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The financial and economic crisis has forced PE to reassess its approach to corporate governance.

In the boom times up to 2008, PE placed insufficient emphasis on corporate governance which frequently became a tick-box, formulaic exercise. That has now changed.

How?

GP's (particularly institutions such as pension funds) and global bodies such as UNPRI are demanding:

  • Greater commitment to corporate governance;
  • Improved risk management;
  • Improved transparency;
  • Demonstrable "value add" from LP's in creation of value in portfolio companies and maximizing exit options,capturing the higher multiples paid for companies with a strong corporate governance track record.

LP's who want to flourish must respond and have to:

  • Improve pre-acquisition due diligence on corporate governance;
  • Improve corporate governance of existing portfolio companies;
  • Provide portfolio companies with pragmatic corporate governance guidance that enhances the enterprise value;
  • Recognize the unstoppable global trend to embracing not by-passing corporate governance as evidenced by GVCA findings that corporate governance was a main challenge for PE in 2010 and Sir David Walkers review in UK.

In this new world, a pragmatic value-driven PE house will confront the following questions:

  • What requirements should a GP impose on a LP for corporate governance of and by the LP?
  • What is the optimum corporate governance structure appropriate for the needs of LP's and their current portfolio companies?
  • What is the appropriate Due Diligence prior to investment decisions?
  • How should corporate governance standards and expectations vary between SME’s and larger portfolio companies?
  • What standards/requirements for corporate governance are provided to the investee company? How are they embedded and monitored? What evidence will show if they are effective?
Majlis Partners can provide expert assistance to PE companies in relation to corporate governance at any stage of the investment cycle.

For more information please contact the Corporate Governance Department of Majlis Partners