The Financial Reporting Council has issued its second assessment of the quality of reporting from private companies who have chosen to follow the Wates Principles, introduced in 2018.

The research, conducted by the University of Essex, shows that the Wates Principles continue to be the most widely adopted corporate governance code among large private companies. Of the 1,815 large private companies in scope of the research, 547 (30%) chose to apply the Wates Corporate Governance Principles in 2021/22, with a combined annual turnover totalling more than £850 billion.

While there were some improvements in certain disclosure areas compared to 2019/20, companies continue to struggle with providing meaningful disclosures around key areas. These include defining company purpose, connecting that purpose to strategy, culture and values, and explaining how stakeholder engagement impacts board decision-making. 

The report also suggests there is an over-reliance on “boilerplate” disclosures being used rather than disclosures that provide company-specific context. High levels of similarity were found between the corporate governance statements of different companies, and also between reports by the same company in different years. 

Focus groups, made-up of stakeholders who use corporate governance reports, highlighted the value they place on informative governance disclosures, and suggested ways companies can enhance their governance reporting. Specific suggestions for improvement included more outcomes-based reporting linking governance activities to company actions, clearer rationales for approaches like remuneration, and better signposting across the annual report. 

Commenting on this, Jim Wates said: “I’m once again encouraged to see that more large private companies are choosing to report against the Wates Principles than any other option. The improvement in the reporting quality we’ve seen in today’s report, while good news, shouldn’t distract companies from the need to reduce boilerplate reporting, which remains a primary concern. I urge boards to reflect on today’s report with open minds ahead of their next reporting cycles.”

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FRC executive director of regulatory standards, Mark Babington, added: “The popularity of the Wates Principles continues amongst 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.”