Download presentation - European Corporate Governance Institute

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

Well over 900 members, mainly European


PE/VC fund management companies

Institutional investors (banks, pension funds, insurance
companies...)

Professional advisors (lawyers, placement agents, investment
bankers...)

National (European) Trade Associations
Over 40,000 companies financed, 6.5 million people
employed and €156 million of equity invested
Introduction to EVCA
EVCA strategic priorities
 Strengthen the industry across Europe by maintaining
a strong and relevant community of shared interests
for European PE/VC players
 Actively raise awareness to improve knowledge and
understanding of the European PE/VC industry
 Reinforce and develop professional standards for the
industry
 Protect the interests of the industry and promote a
favourable environment for European PE/VC and
entrepreneurship
Introduction to EVCA
EVCA key services
 Professional Standards
 Public Affairs
 Research
 Conferences
 Professional Development
Introduction to EVCA


Direct member involvement via EVCA’s seven operating
Committees, led by industry specialists

Investor Relations Committee

Professional Standards Committee

Conferences and Member Services Committee

Tax & Legal Committee

High-Tech Committee

Buyout Committee

National Associations Committee
In addition, EVCA has a series of task forces and working groups
on specific issues
EVCA Professional Standards Overview

Uniqueness of Europe versus the USA

PE/VC industry is a self-regulating industry

The most advanced professional standards of any alternative asset
class

Code of Conduct

International Private Equity and Venture Capital Valuation
Guidelines (IFRS/US GAAP compliant)

Reporting Guidelines

Corporate Governance

Governing Principles
EVCA Professional Standards Evolution
A 22 year history so far…

EVCA developed and promoted a range of guidelines for
the professional conduct of PE/VC fund managers
 In respect of the management of their activities
 And in their relationships with investors and portfolio
companies
22 Year History
GP (General Partner) level

EVCA Code of Conduct (1983)
GP-LP (Limited Partner/Institutional Investor) level

Reporting Guidelines (2000, update planned)

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
Reporting
Guidelines
LP
Code
of
Conduct
Valuation
Guidelines
Governing
Principles
GP
Corporate
Governance
Company
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

Multi-jurisdictional
Principles of Good Governance
Format of the document
 Questions
 Explanations
 Recommendations
Principles of Good Governance

Law and regulations

Integrity

Partnership

Long term view

Respect for shareholders

Transparency

Confidentiality
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?
Conclusions

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
Saving accounts,
Pension plans,
Insurance contracts…
Pension Fund Directive
(Prudent Man Rule)
Savings and
pensions
Savings and
pensions
EVCA ACTION
Institutional investors
(Insurance companies,
pension funds,
banks…)
Institutional investors
(Insurance companies,
pension funds,
banks…)
Single Fund
Structure
Commitments
EVCA ACTION
The Financing Cycle of Private
Equity and Venture Capital
Investment
Repayments
+ capital gains
EVCA ACTION
EVCA ACTION
Private Equity Funds
Young Innovative Companies
EVCA ACTION
Entrepreneurship
Private Equity Funds
Investments
Divestments
High-growth
companies
High Growth Markets
EVCA ACTION