apply and explain” principle.

The “similarities” issue is raised as a significant problem in the research report. It observes: “While it is understood companies are looking to learn from other similar businesses with high quality reporting, the Wates Principles do encourage companies to report on information specific to their strategy and business model.”

Perhaps the most caustic comment is saved for the report’s conclusion: “Specific disclosures and information related to board activity, director responsibilities, risk and stakeholder engagement were commended because they demonstrate high levels of accountability and transparency.

“However, this report shows that the quality of disclosures remains similar to the first year of reporting.”