The Private Equity Reporting Group (PERG), formerly the Walker Guidelines Monitoring Group, has published an updated version of its guidance on good practice reporting by private equity portfolio companies under the Walker Guidelines. The substantive content of The Guidance for Disclosure and Transparency in Private Equity (March 2016) remains largely unchanged from the version published issued in July 2014, but the examples have been updated and the specific examples of greenhouse gas emissions disclosures have been removed.
The Walker Guidelines were first introduced in 2007 and require certain private equity firms and their larger portfolio companies to meet enhanced rules on disclosure on a ‘comply or explain’ basis. The Walker Guidelines also require enhanced narrative reporting by certain portfolio companies of those firms. Portfolio companies within the scope of the Walker Guidelines must comply with nearly all of the strategic report requirements for quoted companies under section 414C of the Companies Act 2006.
PERG monitors the ongoing relevance of the Walker Guidelines and industry compliance with them. PERG's objective is to ensure that all companies covered by the Walker Guidelines report to a level comparable to current good practice in the FTSE 350, with an emphasis on the better performers in that group, typically the FTSE 250.
The Guidance for Disclosure and Transparency in Private Equity (March 2016)
The objective of PERG’s guidance is to illustrate how the Walker Guidelines should be implemented and to share examples of good practice. The Guidelines are not a comprehensive analysis of how any individual company complied with any particular guideline criterion, but set out different attributes and styles of reporting that have been determined to have at least some of the good practice qualities.
According to PERG, its most recent review demonstrated a good level of compliance across the majority of the Guideline criteria and trends identified from this review highlight the following areas where additional focus will result in an improved level of reporting:
- gender diversity – this needs to be a greater feature of the annual report, with stronger narrative on the policies in place;
- commentary on human rights – this needs to be included in line with increasing regulatory emphasis, such as the introduction of the Modern Slavery Act 2015 (which impacts financial years ending on or after 31 March 2016). All companies need to consider how they are addressing compliance with human rights matters and include a discussion on this;
- business model – the presentation of a business model is an essential part of understanding the business. According to PERG, this has been a weaker area as a new requirement, although this can be addressed by ensuring that the presentation articulates how the business creates value and linking this to the strategy; and
- identification of the private equity firm and board composition – a discussion on the identity of the private equity firm has always been an area of focus and any discussion on this and details of board composition should be transparent.
PERG emphasises that all the Guideline areas require careful consideration to ensure good practice can be achieved and points out that the level of disclosure will continue to expand as the corporate reporting legislative environment evolves.