Buzz Archive:
PE Buzz: Corporate Governance and the U.K.

by SJ Berwin, 8/16/2007

Private equity and venture capital firms have always been justifiably proud of their corporate governance model. Alignment of interest between investors and managers is difficult to achieve in listed companies, with a diverse and largely indifferent shareholder base. But it is much less of a problem when a dominant shareholder, and invariably one with real industry and business expertise, oversees the executive management team. Elaborate, expensive (and often ineffective) devices to ensure that managers act in the best interests of the company - rather than their own - are not necessary, and the executive team works with the shareholders to deliver real business improvements, and to maximise shareholder value.

In a speech delivered in Amsterdam this week, Javier Echarri - the Secretary-General of the European Private Equity and Venture Capital Association (EVCA) - emphasised that the private equity model involves "thorough strategic planning and focus on value creation over longer time horizons", and enhances the effectiveness of the board. This is in advance of the new U.K. "Law on directors' duties" that resembles some of the U.S./Delaware law. In sum, it codifies:

• there is no distinction between executive and nonexecutive directors;
• directors only owe their duties to the company and only the company can bring a claim for breach; and
• minority shareholders will - as now - be able to bring a claim on behalf of the company for breach of duty, but only in exceptional circumstances and with the approval of the court.

Read more from our friends at SJ Berwin, and download a PDF review of the new law and analysis for what it might mean for PE and VC investing both in Europe and on a global basis.