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Large unlisted companies owned by private equity firms in the UK will soon be expected to produce annual business reviews that consider their social and environmental impacts.
A new voluntary code for the industry, produced by the British Private Equity and Venture Capital Association (BVCA), says that all large unlisted companies held by private equity firms should produce an annual business review that conforms to the provisions of section 417 of the Companies Act.
This requires large quoted companies to include, among other things, information on their employees, environmental matters, and social and community issues (EP9, issue 7, p12). The provisions should apply to companies held by private equity firms and acquired for more than £500million ($1bn), employing more than 1000 staff in the UK and generating more than half their revenues in Britain.
Section 417 does not apply to privately held businesses, but the code says that companies held in the portfolios of private equity firms should follow it in exactly the same way - making them subject to the same non-financial disclosure requirements as listed businesses.
About 250 companies are expected to be affected. BVCA member Kohlberg Kravis Roberts has already said that it will ensure its high-profile portfolio company Alliance Boots produces an annual business review, while Permira has made a similar commitment for Gala Coral, Bird's Eye, and AA Saga, and 3i will do so for AWG and Enterprise. 3i said that it was 'supportive of the enhanced transparency' that the code would introduce, and a source at another private equity firm told EP: 'I think you'll find all the large private equity firms will comply without hesitation.'
Failure to follow the code could lead to expulsion from the BVCA, which is setting up a monitoring and review body to check that they conform. The body will be chaired by Sir Mike Rake, chairman of BT and a corporate responsibility advocate who was chairman of Business in the Community until the end of 2007.
The body will have four other members - two from private equity and two from outside the industry. No date has been set for companies to start complying with the code's requirements, but the BVCA hopes to have the monitoring body in place early this year.
As well as the stipulations for portfolio companies on annual business reviews, the code, drawn up by Sir David Walker, a City banker and former regulator, also recommends how to improve the transparency of private equity firms themselves by publishing information on their ownership structure and their approach to the management of UK companies they own. These provisions are expected to apply to about 65 firms.
Simon Walker, chief executive of the BVCA, said the industry had recognized public concern about a lack of transparency in the sector. 'The industry is saying it will remove the exemption that all private companies have [on reporting] and be quite upfront about many aspects of the business,' he said.
A new voluntary code for the industry, produced by the British Private Equity and Venture Capital Association (BVCA), says that all large unlisted companies held by private equity firms should produce an annual business review that conforms to the provisions of section 417 of the Companies Act.
This requires large quoted companies to include, among other things, information on their employees, environmental matters, and social and community issues (EP9, issue 7, p12). The provisions should apply to companies held by private equity firms and acquired for more than £500million ($1bn), employing more than 1000 staff in the UK and generating more than half their revenues in Britain.
Section 417 does not apply to privately held businesses, but the code says that companies held in the portfolios of private equity firms should follow it in exactly the same way - making them subject to the same non-financial disclosure requirements as listed businesses.
About 250 companies are expected to be affected. BVCA member Kohlberg Kravis Roberts has already said that it will ensure its high-profile portfolio company Alliance Boots produces an annual business review, while Permira has made a similar commitment for Gala Coral, Bird's Eye, and AA Saga, and 3i will do so for AWG and Enterprise. 3i said that it was 'supportive of the enhanced transparency' that the code would introduce, and a source at another private equity firm told EP: 'I think you'll find all the large private equity firms will comply without hesitation.'
Failure to follow the code could lead to expulsion from the BVCA, which is setting up a monitoring and review body to check that they conform. The body will be chaired by Sir Mike Rake, chairman of BT and a corporate responsibility advocate who was chairman of Business in the Community until the end of 2007.
The body will have four other members - two from private equity and two from outside the industry. No date has been set for companies to start complying with the code's requirements, but the BVCA hopes to have the monitoring body in place early this year.
As well as the stipulations for portfolio companies on annual business reviews, the code, drawn up by Sir David Walker, a City banker and former regulator, also recommends how to improve the transparency of private equity firms themselves by publishing information on their ownership structure and their approach to the management of UK companies they own. These provisions are expected to apply to about 65 firms.
Simon Walker, chief executive of the BVCA, said the industry had recognized public concern about a lack of transparency in the sector. 'The industry is saying it will remove the exemption that all private companies have [on reporting] and be quite upfront about many aspects of the business,' he said.
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