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Introduction to the Wates Corporate Governance Principles for Large Private Companies


Last week the FRC published the Wates Corporate Governance Principles for Large Private Companies (the “Wates Principles”), covering six areas: Purpose and Leadership; Board Composition; Director Responsibilities; Opportunity and Risk; Remuneration; and Stakeholder Relationships and Engagement.  Reporting of these principles will take effect for financial years commencing on or after 1 January 2019. The Principles have been established to provide a framework for large private companies to comply with their new corporate governance reporting requirements under The Companies (Miscellaneous Reporting) Regulations 2018 (the "Regulations").  Instead of setting out detailed provisions, the Wates Principles are intentionally high-level and accompanied by guidance to assist companies in explaining the approach taken to their application. Companies are encouraged to ‘apply and explain’ the Principles in a manner that is most appropriate for their particular organisation.  Below we summarise the ‘Remuneration’ principle and the guidance on Workforce Engagement under the principle of ‘Stakeholder Relationships and Engagement’, as well as our initial thoughts. Background In the response to its Green Paper on Corporate Governance Reform (August 2017), the UK Government stated its case for strengthening the corporate governance framework for the UK’s largest private companies. One year later, The House of Commons’ Business, Energy and Industrial Strategy (BEIS) Committee published its Corporate Governance report for premium listed companies and considered the need for improved transparency and accountability for large private companies. After a period of public consultation running from June to September 2018, the Wates Principles were published. Wates Principle: 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.


  • Setting remuneration Remuneration for directors and senior managers should be aligned with performance, behaviours, and the achievement of company purpose, values and strategy. In setting director and senior manager remuneration, consideration should be given to remuneration throughout the organisation to reinforce a sense of shared purpose.

  • Policies The board should establish clear policies on remuneration structures and practices which should enable effective accountability to shareholders. This should take account of the broader operating context, including the pay and conditions of the wider workforce and the company’s response to matters such as any gender pay gap. Boards should consider the benefits of greater transparency of remuneration structures and policies which will build trust from wider stakeholders. Additional transparency could extend to commenting on how executive remuneration reflects general practice within the sector or voluntary disclosure of pay ratios.

  • Delegating remuneration decisions The Principles promote the establishment of a remuneration committee to oversee decision-making on the remuneration for directors and senior management.  The Principles also highlight the potential benefit of having an independent non-executive director on the committee.

  • Subsidiary companies If director pay is controlled by a parent company, the subsidiary should explain this and cross-refer to information available elsewhere.


Wates Principle: 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.

  • On Workforce Engagement: Companies should develop a range of formal and informal channels that enable them to engage in meaningful two-way dialogue, enabling the workforce to share ideas and concerns with senior management. In addition, workforce policies and practices should be aligned with the company’s purpose and values. Such policies should establish clear procedures for raising concerns and should be reviewed regularly to ensure that they are effective. Finally, a board should demonstrate how the company has undertaken effective engagement with material stakeholders and how such dialogue has been considered in its decision-making.


Mercer | Kepler commentary While many large private companies already voluntarily adhere to many aspects of corporate governance ‘good practice’ for public companies, the Principles recognise that a ‘one size fits all’ approach is not appropriate for large private companies given the diversity of management structures and ownership models.  This is likely to result in a wider range of interpretation and application of the Principles in comparison to the experience of listed companies. As with the revised UK Corporate Governance Code published in Summer 2018, the Wates Principles centre on stakeholder engagement; this consistent focus is helpful in reinforcing companies’ collective role in, and contribution to, the economy and wider society, irrespective of the ownership model that applies.

Useful links https://www.frc.org.uk/news/december-2018-(1)/wates-principles-to-improve-corporate-governance-s


This briefing is for general guidance and does not necessarily cover all areas of the topics included in this briefing. It is not designed to give legal or other professional advice.

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