How important is it for large private companies to report on their governance?

By Mel Hill

How important is it for large private companies to report on their governance? This is exactly the question that our speakers answered at our event with the Financial Reporting Council (FRC) on Monday 11th June.

The corporate governance code sets out standards of good practice for listed companies on board composition and development, remuneration, shareholder relations, accountability and audit. The code is published by the FRC.

Our event was opened by James Wates, Chairman of The Wates Group and Chairman of the coalition group for developing corporate governance principles for large private companies. James discussed his belief in the need for these new principles coming into place this month, and his experience in the boardroom with his company, which is one of the largest family-owned construction companies in the UK.

Public trust in large businesses

Of the principles, James said: “Unfortunately, we cannot deny there has been a problem with public trust in large businesses. Most businesses are good, but the media shines a bright spotlight on cases where businesses get it wrong.

“We want the principles to inspire large companies to push themselves and be the very best. Most owners of private companies are extremely engaged in their business. We want these principles to guide owners to ensure large businesses can be steered. We want them to be useful tools, not a redundant requirement. Companies need to embrace the principles and understand why they are being put in place.”

What do academics think of the new corporate governance principles?

An interesting insight on the day was from Catherine Shephard, Senior Lecturer at Manchester Metropolitan University. Catherine discussed the principles at length, but also discussed that the need for these principles showed a lack of courage in the boardroom. As well as agreeing with the principles, Catherine posed the question of whether we need to apply these principles to compel us to do the right thing if the right people are in the boardroom.

If we have the right people, with the right morals in our boardrooms, are these governing principles required? Although Catherine did state this would be in an idealistic world, it certainly got our audience debating, with major retailers and operators’ morals being discussed in a later Q&A.

As a lecturer at Manchester Metropolitan University, a question posed to Catherine asked what her law students made of the new principles.

“The students are excited and keen to learn about it. They are very careful where they buy their eggs from – yet they all shop at shops where the human rights record perhaps isn’t great. I think they’re quite shocked as they haven’t really thought about these principles.

“The ‘snowflake generation’ as they’re referred to as, are hugely interested in the community side of things, but now they’re thinking perhaps there’s more they can do in terms of corporate governance in who they choose to shop from. If we are going to have reporting requirements we must think about who is going to read them and whether they care. They’re curious about it – once they hear about the reporting and the ethics they may realise it matters to them personally.”

The event was hugely insightful and really outlined what is to be expected of large businesses when these new principles come into place. Although they won’t be a legal requirement, most stakeholders will question boards on why they are not being compliant with these principles. As a set of rules set out to benefit consumers, employees and shareholders, it is predicted that they will be seen to to be as important as commercial laws in some large businesses.

Panel discussion

In a great panel discussion chaired by Alison Loveday, Partner – Kennedys featuring Matt Timmons, Director – PwC; Ross Warburton, Executive Director – Warburtons; Helen Grantham, Group Secretary and General Counsel – The Co-Operative Group; Alistair Cree, Partner – Eversheds Sutherland and David Styles, Corporate Governance Director at The Financial Reporting Council a great debate continued as leading professionals outlined their opinions on the new corporate governance principles.

Ross Warburton, of hugely successful breadmakers Warburtons discussed how his family-ran business has purposefully had an independent director on their board for over 50 years to challenge and counter any bias his family may have about their brand. Of the principles, Ross says “If we were to think of ourselves as the victims because of other business owners, it wouldn’t be ideal. If we look at the proposals, we have been doing these things for years.

“One of the things that Warburtons focuses on is succession. This centres around ownership, leadership and who joins the board. Right now, a lot of our shareholding is sat in the boardroom. When you’ve got 80% of your shareholders in the boardroom, there really is a great advantage to having a set of principles in place.”

Will these principles affect foreign investments?

One major worry about the new principles coming into fruition is the opinion of businesses overseas and whether it is likely to affect Britain’s foreign investments.

Matt Timmons, of PwC said: “If you look at the German model, they have employees and stakeholders on a two-tier board level model. This benefits the business hugely in the long-term as they have intelligence ‘on the ground’ – at the heart of every business is people engagement. These principles wouldn’t affect foreign investments, as we’ve found these principles are already being done overseas so it can only benefit large UK companies.”

Should the principles be voluntary?

The debate then continued, discussing the panel’s thoughts on the principles being voluntary. Helen Grantham, The Co-Operative Group said: “We want to try and encourage people to move in the right direction. Good corporate governance is simply about running your business well.

“The Co-Op is an organisation that offers a lot of voluntary opportunities. We need to work on a way that will get all organisations operating in the right way. I am sure it can get to a point where we are too prescriptive and could detract from helping a company to be run ethically, voluntarily.”

James Wates continued: “One thing coming out of the discussion [with the coalition group] is that we have the law and then we have the codes. You must decide where the different levels of regulations apply. With this code, it’s about applying the principle, explaining how you apply that principle, and then reporting on it. Overtime we’ll build up a body of this reporting – some business will decide this isn’t for them and just do a general report, others will gain a lot from it.”

Whatever your opinion on the corporate governing principles, this event made for a great debate, with industry leaders delivering their thoughts from the audience and the stage. Huge thank you goes to our speakers and panellists who delivered a thought-provoking morning and to the FRC for partnering with us on the event.

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