EVCA Guidelines and Good Practice in the Management of Privately Held Companies in the Private Equity and Venture Capital Industry 28 June 2005 Second European Corporate Governance Conference Luxembourg Georges Noël Director of Research, Public Affairs and Development EVCA

Introduction to EVCA  Established in 1983 and based in Brussels  Represents the European private equity and venture capital industry (PE/VC) and promotes the asset class both within Europe and throughout the World  Well over 900 members, mainly European  PE/VC fund management companies  Institutional investors (banks, pension funds, insurance companies...)  Professional advisors (lawyers, placement agents, investment bankers...)  National (European) Trade Associations  Over 40,000 companies financed, 6.5 million people employed and €156 million of equity invested

Introduction to EVCA EVCA strategic priorities  Strengthen the industry across Europe by maintaining a strong and relevant community of shared interests for European PE/VC players  Actively raise awareness to improve knowledge and understanding of the European PE/VC industry  Reinforce and develop professional standards for the industry  Protect the interests of the industry and promote a favourable environment for European PE/VC and entrepreneurship

Introduction to EVCA EVCA key services  Professional Standards  Public Affairs  Research  Conferences  Professional Development

Introduction to EVCA  Direct member involvement via EVCA’s seven operating Committees, led by industry specialists  Investor Relations Committee  Professional Standards Committee  Conferences and Member Services Committee  Tax & Legal Committee  High-Tech Committee  Buyout Committee  National Associations Committee  In addition, EVCA has a series of task forces and working groups on specific issues

EVCA Professional Standards Overview  Uniqueness of Europe versus the USA  PE/VC industry is a self-regulating industry  The most advanced professional standards of any alternative asset class  Code of Conduct  International Private Equity and Venture Capital Valuation Guidelines (IFRS/US GAAP compliant)  Reporting Guidelines  Corporate Governance  Governing Principles

EVCA Professional Standards Evolution A 22 year history so far…  EVCA developed and promoted a range of guidelines for the professional conduct of PE/VC fund managers  In respect of the management of their activities  And in their relationships with investors and portfolio companies

22 Year History GP (General Partner) level  EVCA Code of Conduct (1983) GP-LP (Limited Partner/Institutional Investor) level  Reporting Guidelines (2000, update planned)  Governing Principles and Sound Practices for Establishment and Management of PE/VC Funds (2003)  Valuation Guidelines (1993, updated 2001, International Guidelines 2005) GP-Portfolio Company level  Corporate Governance Principles (2005)

Professional Standards Framework LP GP Company Reporting Guidelines Governing Principles Valuation Guidelines Corporate Governance Code of Conduct

Corporate Governance Guidelines  Developed by EVCA Corporate Governance Working Group  Stakeholder and public consultation process (Autumn 2004 – Spring 2005)  Why these guidelines?  Good governance creates the environment for the attitudes, mechanisms and behaviours that allow well-informed decision making  Highlight the unique position of PE/VC funds  Applicable to a wide range of situations, circumstances and different investment stages  Multi-jurisdictional

Principles of Good Governance Format of the document  Questions  Explanations  Recommendations

Principles of Good Governance  Law and regulations  Integrity  Partnership  Long term view  Respect for shareholders  Transparency  Confidentiality

Principles of Conduct as a Shareholder  How should the PE/VC investor conduct themselves in relation to other investors in the business?  To what extent is the PE/VC investor responsible for the definition and execution of corporate strategy?  What are the PE/VC investor’s responsibilities in relation to performance information?  How should the PE/VC investor act in relation to the board?  To what extent does PE/VC investor have responsibilities in relation to other stakeholders?

Principles of Conduct as a Board Member  What are the key components of strategy that are the responsibility of the board?  What is the board’s role in relation to the identification and assessment of risk?  What is the board’s role in relation to the management of risk?  How should the board determine what a reasonable structure for and level of remuneration are?  What is the role of the management agreement?

Principles of Conduct for Management  How should management go about establishing the control environment?  What should the procedures for risk assessment involve?  How can management fulfil their obligations in respect of control activities?  What are the management’s responsibilities in relation to information?  What are management’s responsibilities in relation to information systems?  How should management approach communication of information?  How regularly should management review the performance and appropriateness of their corporate governance procedures?

Conclusions  EVCA has always recognised that the reputation of the industry, particularly as it controls increasing numbers of high profile companies across Europe, requires that PE/VC fund managers go further than the law demands through a process of self-regulation  Market forces ensure enforcement of higher standards by the PE/VC industry  Institutional Investors increasingly use EVCA and other guidelines as a basis for their investment decisions  Active ownership increases the value and strength of the company  Good governance is good for the company, good for the PE/VC fund and good for the fund’s investors

Questions & Answers

Thank you for your attention For more information on EVCA

Annex Additional Materials

Private Equity as an Asset Class Repayments + capital gains Commitments Divestments Savings and pensions Investments Private Equity Funds High-growth companies Institutional investors (Insurance companies, pension funds, banks…) Private Equity Funds Institutional investors (Insurance companies, pension funds, banks…) Saving accounts, Pension plans, Insurance contracts… Single Fund Structure Young Innovative Companies High Growth Markets Pension Fund Directive (Prudent Man Rule) Entrepreneurship The Financing Cycle of Private Equity and Venture Capital Investment EVCA ACTION