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Item 5: Coping with intergenerational shifts

Audit committee outlookThe baby-boom generation will be one year older in 2017, and that’s the point. While the World War II generation has largely left the private company stage, at least as active managers, baby boomers (born 1946–1964) continue what has been a slow transfer of power. Reluctance to yield active management and decision-making to the next generation can create tension in private companies, which often lack rigorous succession plans.

While mainly a board and CEO matter, management succession planning, intergenerational shifts and next-generation readiness (or lack thereof) can create issues that should make their way onto audit committee agendas.

For example, key tasks for the audit committee would include:

  • Gauging the risks that attend transfer of ownership and management to the next generation, and those of not preparing the next generation to assume responsibilities
  • Understanding the succession plan that transfers ownership, with an eye toward how the plan minimizes risks, optimizes value and safeguards company assets
  • Adjusting the company’s risk appetite to reflect factors such as next-generation readiness, and the timing of investments in controls and organizational governance

Tensions can arise among family members when younger owners and managers want to take a family-held company in a new direction, invest in new technology or expand internationally, and older owners and managers resist. Risks arising related to family conflicts may not be adequately addressed, and lead to significant losses in value and opportunities.

Given its risk oversight role, the audit committee should advise the board on risks associated with generational and succession issues. Ownership, management and the board can then work within the organization to address these issues through leading practices in succession planning and implementation.