EVCA Guidelines and Good Practice in the Management of Privately Held Companies in the Private Equity and Venture Capital Industry 28 June 2005 Second European Corporate Governance Conference Luxembourg Georges Noël Director of Research, Public Affairs and Development EVCA
Introduction to EVCA
Established in 1983 and based in Brussels
Represents the European private equity and venture capital industry (PE/VC) and promotes the asset class both within Europe and throughout the World
Governing Principles and Sound Practices for Establishment and Management of PE/VC Funds (2003)
Valuation Guidelines (1993, updated 2001, International Guidelines 2005)
GP-Portfolio Company level
Corporate Governance Principles (2005)
Professional Standards Framework LP GP Company Reporting Guidelines Governing Principles Valuation Guidelines Corporate Governance Code of Conduct
Corporate Governance Guidelines
Developed by EVCA Corporate Governance Working Group
Stakeholder and public consultation process (Autumn 2004 – Spring 2005)
Why these guidelines?
Good governance creates the environment for the attitudes, mechanisms and behaviours that allow well-informed decision making
Highlight the unique position of PE/VC funds
Applicable to a wide range of situations, circumstances and different investment stages
Principles of Good Governance
Format of the document
Principles of Good Governance
Law and regulations
Long term view
Respect for shareholders
Principles of Conduct as a Shareholder
How should the PE/VC investor conduct themselves in relation to other investors in the business?
To what extent is the PE/VC investor responsible for the definition and execution of corporate strategy?
What are the PE/VC investor’s responsibilities in relation to performance information?
How should the PE/VC investor act in relation to the board?
To what extent does PE/VC investor have responsibilities in relation to other stakeholders?
Principles of Conduct as a Board Member
What are the key components of strategy that are the responsibility of the board?
What is the board’s role in relation to the identification and assessment of risk?
What is the board’s role in relation to the management of risk?
How should the board determine what a reasonable structure for and level of remuneration are?
What is the role of the management agreement?
Principles of Conduct for Management
How should management go about establishing the control environment?
What should the procedures for risk assessment involve?
How can management fulfil their obligations in respect of control activities?
What are the management’s responsibilities in relation to information?
What are management’s responsibilities in relation to information systems?
How should management approach communication of information?
How regularly should management review the performance and appropriateness of their corporate governance procedures?
EVCA has always recognised that the reputation of the industry, particularly as it controls increasing numbers of high profile companies across Europe, requires that PE/VC fund managers go further than the law demands through a process of self-regulation
Market forces ensure enforcement of higher standards by the PE/VC industry
Institutional Investors increasingly use EVCA and other guidelines as a basis for their investment decisions
Active ownership increases the value and strength of the company
Good governance is good for the company, good for the PE/VC fund and good for the fund’s investors
Questions & Answers
Thank you for your attention For more information on EVCA www.evca.com
Annex Additional Materials
Private Equity as an Asset Class Repayments + capital gains Commitments Divestments Savings and pensions Savings and pensions Investments Private Equity Funds High-growth companies Institutional investors (Insurance companies, pension funds, banks…) Private Equity Funds Institutional investors (Insurance companies, pension funds, banks…) Saving accounts, Pension plans, Insurance contracts… Single Fund Structure Young Innovative Companies High Growth Markets Pension Fund Directive (Prudent Man Rule) Entrepreneurship The Financing Cycle of Private Equity and Venture Capital Investment EVCA ACTION EVCA ACTION EVCA ACTION EVCA ACTION EVCA ACTION EVCA ACTION