UK government criticized for ‘hammerhead’ approach to corporate governance reform
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The architect of UK governance standards for private companies has criticized the government’s plans to extend some of the more stringent regulations for large listed companies to their unlisted counterparts, saying the changes would have a “significant negative impact”.
Sir James Wates, chairman of the Wates Group, one of the UK’s largest family-owned construction companies, said proposals to broaden the definition of ‘public interest entities’ (PIEs) to include large companies private sector would increase costs and discourage growth and innovation.
The proposed reforms follow a public backlash against corporate bankruptcies at subcontractor Carillion, coffee chain Patisserie Valerie and private retailer BHS.
Wates, who also chairs the Institute for Family Business, said the proposals amounted to a “hammer” and questioned the need to expand the PIE regime, which currently only applies to large listed companies and to financial groups.
“A small number of high-profile cases of bad governance – the examples of Patisserie Valerie and BHS are frequently cited, although it is overstating that they reflect a trend – encourage ministers to be seen as’ doing anything. thing “to” clean up big business, “he told the Financial Times.
The proposed changes would mean that private businesses or those with an Aim List, like Patisserie Valerie until it collapsed over suspected fraud in 2019, would fall under the PIE definition for the first time. if their turnover or number of employees exceeds certain thresholds.
Options for a broader definition, which could more than double the number of PIE firms to around 4,000, were included in a government white paper released in March. A public consultation on the plans, which would also hold directors accountable for the accuracy of the company’s accounts, closed earlier this month.
The changes would be a burden on private companies, Wates said. “The additional audit and reporting requirements would entail considerable costs and, perhaps more worryingly, create disincentives to innovate and grow for many family businesses, a sector that employs 14 million people and represents around one third of UK GDP. “
Expanding the PIE regime “would subject private companies to regulations designed for listed companies,” although they are usually structured in a completely different way, he said.
Instead of imposing more rules on private groups, Wates called on the government to assess the impact of new business reporting regulations introduced in 2019 and to work with private companies to close any gaps in the disclosed information.
He said ministers should allow time “for good practices to spread” after his work to create the Wates principles. This is a voluntary set of corporate governance guidelines for large private companies published in 2018 with the support of the Financial Reporting Council.
Supporters of the proposal believe the changes would increase protection for stakeholders such as employees, pension plan members and supply chains. But some companies, investors and accountants have raised concerns that the overhaul could stifle business growth and increase costs.
Separately, the Charity Commission opposed a proposal to expand the definition of PIE to include large nonprofits and said it was not aware of comparable failures in the charitable sector. to those in the business world.
The government said in a statement: “The largest private companies are of great economic importance – often much greater than some listed companies – so designating them as public interest entities allows for appropriate oversight to mitigate the risk of corporate failures. avoidable businesses and protect UK jobs. “