Getting practical with the “G” in ESG - a framework for private equity

“If management is about running the business, governance is about seeing that it is run properly.” - R Tricker

ESG pronouncements can seem too vague to be of much use. Let’s take the case of “G” in ESG; statements like “we have strong internal controls that ensure good governance” won’t cut it.

At its heart governance is the system of practices, controls, and procedures adopted in order to govern a company. Good governance should translate to effective decisions, compliance with the law, and meet the needs of external stakeholders. The best way to ensure good governance is to design and link your practices, controls and procedures with value creation and judging them with hard metrics.

Here we will look at some practical ways in which private equity managers and their portfolio companies can adopt good governance.

Investment structures

1. Can you access your investment structures across your funds and portfolio companies in real time?

Fund managers need to know how their portfolio companies are currently organised. Corporate structure charts are a key starting point in this regard.

Hard metrics: Ensure you maintain dynamic structure charts tracking all your investment structures that are easily accessible across your teams.

2. How easy is it for you and your teams to access underlying information on any of your investment structures or SPV?

If people frequently chasing information on emails or if you have fragmented systems then this is usually a red flag.

Hard metrics: Maintain a single source of truth across your investment structures. Link this with your dynamic investment structure charts such that you can use your structure charts as an interface to access underlying information on any of your SPVs or structures.

Compliance and controls

3. Do you and your portfolio companies have full visibility and control over your compliance obligations across all areas (e.g. tax, financial, or regulatory)?

If you don’t have a compliance tracker that is holistic (covers all areas) and dynamic (flags obligations based on events) risk management is extremely challenging and compliance lapses are inevitable.

Hard metrics: Ability to track and manage compliance obligations across all areas and investment structures in real time.

Corporate governance management

4. Can you easily track and monitor the composition of the board of directors, frequency of board meetings, board minutes and supporting documentation, tax residency risks, or operating guidelines across your investment structures and SPVs?

If this is not readily available or easily accessible, then it is usually a red flag.

Hard metrics: Ability to track and monitor the board composition and underlying board documents for each SPV through the dynamic investment structure charts.

Deal execution

5. Do you have a standardised deal execution process?

Deal execution is an often overlooked area, and done haphazardly, can result in significant time, cost and inefficiencies. Pain-points range from difficulty in on-boarding and integration to future audit findings and compliance failures.

Hard metrics: Ensure you have a standardised deal closing template that is automated to the extent possible.

Post-deal integration

6. Do you have a standardised post-deal integration plan?

Most deals have an integration plans. But the successful ones go beyond a mere plan to ensure execution.

Hard metrics: A technology platform that tracks and monitors all post-deal actions with clearly defined responsibilities and timeframes.


7. Are your portfolios ‘transaction ready’?

If it takes weeks to collate and curate information to kick-off a transaction, or if you frequently encounter diligence findings on portfolio exits that are as a result of procedural or compliance lapses, then your portfolios are not ‘transaction ready’.

Hard metrics: Ability to kick-off a transaction process in little to no time; and, minimise diligence findings due to compliance lapses

If you would like to learn of a platform that can help you achieve the above in a measurable way and create long term value then reach out to us at DealsPlus.

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