More private companies are making key changes to their operations and procedures to remain competitive and profitable in an increasingly complex economic atmosphere. However, the results of a new study reveal that while companies are prioritizing corporate governance strategies, many are letting business succession planning fall by the wayside.
PricewaterhouseCoopers recently released the results of its Private Company Trendsetter Barometer survey, which revealed 80 percent of private companies surveyed are adopting new and more comprehensive corporate governance practices in response to the economy. However, when identifying the main areas of governance they would emphasize, business succession came in last.
Financial reporting led the charge with 73 percent of respondents prioritizing this category, while fiscal planning and regulatory compliance tied at 61 percent. Developing a long-term corporate strategy followed at 56 percent. Only 43 percent of private companies emphasized talent management and business succession as a core area of concern in their new corporate governance strategies.
PwC's Ken Esch notes that while today's economic environment requires companies to accurately report financial data, the failure to focus on a company's future may put them in a precarious position.
"Such an environment also underscores the need for a solid leadership pipeline," said Esch. "Many private companies, however, are neglecting this issue. Although failing to identify and groom the next leader has been a historical shortcoming among private businesses, it could prove especially problematic in today's economy. Lack of a succession plan suggests uncertainty about a company's future, whereas a clearly communicated plan signals that the company is here to stay."
Developing a sound succession plan not only ensures the legacy of a private company is carried on, but also enables businesses to plan ahead and account for financial, estate, and tax law issues that may arise when a private firm changes hands.