In the arena of private equity there is a strong requirement for reporting and accountability within the companies that have implemented private equity (PE). This is not just due to the fact that PE firms, mostly staffed by CAs, are looking to ensure rigour in the financial aspects of the business – they also monitor any progress against the strategic business plan of the company invested in.
This type of reporting helps keep the focus of the business on their ‘end game’ for success. This strong ethic of accountability is worthwhile because it’s well documented that by implementing corporate governance initiatives, there is value creation for the business itself.
LEADERSHIP STRATEGIC OBJECTIVES
Many of the business partners that chose private equity as a way to grow their business are entrepreneurs. Ensuring more precision within an entrepreneurial business is critical as the growth factor requires true leaders to respond to different circumstances and situations. Partnerships to grow businesses require attention and managing business strategy is the focus for most of these stakeholders.
As these companies evolve to incorporate sustainability and corporate responsibility into their business strategies, as well as corporate governance, a specific set of skills and level of accountability are required. These are intrinsically linked to the stewardship of a business. The Merriam-Webster dictionary defines stewardship as the careful and responsible management of something entrusted to one’s care. An ethical leader sets the tone for the company to continue doing business by remembering this and promoting integrity and fairness along with honesty in work. Good leaders guide, mentor and empower their team members. Any good private equity team that sits on a board will endeavour to drive and support the management team in the same way.
PRACTICALITIES
Often this will require an increase in the frequency of financial reporting. It means that there is a new awareness around risk management and ensuring that this done ethically. The importance of having the right people within the finance team who are transparent and rely on each other to ensure that the necessary ‘true’ information is available cannot be overestimated.
Similarly, whether it’s overseeing the organisational structure, managing people or designing and implementing strategy, leadership needs to make sure that staff is aligned with business interests.
Setting codes of conduct and having company policies that specifically address ethical behaviour is important, however communication of these policies and making them accessible and visible to employees are necessary. Additionally, it’s imperative to ensure that all employees understand the consequences of any inappropriate actions. Leading by example is one thing, but actively instructing employees that unethical behaviour will have severe penalties for the person involved is another. Policies must also be applied, and where unethical behaviour is identified, the consequences must be consistently and fairly applied.
This behaviour will of course also impact co-workers, the business and possibly even customers. It may be worth considering including this in any new employee induction course or letters of employment.
OUTCOMES
Ideally, what the private equity sector would like to see is that by partnering with players in the sector, organisations not only receive funding, but are able to up the corporate governance within the business.
Private equity teams usually have experienced and knowledgeable people who have been exposed to a number of sectors. They can serve not only as financial advisors but are able to share previous examples of similar challenges and how they were dealt with or at the very least, know who to approach for assistance. Overseeing careful tactically calculated risks and of course can be utilised as a value creation tool.
Private equity is an enabler of businesses, and constantly looks to create and support growth opportunities. It is really only by ensuring that well run profitable businesses empowered by corporate governance are succeeding that we can ensure a growing sustainable economy.
Author
Liz Kolobe, Principal Transactor, Agile Capital (Pty) Ltd
