Disclosure and Transparency in Private Equity – Keep Pace with the FTSE 350 or Prepare to be Named and Shamed

by Reed Smith
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Reed Smith

The Private Equity Reporting Group (“PERG”) has refreshed its good practice reporting guidance for the larger private equity portfolio companies with revised examples of good practice to assist with compliance. This reinforces the strong message arising out of PERG’s 2016 annual report that the private equity industry needs to up its game in terms of keeping pace with the disclosure standards of the FTSE 350 companies against which private equity is benchmarked. Particular emphasis has been placed on sufficient disclosures regarding human rights, gender diversity and demonstrating how directors have appropriately discharged their duty to promote the success of the company.

Areas for attention:

A number areas were identified in PERG’s December 2016 annual review, most of which have also been highlighted in the updated March 2017 guidelines. These include improved disclosure regarding:

  • Duty to promote the success of the company: PERG notes that improved disclosure regarding how directors have performed this duty (and in particular how they have taken into consideration the interests of stakeholders) is crucial in order to improve trust in the private equity
  • Gender diversity: currently a hot topic in the industry, greater prominence must be given to gender diversity matters together with a stronger narrative and a breakdown of the numbers of men and women at employee, senior manager and director level
  • Analysis of performance measured against strategic objectives: the description of the company's past year performance needs to link financial performance to strategic priorities and compare it with the wider market context
  • Trends and factors affecting future development and performance: the narrative should take into account the wider market conditions that impact the business, and how they shape current and future strategy and decisions
  • Human rights: in light of the increasing regulatory emphasis (such as the Modern Slavery Act 2015) commentary should be included on how the company is complying with human rights legislation and best practices

What does this mean for me?

This updated guidance offers private equity houses and their portfolio companies practical guidance of the depth and breadth of disclosure that will be required in order for them to be considered as meeting best practices and being compliant with the Walker Guidelines. This is of particular importance given the fall in the number of companies complying with the required standards (partly driven by an improvement in the standards set by the FTSE 350) and PERG’s statement that with effect from this year it will publicly “name and shame” those portfolio companies which fail to meet the disclosure standards.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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