Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Tuesday, November 27, 2007

Timing is everything. Another bastion falls to disclosure.

Another bastion falls to transparency best practice. The guidelines produced by the Walker Working Group last week gives a recipe for greater disclosure by private equity companies and their ‘portfolio companies’.

On the company side, Walker has proposed a voluntary reporting framework that applies to private equity portfolio companies with more than 1,000 employees and at least 50% of revenues generated in the UK. Each portfolio company signing up to the code would produce an annual report within six months of their financial year end. This would include the identity of the private equity fund or funds that own the company, the senior managers or advisers who have oversight of the fund or funds, and detail on the composition of its board.

In addition, it would provide a business review - comparable to that required of public companies under the new Companies Act - that indicates main trends and factors likely to affect the future development, performance and position of the company's business. It should also include information on the company's employees, environmental matters and social and community issues.

The private equity houses themselves should disclose their investment approach and, for its portfolio companies, an indication of the leadership of the firm in the UK and confirmation that arrangements are in place to deal with conflicts of interest.

Of course the world has changed completely since the heady days in the summer when the entire industry was under a cloud, being attacked for invisibility on all sides. A high- profile trade union campaign against 'asset strippers' was followed by a row over the tax paid by those working for private equity firms. And there was ongoing debate about what effect private equity has on employment.

Today, the global credit crunch had affectively withdrawn the advantages that private equity firms had over listed rivals and made debate about new disclosure rules less urgent.

So the proposed code of conduct for big buy-out groups now lacks the public impact it might have had six months ago. And it will be criticised for lack of bite, in that the code is voluntary.

Despite these concerns, and the fact that apparently only some 25% of private equity companies are affected, these changes are a welcome start.


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