Corporate Governance For UK Private And Unlisted Companies

The principles of corporate governance are well established for UK public listed companies, and the perceived benefits of good corporate governance for those companies and their shareholders, the wider investment community and indeed the national economy, are well understood. Furthermore, in recent years corporate governance has received increased international attention because of (and has evolved as a consequence of) a number of high-profile scandals involving the abuse of corporate power and, in some cases, alleged criminal activity by corporate officers in relation to public listed companies. But what of corporate governance in the context of private/unlisted companies, which until relatively recently has received little or no attention from governance experts and policy makers?

In November 2010 the Institute of Directors ("IoD") published some guidance on corporate governance for private/unlisted companies in a paper entitled "Corporate Governance Guidance and Principles for Unlisted Companies in the UK" (the "Guidance"), which is based on the March 2010 guidance published by The European Confederation of Directors' Associations ("ecoDa") but which has been appropriately adapted for UK companies. The Guidance sets out 14 principles (see below) that provide appropriate guidance on corporate governance to directors and company secretaries of private/unlisted companies including start-ups, owner managed companies, family-owned companies, private equity owned companies and joint ventures.

It has been widely acknowledged that good corporate governance is relevant for all companies (not just listed companies) and ecoDa's initial guidance was born out of its observation that the global financial crisis in recent years has highlighted the importance of applying good corporate governance practices to businesses and that considerations of corporate governance should not be limited to listed companies alone. Therefore, ecoDa's guidance was issued in order to address the distinct lack of corporate governance principles which apply to private/unlisted companies, which account for the majority of businesses in Europe, and to assist such companies design effective corporate governance frameworks based on practical, pragmatic principles of good governance. Indeed, in a UK context, given that private/unlisted companies make a major contribution to UK economic growth and employment, the significance of corporate governance for such companies should no longer go unrecognised.

The Guidance follows, to a large extent, the UK Corporate Governance Code (the "Code"), which applies mainly to all companies with a premium listing of equity shares on the main market of the London Stock Exchange, and is intended as a practical set of principles that can be applied relatively easily by directors of private/unlisted companies to improve corporate governance. However, the Guidance has been adapted to address the particular requirements of smaller companies and, unlike the Code, there is no legal obligation for private/unlisted companies to...