The principles of good business
Greater transparency from large private businesses can lead to improved trust, says James Wates CBE
I believe passionately that good business, well done, is a force for good in society. That’s why I was pleased in January when Business Secretary Greg Clark asked me to chair an effort to develop corporate governance principles for large private companies.
Working with a Coalition Group that includes the CBI and other representative and expert bodies, we developed a draft consultation paper that was published in June and is now available on the Financial Reporting Council website. I encourage all with an interest to read and respond.
The effort complements proposed legislation requiring large private companies – those with more than 2,000 employees or having both a balance sheet of more than £2bn and annual turnover of £200m – to report on their corporate governance arrangements. It’s one of several measures the government hopes will boost transparency and ultimately improve public trust in business.
The draft Wates Corporate Governance Principles for Large Private Businesses are intended to provide a structure for companies caught by that new legislative requirement.
A useful tool
I’m under no illusion that a set of corporate governance principles is going to cure all ills in the business world, but I’m confident that this can be part of an effort to strengthen standards and by extension build stronger businesses. So I hope companies of all sizes will see the principles as a useful tool.
The principles are different from – and in many cases simpler than – the code for PLCs, reflecting the fact that many owners of private companies are extremely engaged in their businesses. The principles are about essential elements of good business:
- Effective board composition
- Clear responsibilities
- Management of risk and opportunity
- Effective remuneration
- Meaningful engagement and dialogue with stakeholders
Each principle has some guidance to encourage companies to ask themselves challenging questions, but it’s not intended to be a tick-box exercise.
Given our objective to increase confidence in big business, surely we can’t achieve that through a box-ticking regime. It can only be achieved if companies apply the principles then explain honestly and openly how they did it in their own words. That’s the sort of transparency that can build confidence of suppliers, lenders, regulators, employees, and the general public.
Pride of place
Of course, building public trust is a complex challenge, but one with which we must persist if we are to avoid the damaging unintended consequences of reactionary regulation that eliminates the bad apples by killing off the entire apple tree.
There were some unwelcome public interjections in June from cabinet members who expressed a shocking lack of respect for the value that business provides society. Fortunately those comments were countered by No 10 and BEIS, but they exposed the vulnerability of our situation.
Let’s use the opportunity to start a conversation across society about the role that business plays. Business provides jobs; it delivers goods and services that people need. Business that is founded on – and remains true to – a social purpose actually makes the world a better place.
According to CBI research, the private sector directly provides about 27 per cent of the Treasury’s revenue. This consists of corporation tax, business rates, fuel duties, employers’ NICs, and other taxes. And a further 35 per cent of HMT’s revenue comes from income tax paid by private sector employees. Plus there’s VAT we collect on what we sell. When you add it all up, three quarters of all UK tax revenue is enabled by the activities of private sector companies – through the taxes they pay, the jobs they create and the products they make.
That’s a huge contribution. We in the business community should be proud of it.
We can't be sucked into putting capitalism on trial. We know an enlightened capitalism, with strong corporate governance systems and practice at its heart, can and does generate value for society. That’s a message we can be confident about.
Previous post: Talking mental health at work