The Ever Shortening Business Cycles and What They Mean for Business Leaders

How the Modern Forms of Annual Reporting and Business Cycles Came into Being

The advent of the modern form of the corporation ushered in several changes in the way corporations and business entities are run and managed.

While hitherto, it was possible for feudal lords and highly wealthy individuals to own large businesses and trading firms, the concept of the Limited Liability Corporation, and the Publicly Held Corporation and Business Firms meant that these firms, by virtue of being held by shareholders who were not necessarily the large capitalists but ordinary individuals like you and me meant that they were accountable to the body of shareholders.

Indeed, as capitalist owners realized that they could raise large sums of money in the Stock Markets, and therefore, went in for IPOs or Initial Public Offerings, many of the pioneers of the early forms of industrial businesses started taking this route. However, being a publicly listed company meant that the business entities and the firms needed to be accountable and answerable to the larger body of shareholders as well as the regulators in addition to the stock exchanges and sundry stakeholders.

Thus began the concept of AGMs or Annual General Meetings where the executives and the members of the Boards of the large corporations released the financial statements such as Balance Sheet, Cash Flow Statements, and Profit and Loss Statements, all in the form of an Annual Report.

The Shortening of the Reporting Cycle

Indeed, Management Theory as it evolved mentions the importance of Due Diligence by not only the owners and the board members as far as these audited statements were concerned, but also by the other shareholders since they had a direct stake in the firm.

In addition, there were also demands from the regulators, the governmental ministries such as Finance and Company Affairs as well as Law, in addition to the Institutional Shareholders to release such reports from time to time in addition to the Annual Reports.

Soon, this gave rise to the trend of Quarterly Reports which was again “a neat division” of the Annual Cycle into Four Quarters each and this also ensured that the various stakeholders mentioned until now were satisfied about the financial health and the operational wellbeing of the business entity.

As Management Theory states, this enhanced the transparency and accountability of the ways in which large businesses were run since any instances of wrongdoing or malfeasance in the running of such firms was now hard to hide not only from the shareholders but also from the other stakeholders.

Reporting Cycles Have a Purpose Other Than Being a Media Circus

Thus, what we have is a trend of an Annual exercise of reporting and accounting which soon turned into half yearly and now, the current practice of quarterly reporting.

However, as can be seen from the discussion so far, such constant and continuous exercises tend to take much time from the executives and the Board Members and this is the reason the ever shortening Business Cycles of reporting and accounting have other implications as well.

Indeed, in recent years, the shareholders have begun to ask for more and this is the reason we have EGMs or Extraordinary General Meetings and Emergency Meetings whenever there is some crisis in the mode of Corporate Governance.

As can be seen from the examples of the Infosys, the TATA Group, and more recently, L&T or Larsen and Toubro, shareholders and especially the institutional investors have become more demanding and tough on the executives and boards of large firms.

In the United States, the rise of the activist shareholders who as the name implies, are mostly entities or individuals who spend considerable time and energy in taking an interest in how the firms and the business entities where they have stakes are run means that corporates have a hard time in meeting their constant and some would say, incessant demands.

The Pros and Cons of the Ever Shortening Business Cycles

Having said that, many management experts believe that this pressure ought to be maintained on the corporates lest corporate governance standards fall and hence, this is the reason why even reputable authors such as Philip Kotler quote the ever shortening business cycles as a positive development.

On the other hand, there is also a note of caution here and this is the aspect of not turning the whole exercise of releasing time bound as well as emergent reporting into a Media Circus that does not serve any real purpose except to entertain the viewers.

Indeed, as one of the co-founders of Infosys and the famous brains behind the Aadhar Initiative, Nandan Nilekani said about the real time reporting on the Infosys Saga, it risked being turned into a Reality Show where the substance is lost and instead, the only focus is on a continuous roll call of charges and counter charges flying thick and fast.

Thus, it is important to note that Business Leaders need to be monitored and at the same time, they should also be given the necessary time and energy to run their firms.

Pausing For Breath in the Digital Age

It is our view that the ever shortening Business Cycle is mainly a result of the Twitter and Facebook Age where everything and anything happens anywhere and everywhere and all the time thereby lending a Surreal experience to all.

However, as Management Theory states (though we are afraid this are age old findings and truisms), there is a need for business leaders to take a longer time view and not be bogged down by the short term or worse, the immediate moment as is happening now.

To conclude, while we as well as the business leaders live in a 24/7 nonstop world, there needs to be balance between the competing demands on our and their times for the overall good of the firms and us.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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