Guidance for unlisted companies

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Kathryn King 02-20

Guidance for unlisted companies

Kathryn King and Jodele McConnachie from BPE’s Corporate team, look at recent guidance for shareholders, board members and other stakeholders to promote continuity and long-term success amongst unlisted companies.

What is the new guidance?

The European Confederation of Directors Associations (ecoDa) recently published updated guidance to provide principles of good governance focused on unlisted companies.

It is crucial to have clear documents in place to provide guidance for shareholders, board members and other stakeholders to help ensure continuity and long-term success of companies.

What does the guidance cover?

The guidance provides 14 principles of best practice which companies can adopt as appropriate based on their size and current situation.

The first nine principles can apply to all companies regardless of their size and are considered basic governance principles:

  1. Shareholders should establish an appropriate constitutional and governance framework for the company.
  2. Every company should strive to establish an effective board, which is collectively responsible for the long-term success of the company, including the definition of corporate purpose and strategy. However, an interim step on the road to an effective and independent board may be the creation of an advisory board.
  3. The size and composition of the board should reflect the scale and complexity of the company’s activities and take into account an appropriate level of diversity in its composition.
  4. The board should meet sufficiently regularly to discharge its duties and be supplied in a timely manner with appropriate information.
  5. Levels of remuneration should be sufficient to attract, retain, and motivate executive and non-executive board members of the quality required to run the company successfully.
  6. The board is responsible for risk oversight and should maintain a sound system of internal control to safeguard the company’s assets and the long-term interests of stakeholders.
  7. There should be a dialogue between the board, shareholders and other key stakeholders based on a mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders and stakeholders takes place. The board should not forget that all shareholders have to be treated equally, and that each category of relevant stakeholder should be treated appropriately.
  8. All board members should receive a proper induction on joining the board and should regularly update and refresh their skills and knowledge.
  9. Family-controlled companies should establish family governance mechanisms that promote coordination and mutual understanding amongst family members, as well as organise the relationships between family governance and corporate governance.

The final four principles are tailored more towards larger and more complex companies:

  1. There should be a clear division of responsibilities at the head of the company between the running of the board and the running of the company’s business. No one individual should have unrestricted powers of decision.
  2. Board structures vary according to national regulatory requirements and business norms. However, all boards should contain members with a sufficient mix of competencies and experiences. No single person or small group of individuals should dominate the board’s decision-making.
  3. The board should establish appropriate board committees in order to allow a more effective discharge of its duties.
  4. The board should undertake a periodic appraisal of its own performance and that of each individual board member.
  5. The board should present a balanced and understandable assessment of the company’s position and prospects for external stakeholders and establish a suitable programme of stakeholder engagement.

How does the guidance apply to your business?

These principles are provided as guidance only.  Whilst they are recommended, they remain voluntary and a questionnaire has been devised by ecoDa to help companies decide which areas they may like to implement.  The survey also allows company directors to sense check what principles they have already adopted and any others which they may want to consider within their organisation.  The questionnaire can be found here.

For support to review your existing corporate governance documents such as your current shareholders’ agreement or articles of association, or to put new corporate governance documents in place, contact Kathryn King at Kathryn.king@bpe.co.uk or call 01242 248419 or Jodele McConnachie at jodele.mcconnachie@bpe.co.uk or call 01242 248203 or contact another member of the BPE Corporate team

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