On 12 August 2024, the FRC published Research Report: Reporting against the Wates Principles, its second assessment of the quality of reporting by private companies who have chosen to follow the Wates Principles (see Corporate governance: overview/Wates Principles and FC Feature 10 December 2018). The Wates Principles were published in December 2018 and support large private companies in meeting their statutory governance obligations under the Companies (Miscellaneous Reporting) Regulations 2018 (Regulations) (see Accounts and reports, Q&A here).
Scope of research
The report presents the results of research commissioned by the FRC to provide a comparison with and build upon its previous assessment (see FC Feature 23 February 2022), of which companies within the scope of the Regulations provided a corporate governance statement and of those that did, how many applied the Wates Principles or an alternative corporate governance code. The previous report looked at companies' 2019/20 statements, while this second report is based on companies' 2021/22 statements.
As part of the research project, the research team also convened a series of focus groups to understand users' views of corporate governance disclosures that follow the Wates Principles.
Findings
The research shows that the Wates Principles continue to be the most widely adopted corporate governance code among large private companies. Of the 1,815 companies in scope of the Regulations, 547 (30%) chose to apply the Wates Principles in 2021/22.
Although improvements were made in certain areas of disclosure compared to 2019/20, the latest findings show that companies continue to struggle with providing meaningful disclosures around key areas such as defining company purpose and explaining how stakeholder engagement impacts board decision-making. The report also suggests that there is an over-reliance by companies on 'boilerplate' disclosures.
Conclusion
Focus groups highlighted the value that they place on informative governance disclosures and suggested ways that companies can enhance their governance reporting. Suggestions for improvement included more 'outcomes-based' reporting, clearer rationales for approaches like remuneration, and better signposting across the annual report. However, the report shows that the quality of disclosures remains similar to that in the first year of reporting.
First published on the Corporate News Service on 12 August 2024.
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