Corporate Governance: Why Finance and Planning Matter

Finance and planning are central to corporate governance because they influence a business's ability to remain viable.

Finance and planning within corporate governance

Finance and planning can support the board through a committee or other internal body that reviews whether actions reflect the board's decisions. 

Planning helps organizations put their mission into practice and move toward their vision.

Strategic planning is especially important for investments, financing, and budgets that affect growth and continuity. 

Planning within organizations

Short-, medium-, and long-term plans can guide progress toward goals and help assess results.

A sound plan describes how resources will be managed and how risks will be identified, anticipated, evaluated, controlled, and mitigated. This can increase confidence across the organization. 

In the governance model described here, management prepares a strategic plan and submits it for board approval, with advice from a supporting body. The board and that body should consider the organization's full value chain and changing market needs.

Finance and the board of directors

The supporting body can review investment and financing policies, assumptions behind the annual budget, and financial controls, then advise the board on management's proposals.

Suggested practices for the supporting body include:

1. Study and recommend the organization's strategic direction to support long-term stability.
2. Review management's planning guidelines and monitor implementation of the strategic plan.
3. Consider economic and social value for shareholders, employees, and other stakeholders.
4. Check that the strategic plan aligns with the long-term direction set by the board. 
5. Review management's proposed investment and financing policies and give the board an opinion.
6. Examine the annual budget assumptions and follow their implementation and controls.
7. Assess proposed policies on treasury management, financial derivatives, assets, and liabilities for alignment with strategy and the company's normal activities.

Suggested practices for the board of directors include:

8. Devote time each year to defining or updating the organization's long-term direction.
9. Review and approve management's strategic plan and monitor implementation with support from the relevant committee. 
10. Approve or reject policies on treasury, derivatives, fixed assets, and borrowing after considering the committee's opinion.
11. Review annual budget assumptions and controls with the committee, checking their alignment with the strategic plan.

Clear, ongoing communication helps finance and planning work effectively within corporate governance. Good practices matter when decisions are consequential.

EthicsGlobal supports better organizational practices and internal communication. Contact our advisers to discuss your governance needs.

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