Large UK companies are maintaining strong support for the 2018 Wates Principles as a lens for reporting on corporate governance matters, the Financial Reporting Council (FRC) has found.

In research for a new joint report with the University of Exeter, the FRC examined levels of Wates Principles usage in the 2021/22 period, focusing on corporates that filed statements under the Miscellaneous Reporting Regulations, also of 2018.

While the Principles are voluntary and can be adopted by any large business, reporting against the Regulations is mandatory for corporate entities with more than 2,000 staff, and/or a turnover of more than £200m and balance sheet of more than £2bn.

Under the Miscellaneous Reporting Regulations, affected companies must account for a range of governance matters in their annual reports. As part of that, they must also include details on whether they follow a particular code for guidance on what to disclose.

In a previous report, covering 2019/20, the FRC found that 348 UK companies within the Regulations’ scope – around 45% – were following the Wates Principles. While the relevant disclosure practices were at that point in their infancy, the FRC was encouraged to see examples of good reporting.

For its latest report, published on 12 August, the FRC found that of the 1,815 companies that fell within scope of the Miscellaneous Reporting Regulations in 2021/22, a total of 547 (30%) applied the Wates Principles. That makes the code the most widely used framework for helping large corporates navigate this type of reporting.

The Wates Principles

Overall, the Principles provide guidance for reporting in six critical areas of corporate governance: purpose and leadership, board composition, director responsibilities, risk and opportunities, remuneration and stakeholder engagement.

Among the companies that followed the Principles in the study period, the FRC found “slight improvements” in most of the disclosure scores within each Principle. For example, the report notes, more companies provided data on two timely points: how purpose aligns with business practices and how broader strategy connects with purpose or culture.

Specific disclosures contained greater information about the company chair, how the board understands the business’s needs and stakeholder interests, plus the underlying rationale for the company’s remuneration structure.

On the negative side, the research uncovered high instances of so-called ‘boilerplate reporting’. For example, companies operating in the same business group tended to produce corporate governance statements that were almost identical to each other, rather than tailored to the circumstances of each individual business. Further findings showed that some companies had provided the same disclosure they had filed in previous years, rather than an updated version.

In his foreword to the report, Sir James Wates CBE – who led the Principles’ creation – notes: “The 547 companies applying the Wates Principles have a combined annual turnover of more than £850bn. These businesses have a significant impact not just on the economy, but on many people’s lives and it is right that we expect from them high standards of governance, with stewardship and long-term sustainability as guiding lights.”

For Wates, the Principles are more than just a tool for reporting, serving as “a mirror for companies to hold up to themselves” to assess their governance and make improvements where necessary. With that in mind, his foreword signals his approval for the researchers’ decision to introduce a new dynamic to the latest report: focus groups with professionals who use corporate governance reports. Those groups, he points out, “were able to look beneath the surface and, as the researchers write, ‘get a better understanding of the company’s character’.”

Wates adds: “Companies are free to apply a code of their choosing, so I am pleased that this research report reflects that more large private companies chose to report against the Wates Principles than any other option.”

Increased transparency

In a separate statement, FRC Executive Director of Regulatory Standards Mark Babington says: “The popularity of the Wates Principles continues among private companies, who I hope put this report to good use in their efforts to produce meaningful and company specific reports.

“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 a significant impact on the economy and on wider stakeholders.”

ICAEW Director, Corporate Governance and Stewardship, Peter van Veen says: “It is encouraging to see good reporting against the Wates Principles, the overuse of boilerplate notwithstanding. We encourage all large companies in the UK to report against the Wates Principles and those considering a listing should be fully transparent as to their governance arrangements and switch to reporting against the UK Corporate Governance Code in due course.”