Which piece of regulation about annual reports do you like the most when it comes towards being both investor friendly, and crucial? Could you also explain why?
From an industry-friendly and mission critical perspective, Section 134 of The Companies Act, 2013, and Revised Clause 49 of the listing agreement have all the key elements of good governance. It covers ethical conduct of business, transparency and fairness in reporting, Board/Management accountability, aspects of ESG towards sustainable, and responsible business and stakeholder engagement. It holds Leaders and Directors of the organization accountable for the management of the business and its shareholders.
The stated regulation calls for systematic validation and approvals at various touch points, leaving no stones unturned when it comes adherence and credibility. The process includes the approval of financial statements of the organization, which are signed by the Chief Executive Officer, Chief Financial Officer, Company Secretary and the authorized signatory, and accompanies the auditors’ report. The Directors’ report, prepared by the Board of Directors, provides highlights of the company’s financial performance. Directors’ responsibility statement, included in the Directors’ Report, has guidelines to state that the financial statements comply with guidelines laid out by standard bodies such as Ind AS and SEBI. It captures the performance of the Board and Key Managerial Personnel (KMP), statement of compliance with corporate governance requirements, risk management, ESG efforts, and explanation to adverse remarks in the audit report.
The Management Discussion and Analysis provides economic, industry and business outlook, opportunities and threats, segmental reporting, internal controls and adequacy, and financial performance connected with operations and human-resource data. All this information helps forward-looking organizations to delineate their outlook and road ahead.
Which piece of regulation do you like the least, and which possibly could be done away with? Why?
Each regulation contributes to the governance mesh, strengthening the standards further. Elimination of any standard could compromise the controls and impact. It would do well for organizations and governments to comply and collaborate to ensure adherence is seamless.
Can you suggest at least a couple of ways in which compliances could become more meaningful without impairing investor friendliness? The idea is to make the annual report less cluttered with details but more relevant to investors.
For compliance to become meaningful, it will have to be an integral part of an organization’s DNA. One way to make this happen is to nurture a culture of appreciation, accountability and discipline across three levels – creation, translation and consumption of information. The creation stage allows business users to capture data with integrity across operations and delivery in its cleanest form. New-age tools and technologies allow the filtering and translation of this data into actionable insights. A simple, easy-to-use interface could allow for last mile adoption of actionable insights to make informed business decisions and create positive outcomes. Insulating the three layers with stringent governance will ensure no slips and misses are made.
Further, establishing formal processes, policies and standards, ensuring accurate record keeping, monitoring compliance, and investing in compliance tools will all be equally important towards ensuring that compliance goes beyond an annual report season and becomes a way of life for the organization and its stakeholders.
Finally, industry standardization facilitates comparability in reporting and disclosures and benchmarking organizations in terms of best practices, committed goals vs achieved results, comparison against competition, and contribution towards sustainability.
Would you like a forward looking statement in annual reports? If yes, what would such statements include? If no, please explain why?
As an organization, a road ahead charter is always necessary. Forward-looking statements in this regard become guardrails as organizations navigate and adapt this charter against seen and unseen macroeconomic, geopolitical, and environmental conditions.
The point to highlight is that the company’s outlook provided by the Board and Leadership is based on current economic conditions as at the time of issuing the forward-looking statements. The actual results, performance and achievements could differ in material respect against these statements based on the environment in which the company operates at a particular point in time. The company remains under no obligation to publicly update such forward-looking statements nor compensate stakeholders for any losses arising out of economic decisions.
Should penalties for company secretaries be compulsory and more severe, for allowing untrue statements creeping into annual reports? We would like you views on this because the CS is the nodal officer for all matters relating to corporate governance.
According to The Companies Act, 2013, the term ‘expert’ includes Company Secretary. This role also fits in to the broader definition of a ‘Key Managerial Personnel’ under the same Act.
As a nodal officer who reports to the Board on matters of compliance and an authorized signatory of the company’s financial statements, etc., a Company Secretary is obligated to maintain the sanctity of information provided and double up as the custodian who maintains trust between the organization, its investors and stakeholders. Annual reports authorized by the Company Secretary become the “source of truth” used by investors and stakeholders as they make their economic decisions. Any discrepancy or untrue disclosure could lead to corporate scandals, loss of investor confidence and impact the credibility of the organization in the long run. Therefore, in the interest of the organization and its stakeholder community, it will be crucial to put in place strong policies and penalties communicating zero tolerance to any unwanted behavior as part of the overall governance process.