Perspectives

Governance and succession planning in 2017

Private company issues and opportunities

Overview

Managing and growing a private company may take more decision-making expertise and leadership than ever before. The growing complexities of globalization, electronic commerce, risk and supply chains, to name a few, require greater professionalism among company leaders, board members, and a deeper bench of senior managers. As labor markets tighten, finding and retaining the best and most relevant talent and leadership often can be the biggest governance challenge facing private companies.

Issues

Between 1992 and 2011, the number of all US companies with 100 or more employees rose by 19 percent.1 Private companies have contributed to that trend, and as they have grown, they have faced increasing demands from a global marketplace. Boards are becoming more independent as companies seek a broader range of perspectives and experience, and senior management is expanding at many companies. A decade ago, many private companies had neither an independent board nor an advisory board. Now, many are formalizing their governance structures and professionalizing their boards to engage talent that can advise on the complexities that could impact a successful growth strategy. “The scale and complexity is driving the need for a broader range of influencers,” says Maureen Bujno, a managing director of Deloitte LLP, in Deloitte’s Center for Board Effectiveness.

In addition to the board governance layer, as companies grow, they should take a proactive approach to their talent model and recognize that the workforces of tomorrow will likely require different skills than those of today. As they become more global, for example, companies may need leaders who are knowledgeable about international business practices and customs.

Family-owned businesses can present special challenges, especially if some family members are not active in the business yet still have a stake in it. Many are looking for better ways in which family members can interact with the company. This is particularly important in succession planning, in which development of the next generation of leaders is critical.

Many private businesses may not consider talent and succession in terms of how they affect the company’s strategy and long-term sustainability, says Tom Plaut, a partner with Deloitte Tax LLP, who works with private companies on business succession planning. “You see this specifically with technology and governance issues,” he says. “Private company boards and executives have to work to understand the implications that technology has on the business, or at least be able to tap expertise when they need it.”

Opportunities

Private companies are adapting their governance practices to address these complexities. In the past, companies may have used word-of-mouth in hiring board members. Now, they are paying greater attention to the competitive landscape. “They might be looking at someone who was a chairman or CEO of a competitor or who worked in a similar industry,” Plaut says. “If they’re looking at selling the business, they might bring in someone with investment banking expertise.”


Bujno says many private companies also are looking more closely at education at the board level to contribute to the overall success of the business. “More focused skills and experiences in the company and in the board recruitment process often put companies in a better position to continue innovating and reacting to the competition,” Bujno says. Ongoing board education, in-house or through external programs, can help them better understand the business and the markets in which the company operates. “This can really help directors advise on growth strategies and related risks,” she adds.

Succession planning, which remains a governance challenge for many private companies and particularly for family businesses, should be seamless. The need for deeper management ranks can create opportunities for more family members to become involved, which can facilitate a wider selection of potential successors while keeping the company in the family. Regardless, a successful succession hinges on a shared vision for the future of the business.

Before companies can consider succession, however, they should consider formulating a deep understanding of the company’s strategic direction and how technology may influence it. Companies from map makers to newspaper publishers to kiosk retailers that depend on mall traffic have had their business models upended by technology. “You’ve seen such disruption of long-standing and well-established business models,” Plaut says. “Technology is such a key changer of businesses that boards need to make sure their strategy embraces technology.”

As private and mid-market companies continue to grow, they will face new complexities involved with governing a larger enterprise. But as long as the board matures along with the organization—from the standpoint of governance practices, board recruitment and succession planning—companies can enhance their decision-making processes and help align their expanding resources and strategies for growth.

Questions to consider

  • Is your board sufficiently independent, diverse and complementary to deal with the complexity of the global marketplace?
  • Do you have the leadership skills in place to position the company for the future?
  • How can you improve your company’s talent model to attract a workforce with the skills needed to compete and adapt to innovation?
  • Do you have the leadership and knowledge in place to expand internationally? If not, do you know where to acquire it?
  • What is your plan for continued education of the workforce? Do you have formalized plan for board education?
  • Is your succession plan clearly formulated to provide a seamless transition of leadership?

Visit the Private company issues and opportunities homepage to view a list of additional topics.

References

1 US Small Business Administration firm size data. https://www.sba.gov/advocacy/firm-size-data

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