Corporate Governance: Time to act
Following the recent adoption of the new Corporate Governance reporting regulations extending sustainable and responsible governance practices to U.K. private limited companies, those businesses will need to quickly assess their corporate governance framework and reporting to be compliant from 1 January 2019.
While there is a lot of publicly available guidance on corporate reporting, it is important to remember that this will not be a tick box exercise. During the period of transition, private companies will be expected to invest time up front to ensure their governance and corporate reporting meets the new requirements.
Whilst some may view this as additional administration taking them away from “more important” business as usual activities, smart businesses already recognise the benefits of good corporate governance and have been using it to future proof their business.
Recap of what is required
As with all regulations there are nuances and thresholds but I hope here to give you a flavour of what is required and who will be impacted within the business.
- Large Private Companies who meet the thresholds will need to publish a comprehensive corporate governance statement in the company’s directors’ report and on their website detailing whether or not they adopt a corporate governance code and how they apply this. If they decide not to there is a requirement to detail what corporate governance infrastructure is in place.
- For many companies a statement should be made in the strategic report which describes how the directors have performed their duties under section 172. Engagement with the board and senior management will be critical, establishing clear corporate board protocols and governance e.g. director training, terms of reference, delegations of authority.
- For businesses with over 250 employees the director’s report must now include a statement which describes the action that has been taken to engage with employees during the financial year. For many businesses they do this already and well. Successful businesses have at the heart of their business strategy their people.
- In addition to the above the director’s report must now include a statement which summarises how the directors have engaged with other stakeholders including suppliers and customers during the financial year. This will require business functions to work together to ensure alignment and avoid duplication with existing reporting requirements under Modern Slavery, Gender Pay, Prompt Payment etc.
It is important that you understand these new requirements in the context of your business as the devil is in the detail. There may also be opportunities to cross reference within a group structure reducing duplication.
The company secretary or those with this responsibility will play a vital role in evaluating the organisation’s existing corporate governance infrastructure and engage with stakeholders across the organisation to ensure that the level of reporting is robust and can withstand public scrutiny.
Next steps
In the majority of cases, private companies will have elements of these requirements already in place and it will be a case of identifying and filling any gaps. The first step is to conduct a rapid assessment of the application of the regulations to your business to determine the reporting consequences for each entity. It may also be appropriate to undertake a gap analysis of the existing Corporate Governance Framework against the new requirements such as the Wates Principles. It is important that this is a cross-functional review involving Tax, Company Secretarial, Legal, Business Development and Operational leads so they understand and support any changes to the organisation’s governance framework.
Good corporate governance will help your management team make better, more strategic decisions. You will know you are focussing on the right things and can trust the data you are using. It will promote Board diversity and independence improving the long term prospects of your business. You can be confident you are meeting your statutory duties and your Directors are up to date with their regulatory obligations. You will manage your risks smarter and be able to take advantage of opportunities quicker. Of course there is a cost advantage as your business operates more efficiently. More importantly you will be helping to protect your business’s reputation in a market that is increasingly demanding transparency and accountability.
If you are unable to attend one of the events but would like to speak to one of the team, please contact your usual PwC contact, or contact Matt Timmons or Suzi Woolfson. Or request a meeting below:
Contact us
Matthew Timmons
Entity Governance & Compliance, Director , PwC United Kingdom
Tel: +44 (0)20 7804 6561