On 8 April 2010 the European Confederation of Directors’ Associations (ecoDA) (of which the British Institute of Directors is a founder) published its corporate governance guidance and principles for unlisted companies in Europe. The guidance is designed to provide a best practice framework for unlisted companies “of company processes and attitudes that add value to the business, help build its reputation and ensure its long term continuity and success”. ecoDA further comments that the corporate governance framework adopted should define “roles, responsibilities and an agreed distribution of power amongst shareholders, the board, management and other stakeholders”. ecoDA’s guidance and principles are primarily aimed at unlisted companies established by family owners and founder-entrepreneurs, but may also be relevant for subsidiary companies, joint ventures, state-owned companies and social profit organisations.
ecoDA sets out 14 corporate governance principles, nine of which are applicable to all unlisted companies, and five which are only applicable to large and/or more complex unlisted companies, unlisted companies with significant external financing and unlisted companies aspiring to a public listing. Where applicable, ecoDA recommends that the final five principles should not be implemented until the initial nine have been successfully implemented.
ecoDA also covers the following:
- Its rationale for focussing its guidance on unlisted companies - the main reason being that almost all corporate governance codes adopted to date focus on listed companies and have limited application to unlisted companies.
- Why corporate governance matters to unlisted companies - having a corporate governance policy in place could improve an unlisted company’s performance and internal efficiency, enable the company to better manage the fact that shareholders cannot easily exit the company and help the company to build its corporate reputation in line with the expectations of society.
- The main actors in establishing an effective corporate governance framework - namely shareholders, directors, management and stakeholders.
- The foundations for good governance - delegation of authority, ensuring no one individual has unfettered power over decision-making and ensuring that decision-makers are competent, accountability, transparency, conflicts of interest and managing remuneration.