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Corporate governance: its importance for unlisted companies

cabeceragobiernocorp
Based on “Recomendaciones de Buen Gobierno Corporativo para empresas no cotizadas” (“Recommendations for Good Corporate Governance for unlisted companies”), an excellent study realized by IE Business School and Grant Thornton, from Private Investments Network we want to point out several recommendations and best practices for unlisted companies that we have found most interesting.

 “All companies have to ensure an environment characterized by quality and integrity of information that is used by the Board of directors to take the best decisions”, claims Antonio Garcia-Lozano, Consulting Leader at Grant Thornton.

Listed companies follow corporate governance policies that are essential for the relationship with shareholders and, a logical question that the study sheds light on is: why not follow such policies in unlisted companies in order to achieve high performing boards of directors?

 “Unlisted companies make up 85% of the Spanish industrial landscape. Nevertheless, the majority of the legislation and recommendations in force, as far as good corporate governance is concerned, is directed exclusively to listed companies. Extending good corporate governance to more business segments implies strengthening the sustainability and development of our companies and, by extension, our economy and society”, says Tomas Garicano, director of Good Governance Centre, professor at IE Business School and Senior Advisor in Corporate Governance for Grant Thornton.

The study is aimed at unlisted companies with an annual turnover higher than 750 million euros or an average personnel of more than 1,500 workers. Following, we highlight the main recommendations:

  • The partners have to establish a corporate governance framework that, taking into consideration the regulations in force, adapts to their needs, their size and to the complexity of their operations
  • It is appropriate distinguishing amongst the governance activities, administration, approval and supervision, entrusted to the board of directors, and operational management activities, entrusted to the executive board and the organizational structure of the company
  • The members of the board of directors need to allocate the time needed to perform the tasks, meet periodically, assist to convened meetings and rely on timely information, the necessary advice and adequate training
  • To ensure the transparency of information, it is recommended that companies disclose in an official channel the required reports or volunteers (auditor independence, committee reports and audit appointments and remuneration, if any, related operations and corporate social responsibility)
  • There should be an information system that allows reviewing of topics prior to meetings and gathering, facilitating communication between members and optimizing meetings
  • It is advisable to maintain sufficiently comprehensive minutes. The minutes of the meetings of the board are a reflection of what happened in those meetings and the relevance and depth of the issues discussed. They should be broad enough to capture both the matters discussed, such as the views expressed by the directors and their decisions made, avoiding various communication versions.
  • It is important to have a system of relations with shareholders, allowing one to know their opinions, interests, and expectations; particularly when they are not all represented on the board. The system should have a continuous relations approach over time, aiming for a periodic relationship that goes beyond the meetings of the board of directors or holding the annual general meeting.
  • One should at least communicate: financial and non-financial information, internal and external, of the present and future; that includes at minimum the issues related to the present situation and financial prospects of the company, the strategic plan, and its implementation risks, regulatory compliance, market and competitors; and, aspects of internal management and human resources.

From Private Investments Network, we offer a tool that allows unlisted companies to follow these policies within a private and secure environment, providing solutions to enhance the relationship with shareholders and other internal stakeholders.

The features of our platform allow one to maintain a transparent, segmented, and secure communication, managing processes such as: meetings, tasks, metrics, documents and even capital increases.

If you would like to know more details about how Private Investments Network helps companies, click here.

 

Family businesses and the relationship with shareholders

Family Businesses
Family businesses are increasingly experiencing a lack of a formal, fluid channel of communication and disordered communication within their company. They encounter decentralized information and a lot of work in completing reports. This leads to difficulty managing meetings and completing their assigned tasks.

Based on a study from IESE, launched earlier this year, we decided to highlight some of the most relevant points concerning family businesses that influence the way they communicate and their relation to shareholders.

  • Family businesses represent 85% of all Spanish businesses and create 75% of private sector employment, based on data from the Instituto de Empresa Familiar en España (Institute of Family Business in Spain).
  • Nearly 80% of respondents considered that the existence of formal communication mechanisms promote family involvement within the business, strengthening the evolution and the growth of a company, helping them convey family values, contributing to the continuity of the company and improving the quality of family relations.
  • Almost 60% of respondents said that in their companies there was no formal communication mechanism intended for family businesses. In the majority of cases, there are no established processes, nor tools, nor channels to communicate with stakeholders of the company.
  • 64% of family respondents enjoy family meetings in order to convey corporate information. The majority of respondents acknowledge that the communications with partners and shareholders is not as fluid as it should be.

In this light, Private Investments Network presents a solution:

The Private Investments Network platform facilitates the use of a tool for managing corporate information by allowing family businesses to:

  • Have a formal and fluid channel of communication with the possibility to segment stakeholders into groups
  • Have centralized information with a historical record and the ability to conduct automated reports
  • Have a simple tool to manage meetings with a historical record of calls, documents, and assigned tasks
  • Display information about KPIs that are predefined and automated
  • Manage documents on the platform at any time, including controlling access to them, as well as modifying the documents and creating several versions
  • Identify the value of the business’s unlisted shares
  • Have the option to open for intentions to buy and sell shares between shareholders and potential investors, while limiting their access and determining specific period of time for buying and selling

Furthermore, Private Investments Network’s key features continue to add value to different users of the platform

Family members:

  • Have a straightforward family members’ forum system that allows users to open a topic and invite other users to see and comment on it
  • Determine limited access and the possibility to designate view-only access to documents
  • Have direct links with access to the meeting agendas and voting enablement
  • Click to call, allowing shareholders to automatically call a basic help line service open from 9:00 to 18:00 on week days, including 6,000 incoming calls

Corporate Administrators and Managers:

  • Enable voting with specific span
  • In the details of the agenda, one can report an issue, describe every article and specify assistants
  • Add documents and determine whether they are read-only or can also be downloaded and/or printed
  • Report, during the meeting, the number of those present and remote assistants
  • Have the possibility to create a new “Responsible” manager to validate changes of secondary managers
  • Have the possibility to indicate, for every shareholder, the number of any series of shares

Board of Directors:

  • Have a private portal created in the cloud in order to have a different server from the intranet for shareholders
  • Have classified information that is restricted to the board of directors in a distinct environment
  • Allocate one’s own corporate administration manager that can be the same or different from that of the general platform
  • Have each system with its own information independently, without unwanted synchronization

Managers of large volumes of information:

  • Intelligent search engine for the shareholders list
  • Possibility to export to Excel the information available on the screen (investors list, the list of assistants to a meeting, and more.)
  • More options to segment the permits of a manager

Are you in charge of managing corporate information in a Family Business? Tell us your experience by leaving a comment here.

Fdo. Helena Lopes y Sara Jokinen.

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What is RegTech?

RegTech

RegTech is a new concept derived from the definition of FinTech primarily signifying the technology applied to resolve issues regarding regulation within the financial industry. It helps companies to better manage and understand their legal risks as well to easily adhere to their regulatory obligations.

This is due to today’s new technologies giving rise to new regulatory necessities and the market’s legal framework often being slow in adapting to and accompanying the speed of these changes within the environment. After a disruption of the market, through new FinTech solutions arising, RegTech helps to adapt the regulatory, financial services and general professional services sectors to these changes.

Adapting to the speed of these changes is key for companies and the governments of any nation, guaranteeing that all those involved will benefit from the arising innovations within the financial industry. In this sense, the technology acts as an important frame of support to expedite, integrate, and automate this process of adaptation to regulations and even to create and audit, therefore offering security and reliability for these governments and companies involved.

The consulting company, Deloitte, announced in a report released in January this year that RegTech could already be considered the new FinTech, referring to companies that offer technology for the financial sector, a concept which is currently trending.

This roots to their belief that that there is a hole that is not being completely considered in the innovations and trends of the financial sector, simply described as the norms and regulations in place.

regtech
Similarly, an article released this March by RegTechFS discusses how regulators were often left out of the conversation of technological advancements, as they were not previously involved in how business is conducted. Filling this hole not only provides regulatory systems an opportunity to progress, but also allows other industries to move further along, not being held back by regulatory challenges.

According to the Deloitte report, “in the short term, RegTech will help companies to automate prevalent tasks of compliance and to reduce the operational risks associated with compliance and reporting obligations”.

Applying technology to issues of regulation is not particularly new, however some of the characteristics that bring and differentiate the concept of RegTech specifically are agility, velocity, integration and the possibility of analysis. According to the Deloitte report, RegTech “provides executives a higher level of opportunity to introduce new capacities that are designed to take advantage of the systems for the obtaining of normative data and the presentation of reports in a profitable, flexible, and timely manner, without running risks of replacing the existing legal systems”.

Examples of companies (according to Deloitte) that already can be considered to be within the RegTech sector include:

  • Fund Recs: Based in Ireland since 2013, Fund Recs focuses on providing a reconciliation platform to progress data management and processes in the Funds Industry. Not only does this allow data leveraging to become more efficient, powerful, and cost effective; but Fund Recs believes that day-to-day business softwares should be well designed and easy to use, making the overall platform applicable to any business. Fund Recs recently took the step forward to also launch their VELOCITY platform for Fund Administrators to develop valuations efficiently.
  • Silverfinch: Part of the MoneyMate Group, establishes connectivity between asset managers and insurers by providing fund data utility through a platform that is safe and controlled. As a self-service tool by design, Silverfinch gives the user increased control whilst still offering training, support, and establishing connectivity within Silverfinch. Through this secure platform, competitors have no access to proprietary information, while insurers can still keep up with their solvency regulation requirements through connectivity with asset managers,
  • Trustev: Based in Ireland, this RegTech company combines machine learning and human intelligence to look holistically at data from online transactions and events. Trustev then scans these transactions, all in real time, to catch potential fraud. Allowing one to reduce fraud allows one to stop fiscal leaks and operative challenges faced by fraud, whilst not affecting the genuine customers that one interacts with.
  • TradeFlow: As a platform operated by Expeditors, TradeFlow provides information on tariff data and regulations, compliance, expected costs of various operations, and much more, to assist both importers and exporters in combating challenges they may face when partaking in international trade. Tradeflow operates as a supply chain tool to make international trade easier, by making international regulations easier to follow, therefore allowing global trade to grow.
  • Vizor: Now operating in 30 countries, Vizor serves both companies and financial regulators. Through Vizor’s software, a company can see and understand all their financial regulatory requirements and have full knowledge of any gaps. Regulators can easily track companies and see which firms are meeting their regulatory obligations. Not only does this create ease in meeting obligations, but it also shows that greater trust within this industry can be built.
  • Corlytics: The Corlytics Financial Fines Database is platform of financial fines providing information on a global scale on financial institutions, regulators, fining authorities, fine parameters, and more. Using analytics technology, the database is further connected to global cases and regulators, allowing further insight. Corlytic´s database allows companies access to trends and analysis, as well as the opportunity to identify potential risks and loss estimations.
  • KYC3: Founded in 2013, KYC3 focuses on three themes: compliance, counterparty risk management, and competitive intelligence. Providing instant reports from compliance, to political risk management, to networks of influence, and much more, KYC3 allows one to complete all due diligence tasks, be efficient, meet compliance regulations, and discover further opportunities and threats. Using big data, KYC3 delivers data mining and analysis solutions to you.
  • TheMarketsTrust: Based in Luxembourg, TheMarketsTrust provides solutions to risk analysis through insights into the financial industry and offering advisory services through financial knowledge and by leveraging their expertise of technology. Through an in-house research team, TheMarketsTrust aims to be both unique and customer-centric, providing solutions to one’s specific needs.
  • AssetLogic: As a fund information network, AssetLogic allows one to aggregate all their data and information into an online location in little time. Through this tool, one can share information and data with whoever they like, allowing more efficient use of this data. Not only will compliance work more effectively, but all sides of an organization will benefit, from investor relationships, to marketing, and more.
  • FundApps: This RegTech platform allows one to automate their compliance monitoring by entering a collaborative community in which industry experts manage the community and help companies be aware of threats and opportunities. Combining high-end technology and experienced industry experts, FundApps aims to deliver quickly, efficiently, and effectively, by harmonizing technology and content.

The advantages of RegTech can be well applied tools of:

  • Analysis of gaps in legislation and regulation
  • Real-time information
  • Compliance and investor relations
  • Information management
  • Reporting of transactions and regulatory reports
  • Storages of risk data
  • Data aggregation, analysis, and sharing
  • Loss, profit, and risk estimations

RegTech represents an opportunity to companies that develop this type of technology, although the challenge currently is to know to apply it well and to do so with an agile manner with regards to technological changes, offering a real competitive edge for companies.

Private Investment Networks similarly shares this vision on RegTech, both fostering and advancing the world of FinTech that we experience today. Through its many roles, RegTech can act as a facilitator of compliance for companies, allowing them to meet regulatory obligations, whilst also fostering the investors’ relations tasks that a company may conduct, as it does in Private Investments Network.

As FinTech advances, the hopes are that we can take a step back and see if there is a missing link or hole in this chain of innovation, as these RegTech firms have done, and consider how compliance and regulatory obligations can be both met with ease, as well as advanced to help our companies innovate further.

Fdo. Helena Lopes and Sara Jokinen.

Is there a Paradigm change in finance?

The financial sector is changing. Up until now, fast growth in this sector was possible only through external growth. The advance of technology and innovation are changing the scene, enabling the pioneers who easily adapt to change, to quickly acquire relevant positions, as shown by the example of Transferwise in the field of international P2P Transfer.

This underlying trend is reflected in an article by Dave Michaels published in Bloomberg. It refers to the US Securities and Exchange Commission (SEC) revision of the possibility to allow stock exchanges to launch less regulated markets in order to enable small businesses to obtain liquidity. When authorities of this kind start considering such changes, it shows that the trend is coming to the turning point for the whole financial sector.

“The US Securities and Exchange Commission revision of the possibility to allow stock exchanges to launch less regulated markets in order to enable small businesses to obtain liquidity.”

Analyzing this trend in more detail, we come across the first detailed study about the Crowdfunding situation in Europe. The University of Cambridge (Cambridge Judge Business School), has managed to gather the information needed to show, in this report, some extremely revealing (recent) statistical and historic data.

This publication explains that since the global financial crisis (in September, it will have been seven years since it happened), alternative funding has considerably increased in the US and Europe. In particular, it refers to: equity crowd funding platforms, peer-to-peer lending, reward based crowd funding, donation based crowd funding, etc., all of which offer investors several ways to invest, encourage innovation, create jobs and/or finance social causes.

“since the global financial crisis, alternative funding has considerably increased in the US and Europe.”

Some of the data reflected in this study, about Crowdfunding in Europe is:

  • A 144% growth in Europe in 2014 (in comparison to 2013).
  • A total amount of transactions in 2014 of € 2,957M.
  • A specific weight of the United Kingdom with a total of transactions of € 2,337M, and a yearly growth of 159%.
  • The top down ranking of countries with the highest number of online platforms is: the United Kingdom, Spain, France, Germany and the Netherlands.
  • 9,743 SMEs have been financed in continental Europe between 2012 and 2014.

This transaction volume is still to be put into perspective as it only represents 0,4 per 1,000 so of traditional funding according to EBAN figures (European Business Angels Network). That is what traditional banks and supervisory authorities still think. However, given the crowd funding exponential growth, one can hope that SMEs, the greatest engine of our global economy, will get from it the financing needed to keep growing, to innovate and to create jobs.

“given the crowd funding exponential growth, one can hope that SMEs, the greatest engine of our global economy, will get from it the financing needed to keep growing, to innovate and to create jobs.”

This hope is very important for Europe given the drastic reduction in traditional financing for this type of businesses, which is due to the current trend to overregulate banks, in order to try to eliminate the risk from their activity.

For this reason, this way of creating closer and less restrictive collaborations is attracting companies and investors. Will crowd funding consolidate and, in such a case, how will traditional banks adapt to this new emerging paradigm?

Guillem Comi and Carmen Zamudio.