The Financial Reporting Council (FRC) has today published a set of principles intended to improve governance at private companies in the wake of scandals such as the BHS collapse.
The FRC, which regulates accountants, has published the proposed principles today after an extensive review led by construction boss James Wates.
The government is introducing legislation that would require companies of a significant size to state in their director's reports whether and how they follow a code of corporate governance.
Companies with over 2,000 employees or revenue of £200 million globally and a balance sheet over £2 billion globally will have to comply with the new regulations.
The new principles are aimed at helping companies comply with the legislation by giving a best practice guide that they can choose to follow.
Under the new guidelines, which have been published for consultation today, there are six principles that need to be followed.
A board that promotes the purpose of the company, a board with an effective composition, a board that understands its responsibilities, a board that promotes the long-term success of the company, a board that promotes effective remuneration structures and a board that oversees meaningful engagement with stakeholders.
Director general of the Institute of Directors (IoD), Stephen Martin, welcomed the new principles.
“As we saw in the case of BHS, the collapse of a large private company can have far-reaching consequences for a range of individuals. It is right that these organisations should be required to report on their governance arrangements so they can provide a degree of transparency to employees, customers and suppliers,” he said.
Philippa Foster Back, director of the Institute of Business Ethics and a member of the group that drew up the principles, said: “This is the start of a very important process. There are many large unlisted companies and we need to ensure they play a full and positive role in our economy and society. We agree wholeheartedly that an effective board promotes the purpose of a company, and ensures that its values, strategy and culture align with that purpose.”