Europe’s private equity industry has offered to follow a new set of professional standards, including a corporate governance code, in an effort to fend off the prospect of tougher regulation from the European Commission.
But the European Venture Capital Association’s proposed reforms are still based on a self-regulatory approach. It wants to create its own standards enforcement regime, which would be overseen by the Commission or national regulators.
The Commission told the industry to clean up its act a year ago after a series of controversial takeover deals. These saw private equity funds using massive loans to buy successful businesses, which they then broke up and sold, or saddled with debt.
The EVCA outlined its proposals for reform in a recent submission to the European Parliament. It said it would establish common standards across Europe and require funds to follow a principles-based governance code, although it has not said what measures the code would include.
The European Parliament issued two reports last year (the Lehne and Rasmussen reports) that dismissed the self-regulation of private equity and called for new legislation to change funds’ behavior. Measures the Parliament called for include legal capital requirements for funds, better disclosure, rules on pay levels, limits on leverage, and measures to stop asset stripping.
European Commissioner Charlie McCreevy, who has to respond to Parliament’s demands, favors self-regulation. But recently he told the private equity industry that it had to “square up to its critics.”
EVCA chairman Jonathan Russell said: “The private equity and venture capital industry has an important role to play in the development of the European economy and is very much part of the solution, helping the EU through this period of unprecedented uncertainty.”
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