The Annual Corporate Governance Cycle

It is the season of End of the Year and New Year parties and reception. At this time, many organizations reflect on the past year and set goals for the new year ahead. However, many think that this is just a tradition or a ritual, and are not aware that this a part of the governance cycle. Governance is a circular process of periodically repeating actions and events. The most noticeable circle is the annual cycle, which starts with establishing an annual business plan and finishes with the presentation of the annual report, approved by the external accountant.

Personally, I am truly looking forward to the plans for 2018, particularly in terms of (re)aligning the company’s strategy and process based on past results and changes in the environment of the organization. However, what are these specific changes? The answer is simple, the changes differ according to each sector and organization.

In general, there are a few trends that every organization should take into consideration when preparing plans. First among such trends are the disruptive technologies that fundamentally alter business models. By mentioning these trends, I refer to technologies such as crypto-currencies and artificial intelligence. Another trend concerns the geopolitical shifts characterized by the emergence of China as a global power and the implosion of Venezuela. A third trend regards the demographic shift, since we are living longer and having fewer children. Despite the positive aspects, one consequence is that the current pension system is unsustainable. One last trend is that there has been no economic growth for the last couple of years, and it is uncertain that 2018 will be a turnaround year.

I often wonder how well prepared the annual plans of organizations actually are. For example, was the organization involved in the preparation, or was it written by an external consultant? In the latter case, the management should sell the plan to the organization. Also, the New Year’s speech is an excellent opportunity to present the new course of the organization.

Much more can be said about this and other elements of the corporate governance cycle. We invite you to attend our next Masterclass on Corporate Governance 3.0 on February 22nd and 23rd 2018. For more information, please visit www.universityofgovernance.com or www.miguelgoede.com.