Governance reforms extend to large private companies
With new corporate governance reporting requirements for large private companies pending, now is the time to ensure your house is in order.
New government legislation requiring large, privately-owned companies to apply a recognised corporate governance code is expected to be published in June 2018. The new requirements will affect companies with either a headcount of over 2,000 employees or a turnover of over £200 million and a balance sheet of £2 billion and is due to come into force on 1 January 2019.
Why the changes?
Hot on the heels of recent changes to corporate governance rules for AIM-listed companies and anticipated reforms to the UK Corporate Governance Code, the new corporate governance reporting requirement for private companies is intended to enhance transparency and accountability, improve trust and develop sound governance practices within business.
What do companies need to do?
Under the proposed new legislation, from 1 January 2019, all companies who fall under the remit of the changes will be required to apply a recognised corporate governance code and explain how they have done so.
Companies will need to disclose their governance arrangements on their website and explain how their chosen governance code has been applied in their annual report. Companies can choose which corporate governance code they apply, however governance principles specifically for private companies are currently being developed* and these are expected to be published by the end of 2018.
Similar to other formal governance codes, the principles are expected to cover:
- Purpose and Culture – why they exist and how they deliver
- Effective Board composition
- External oversight
- Remuneration and incentives to pursue business objectives
- Relations with stakeholders
Companies will be expected to focus on the act of good governance, not just the reporting – stakeholder engagement and relationships, culture, behaviours and social purpose are all key. Companies are encouraged to think about application from an outcomes perspective and the proposed apply and explain approach is designed to achieve higher disclosure standards and discourage boilerplate compliance statements.
Where companies already have robust governance arrangements in place, the reporting requirement becomes an outcome of good governance. For companies who are unfamiliar with governance reporting, the challenge will be to understand and apply good practice in corporate governance.
To find out what you can do in preparation for the changes, contact [email protected].