The secret business of private equity (PE) is now open for a structured debate on the issues of transparency, disclosure and the possibility of developing an agreed voluntary code based on the comply or explain principle which has worked well for public limited companies.

As a first step a 50-page interim report has been submitted by Sir David Walker on how best the PE can comply with the rules of corporate governance. In effect it asks for more transparency and disclosure and proposes a framework for debate ahead on producing a voluntary code.

Sir David, a former director of the Bank of England, was drafted in by the British Venture Capital Association (BVCA) to conduct an independent review in the wake of a growing fear that a government crack down was imminent as criticism sparked by heavily debt-financed buyouts of household name companies and accusations of asset stripping and casino capitalism by unions were becoming too shrill to ignore.

The report - which did not touch on the subject of tax as that was not within its remit - will now be the subject of a three-month consultation period, before the final findings are compiled in November.

Sir David appointed to lead efforts to reform the image of private equity accused the industry of being "incredibly myopic". In the midst of a mounting storm over the activity of private equity companies, he said: "I use that term quite deliberately. They have not seen that they have obligations to the wider community. They have grown very quickly but they have not seen the need to complement that."

The report while insisting that private equity needed to become more open warned against letting the process to erode its capacity to act as a positive agent of economic change.

The report has called for greater openness and public engagement on important issues—like levels of debt, ownership, and employee relations. The report wants firms to report more about the companies they invest in, by publishing annual reports and details of their boards and balance sheets and also about themselves, their executives, their performance and their investors. And it suggests that the industry as a whole release more data about fees and about investment returns.

The report has called on the major private equity buyout houses to contribute generously to create a "centre of excellence" in the industry's main lobby group.

Firms such as KKR, TPG and Carlyle have been asked to dig deep if the BVCA is to be suitably strengthened to promote and defend the industry in the face of the growing storm that surrounds it. Sir David believes the BVCA could and should become a central plank within the sector, acting as a collector and aggregator of independent data, as well as chief lobbyist. He believes data should be collected on the scale of funds raised, categorising investors by type and geography, as well as data on leverage and debt structures, plus estimates of aggregate performance measures for funds.

The industry-wide role is one of three areas in which the report has made comment. The second area is large portfolio companies, of which the report believes there could be "more than 200 and less than 500" in the UK based on the author’s criteria.

Such companies should adhere to an enhanced reporting regime, filing annual figures within four months of year-end; producing a brief interim statement; including a narrative on the company's values and its approach to employees, customers and suppliers; and statements on the level, structure and conditionality of debt.

In the third area of comment, the report argued that private equity houses should produce an annual review, naming senior UK management as well as outlining their philosophy on employees and corporate social responsibility. All this, the report believes, should be enshrined in a "comply or explain" doctrine, monitored by a group of trustees with "a mandate to review the continuing fitness" of the guidelines regularly.

It said that large companies taken out by private equity, such as Alliance Boots or the AA, which has recently merged with Saga, should comply with enhanced reporting standards to better inform stakeholders and combat a reputation for secrecy.

The report also warned of a "major transparency and accountability gap", and wanted them to issue accounts within four months of their year end rather than nine and to provide half-yearly figures to update staff and business partners on progress.

This, observers said, would apply to companies bought out from the FTSE 250 list of Britain's biggest quoted companies and to any business where the equity component in a buyout was worth more than £300 million. The annual reports should provide details of the composition of company boards, identifying which directors are executives at private equity firms and which are businessmen brought in to provide outside expertise.

According to the report it would be "quite wrong" to require these companies to appoint non-executive directors, charged with representing shareholder interests, because they would impede communications between the owners and management of private equity-owned companies. And private equity firms should spell out their values and approach to doing business, publish an annual review of their operations and details of how their funds are performing, and be more accessible to the media and other interested parties.

The final major recommendation is for the industry to co-operate in data collection on issues such as job creation and contribution to the economy through an expanded and enhanced BVCA. This, it said, would help to refute "widespread misconceptions". Enhanced reporting could be extended to other large private businesses such as Sir Richard Branson's Virgin operations.

But the report insisted that a code of best practice should be voluntary and that firms failing to comply be given an opportunity to explain why as firms that fail to observe best practice will find themselves under a great deal of pressure.

Trade unions have, however, responded with skepticism to the report.

Some said the paper was “quiet on workers rights to the point of trappism.”

Others said the proposal for more communication with staff was too vague.

They said workers should be fully informed and consulted on the plans for their futures before a takeover and their terms and conditions protected on transfer. They should be able to apply for a blocking injunction if private equity doesn’t come clean. Private equity owners will have to be stripped of their limited liability privileges, be forced to pay tax like the rest of us, and no longer be able to offset interest payments against corporation tax.