The Wates Corporate Governance Principles for Large Private Companies: A Weak Compromise at the Expense of Employees?

Abstract

The aim of this dissertation is to make a deep investigation into the Wates Corporate Governance Principles for Large Private Companies and the new reporting requirements to assess if they meet, from an employees’ perspective, the ambition of the Government and Parliament committee to increase trust in British business, to “strengthen the voice of employees…at board level”2 and to avoid new corporate scandals such as the BHS collapse. The regime previous to the corporate governance reform (section 2.1.) and the current legal system (section 2.2.) will be reviewed on the basis of a two-limb test. The first limb consists of an evaluation of the emphasis given to employee interests in the board’s decision-making process and the measures foreseen to ensure such a level of consideration in practice. The second limb of the test is based on the lesson learnt from the BHS collapse and assesses the effectiveness of ex-ante mechanisms that prevent corporate failures from happening. The result of this analysis highlights serious shortcomings in the company law regime and shows that the Wates Principles combined with the new reporting requirement should be taken with a pinch of salt. The remedy proposed by this dissertation takes the form of the “enhanced independent director” designated by a special committee elected by and amongst the workforce. This newly created position is part of a wider internal system of newly created committees and will be explained in more detail in section 2.3.1.2. The enhanced independent director takes a key role to ensure the operationalisation of the enlightened shareholder value at board level (limb one) and to prevent new corporate failures by monitoring related party transactions (limb two). The overall assessment is based on the premise of a wholly owned company without any minority shareholder, which are very common amongst private UK companies (e.g. familyowned or private equity portfolio companies).