The Need For Good Governance In Private Companies

The need for good corporate governance at privately owned companies is critical.  Given the growing importance of private companies to the global economy and the ever changing legal landscape affecting such companies, the need for privately held companies to have good governance guided by an independent Board of Directors is essential.

Public companies have been on the decline over the past twenty years.  Twenty years ago there were over 7,500 public companies in the United States.  At the end of 2017, that number declined to fewer than 3,700.  Conversely, the number of private companies in North America with revenues of between $50 million and $1 billion has risen to more than 30,000.

Given the dramatic increase in the number of private companies, the lack of proper governance/oversight at these businesses is a cause for concern.  This is especially true given the current media focus on sexual harassment, hostile work environment and employment discrimination cases; corporate fraud and embezzlement; and high profile examples of improper accounting practices and other financial reporting issues.

It has been my experience that many private companies don’t have an independent Board of Directors because of the perception that establishing such a Board means giving up control.  That is certainly not the case.  A properly functioning independent Board can greatly aid a CEO, especially if he or she is a large shareholder of the business.  Remember the Board’s fiduciary duty is to serve the shareholders.  Talented outside directors bring a wealth of experience to private companies that can be insular and resistant to new ideas that may challenge the “that is the way we have always done it” corporate mentality.

Finally having an independent set of eyes and ears to help private companies steer clear of employment, accounting and other legal issues and to provide proper guidance when such issues arise is an important part of good corporate governance.

As we reach the end of 2018 and the start of 2019, now is a good time to consider establishing an independent Board of Directors for your private company or expanding your current Board to include some talented independent directors.