The Government has responded to the results of its green paper consultation on corporate governance reform with proposals to develop a governance code for large private companies. The code will be voluntary, meaning that companies will be allowed to continue to use other industry-developed codes of governance if these are considered more appropriate. The Government will invite the Financial Reporting Council to work with organisations such as the Institute of Directors and the Institute for Family Business in order to develop this new code, which is still in its early stages.

The proposals follow a number of recent high profile insolvencies which have had a significant impact on the public's confidence in large private companies, and created the impression that some companies, quite simply, are not being run well. Far from it being just a handful of owners who have a strong interest in the running of a private company have highlighted how other stakeholders - such as employees and suppliers - can suffer when a company fails.

The Government also proposes to introduce legislation requiring all large companies - public and private - to disclose in their directors' reports and on their website whether they adhere to any formal code. This requirement will initially apply to companies with over 2,000 employees, although the Government will consider extending a similar requirement to LLPs of a similar size. Where a company departs from any code of governance, or has decided not to adopt one, it will be required to explain its reasons. This "comply or explain" approach will lead to greater transparency, making it clear which companies have adopted good practice, and leave those that have not open to wider questioning.