Large listed companies have long been the focus of investors and media outlets across the world. The size and clout of these companies are often regarded as a benchmark for the health of global financial and industrial markets, and therefore, their performance is heavily scrutinized.
It has been accepted, but often undervalued, that private companies — those that are family-owned, founder-managed, private equity-backed, or simply not listed — can support economies in a robust way that their listed peers sometimes cannot. While international private companies are affected by the same market forces as listed companies, there are many that are either more specialized or more localized and can, therefore, be insulated from the worst of global economic change.
Many global markets are in a growth period currently, but international trade wars are breaking out, and corporate performance in many sectors is not what it has been in the past. This has prompted many governments to offer renewed support to private companies as the main drivers of growth. There is a heightened interest in private equity-backed or venture capital-backed companies and start-ups, as they are perceived as vehicles for quick growth, as well as advocates of overall innovation. While this attention is nice to have, it also comes with closer public interest and a wider investigation of the practices that are used to manage their businesses.
Those who create or run private companies are experts in their field, but sometimes lack a focus on financial governance and risk management. Introducing an audit committee would be one way to address this. It is something that private companies may not have seriously considered before, but should.
Rather than constraining a company’s performance, audit committees have been shown to improve the rigor of governance measures, protect current and future growth, and foster transparency through independence.