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Corporate governance and stewardship

Corporate governance and stewardship

Overview

At Travers Smith, good corporate governance is important to us and to our clients. Find out how we are approaching corporate governance in our own business. An accountable and inclusive corporate governance structure is an important feature of sustainable businesses. This site contains a range of guidance and resources to help your business, whether you are a company, an asset manager or a financial intermediary, to meet its regulatory obligations and to implement best practice procedures which promote transparency, accountability and inclusiveness in the business.

We have developed an ESG Corporate Reporting Framework to assist in navigating the increasingly complex reporting requirements for businesses. To request a copy, please register your interest here.

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Key issues

Companies

For companies, good corporate governance is not just about the "core" requirements of the UK Corporate Governance Code or the QCA Corporate Governance Code, (for listed companies) or the Wates Principles (for larger private companies), as critical as these are.  It is also about ensuring that the rules, practices and processes put in place by companies (both listed and private) mean that they are appropriately managing the broader risks relating to regulatory compliance across their entire operation, ranging from bribery and corruption risk, human rights compliance, fair treatment of suppliers, and environmental protection, to the need to meet the broad swathe of investors’ ESG requirements, in order to create a long-term sustainable business.

Shareholders in listed companies

Shareholders are concerned about fulfilling their stewardship obligations, and how to use their voting powers to promote sustainable business strategy and drive real change, which ensures that the ESG agenda is as important in ongoing relationships between shareholders and their investment portfolio as it is to their investment strategy and decisions.

The 2020 Stewardship Code places ESG factors at the heart of effective stewardship for listed company investors: as stated in its introduction, “the new Code establishes a clear benchmark for stewardship as the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”

A considered and proactive approach is required by listed companies to respond to the investor ESG agenda. Listed companies are increasingly being called on to review and if necessary, improve their sustainability reporting so that investors can more easily understand the material ESG issues relevant to the company. There has also been an increased focus by the UK’s proxy advisors on the quality of ESG disclosures during the 2020 AGM season.

Investors in private equity-backed companies

The private equity industry has embraced the responsible investment agenda, evidenced by the BVCA’s responsible investment toolkit which has been in existence for many years. Investors are increasingly proactive in managing ESG risks and promoting sustainable business principles during the life of the investment, and seizing the opportunities provided by good governance.

Most private equity firms would argue that their rigorous corporate governance and accountability mechanisms are an integral part of their investment philosophy, and good governance makes a positive contribution to investment outcomes. A private equity firm will typically appoint one or more of its own executives to the board of the investee company and usually, an outside director will also join the board, often acting as its chair. The board takes the lead in the management of ESG risks and opportunities, which many investors regard as integral to value creation and an important part of the exit process. Often, during the pre-investment phase, private equity investors assess ESG issues in the portfolio company and identify areas for improvement. Post-investment, they may require the company to address deficiencies, under the supervision of the board, and to report KPIs to show progress. In summary, private equity firms regard the composition of the board, its remit and decision-making processes as critical – alongside a clear and comprehensive reporting framework – and these structures are often used to ensure that the firm's approach to responsible investment is translated into concrete actions at operational level.

The Walker Guidelines on disclosure and transparency in private equity have increased the level of public narrative reporting for portfolio companies, helping to demonstrate that private equity investors are responsible owners and builders of businesses, and preparing investee companies for increased transparency and reporting obligations ahead of a possible listing on a public market.

Overview of relevant law and regulation

Our work

Our corporate governance offering to our clients includes:

  • advising on governance regulation and best practice for publicly-listed companies and large private companies
  • advising on corporate culture, directors' duties and reputation protection
  • advising on management of board level difficulties and succession
  • advising on management of hostile shareholders/approaches
  • developing robust policies and procedures, and advising on their effective implementation
  • delivering practical training on these topics (to boards, senior executive teams, legal teams and company secretaries)

Our Private Equity and Financial Sponsors team advises our investor and portfolio company clients throughout the lifecycle of the investment and on to their eventual exit. Advice provided both to management teams and investors on good governance and the pursuit of ESG goals in portfolio companies in line with the BVCA responsible investment guidelines, as well as compliance with narrative reporting requirements, is a key focus of that work.

Recent work

Examples of our work in this area include

  • advising listed corporates on the application of the latest edition of the UK Corporate Governance Code including board composition, succession planning and board committee terms of reference
  • advising corporates (both listed and unlisted) on the new reporting requirements under the Miscellaneous Reporting Regulations, including advising on some of the practical considerations in preparing the new Section 172 statement
  • advising listed corporates on compliance with the continuing disclosure obligations under the UK listing regime and the Market Abuse Regulation
  • advising listed corporates on the annual reporting cycle including advising on AGMs, audit tenders and the quality of reporting on corporate governance
  • advising multi-strategy global asset managers on matrix-management and its relationship with local governance requirements
  • advising in-house asset managers or global pension scheme sponsors on the division of responsibilities between scheme trustees, employer/sponsor and service providers

Contacts and further reading

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Neal Watson

Relevant commentary and briefings

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Sustainable business

Visit the Sustainable Business Hub to read more about ESG and Sustainable Business.

Sustainable business
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