Responsibility of GP for Defining and Implementing the Corporate Strategy

Explanation

At the time of investment by a fund, the investment decision is typically made in support of a specific strategy, business plan and management team. Often, during the negotiation process leading up to the investment by the fund, GP has had significant input into determining the target company's future business strategy. Over time, this corporate strategy may need to be refined and modified.

Recommendation

The degree of activism of GP will vary depending on the nature and structure of the investment made, the size of its holding and the jurisdiction in which the portfolio company is located. GP should therefore ensure that its level of activism is appropriate in relation to the circumstances of a particular portfolio company and the fund's investment strategy/policy.

Consistent with these considerations, GP should be actively involved in setting the portfolio company's strategy through its representation on the board or, where permitted by the relevant corporate law in a particular jurisdiction, through the exercise of shareholder voting or contractual rights. Responsibility for implementing the strategy rests with the board and management team of the portfolio company. The GP should ensure that it remains informed of progress in implementing the strategy. Where appropriate, GP should in turn provide advice and guidance through its representation on the board or through the exercise of shareholder voting or contractual rights, where permitted, if the strategy needs to be refined and amended.

In addition, GP should ensure that the portfolio company understands the importance of having the right mechanisms and processes in place for responsible, efficient and appropriate decision-making and effective governance.