El buen Gobierno Corporativo, la gran oportunidad para el Capital Privado

Corporate Governance,
the great opportunity for
Private Capital

By Alberto Terrón
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February 2024


By now, we are all (or almost all) aware of the relevance that sustainability criteria (ESG) have in the creation of long-term value for a company. However, we perceive that there is still a long way to go in the implementation of these policies, especially after a complex year such as 2023 where the macroeconomic environment has made access to financing difficult, and company valuations have taken time to adjust until well into the second half of the year, so the strategy of value creation in portfolio companies will become more relevant to maximize the return to revenue. LPs throughout 2024.

At Kingsley Gate we have held conversations over the last few months with Partners, Operating Partners and ESG Directors of the main national and international asset managers operating in Spain, with the aim of providing data that will allow us to design a reference framework with the best practices that are being carried out in the Private Capital environment related to sustainability and ESG criteria, especially those referred to a Governance. In addition, we have used a questionnaire to 20 managers whose commitment to sustainability has been more than demonstrated, to compare their points of view from three different perspectives: investors, the manager itself and portfolio companies.

Having a well-defined plan is not enough. Needs to be implemented and monitored

Undoubtedly, in the last three years there has been a progressive increase in pressure and intensity from institutional investors with respect to sustainability-related issues, as what was a trend a few years ago is now a necessity, as it has a direct impact on the value creation of companies. And, although the value generated by these criteria is often difficult to measure, most firms (88%) have a formal plan that includes detailed processes and indicators that allow them to position themselves as an ESG Player in the market. They also agree that "having a well-defined plan on ESG policies doesn't always add up, but, of course, not having one penalizes you".

At the same time, we see that there are no clear priorities when it comes to assessing the importance of each of the ESG criteria. The managers affirm that LPs seek to have well-defined governance practices where there is transparency in information and a high commitment from leaders to develop quality good governance policies. However, environmental and social impact prevail as priority practices for investors, over corporate governance.

Actions implemented to ensure excellence in portfolio company governance (% of implementation in surveyed companies)

*There is a strong focus on policy definition and transparency, and less emphasis on implementation, resources and monitoring.

Invest in specialized resources for sustainability

More than 75% of asset managers claim to have teams dedicated to the control, measurement and development of ESG policies, both within the management company itself and in investee companies. This gives us an interesting view of the importance of valuing these criteria and extracting tangible data that allows decisions to be made that lead companies to be recognized as sustainable in the market. However, these resources are not always dedicated exclusively to tasks related to sustainability management (56.3%) but share their time with the operation of the investees or even with their own investment tasks, reporting in most cases (60%) directly to the Partners or MDs.

To the extent that more importance is given to sustainability, the presence of positions that have sustainability as the fundamental mission of the role increases in proportion to the roles that have sustainability as an assignment.

While having dedicated resources is important to advance in the implementation of sustainability practices, we believe that it is even more important to have "grounded processes", for example, compensation policies that are linked to the achievement of ESG objectives both at the level of the manager and the investee company. This continues to be an area of pending development to accelerate the commitment to sustainability, since, although there is an increasing trend compared to previous years, more than half (64%) of the portfolio companies still do not have remuneration packages associated with the good work – in the field of sustainability – of their executive team. especially in the case of CEOs.

We are convinced that the moment a single person is appointed to firmly lead the evolution towards sustainability, with clear, measurable objectives with a rewarding impact, and imprinting a genuine sense of purpose, there will be a "snowball effect" that will drag the rest of the management team along.

Practices most used by asset managers to align their executives with ESG policies (% of implementation of the companies consulted)

*Note the almost non-existent implementation of specific remuneration practices for CEOs linked to ESG

Without the G there is neither E nor S

Corporate governance is not simply a set of rules and regulations; It is a strategic framework that determines how a company makes decisions, self-regulates, and relates to its stakeholders. In the Private Equity environment, although there is a certain tendency to "focus" on the environmental and social sphere, there is growing sensitivity to the importance of Governance, especially when looking at exit or divestment processes, so we have no doubt about the growing commitment of managers and investee companies to the development of robust governance to increase investor confidence, strengthen reputation in the market, drive operational efficiencies, and contribute to long-term value creation.

Perception of the impact of Governance on value creation in portfolio companies (% of respondent responses)

*73% of the asset managers surveyed believe that the impact of implementing good corporate governance in their portfolio companies is high.

Throughout our conversations, we have found that the vast majority (82.4% of cases) consider that they have designed adequate governance policies, where the Board is committed to issues as diverse as sustainability, diversity, the regulatory framework, transparency and ethics, risk management or the separation of roles between the executive team and the Board to avoid conflicts of interest. However, beyond the more formal aspects of governance, there are varying degrees of satisfaction with the real impetus that advice brings to the definition and drive to value-creation strategies.

Degree of compliance with good governance practices at board level in portfolio companies. (% of respondents' responses, at different levels of compliance)

While the responses demonstrate a healthy ambition to meet, or exceed, "formal" standards, we see areas for improvement:

  • On the one hand, in terms of the actual monitoring of these good governance policies, since only a third of the defined indicators are audited and included in the Corporate Social Responsibility report.
  • On the other hand, in terms of the contribution of Independent Directors to the creation of value in portfolio companies. Undoubtedly, this is one of the most recurring issues throughout the conversations we have had and which highlights the growing concern to have Directors who, in addition to increasing knowledge of the target industry, really promote the contribution of the rest of the Board through their independence, good judgment and commitment to the definition and implementation of strategies to create value for the business.

Of course, it is conceivable that, if the selection of directors is based on the fiduciary culture, based on trust in the person, and which, in most cases, is carried out through acquaintances and personal networking, and only one in 7 Directors is incorporated through a process of specialized advice, The result in terms of value contribution is significantly below the expectations of managers and investors.

It is very difficult to find Directors who are truly committed and at the same time bring real value to decision-making. In my 20-year career in PE I have seen very few that really make a difference
In general, Independent Directors are not sufficiently aligned with our vision and expectations in terms of value creation. We feel that they don't have the real independence required for this type of role
We're looking at separating expert roles (in the industry, or in specific functions) and building an "advisory board," while maintaining a smaller board of directors made up of the people who actually help define and implement business strategies


In the complex environment of private equity investments in Spain, corporate governance is a critical component for the generation of value and the sustainable success of companies. For mid-sized funds, implementing effective governance practices is not only a regulatory obligation, but a smart strategy to ensure viability and prosperity in the volatile business landscape.

We believe that, although progress is being made in the right direction and sensitivity to good corporate governance is becoming more and more pronounced, there is still a long way to go to design, but above all to implement, more robust sustainability plans that, born from the managers and together with the ambition and support of institutional investors, accompany the corporate strategy to create both economic value and long-term growth. Today the focus is on formal compliance with the standards defined in the market, that is, on what "must be done", but the value of implementing and applying adequate good governance practices is not being maximized. The moment this happens, there will begin to be a genuine sense of purpose, and a true appreciation of the value of good government.

Likewise, executive remuneration models associated with the achievement of ESG objectives must be clearly incorporated to attract talent that really constitutes a key differential in decision-making from both governing bodies and executives.

Finally, we are convinced that the contribution of independent directors will increase exponentially when selection practices based on two current paradigms are abandoned: knowledge of the specific industry and personal confidence. Betting on attracting and incorporating talent for their strategic agility, experience in transformation and ability to make the right decisions, bringing together a complementary and cohesive team, will be the great instrument for generating value, which managers will not be able to – nor will they want to – do without.