Every effort that is put in to recognise excellently presented annual reports, is a long awaited need. M. Damodaran, chair of the jury, acknowledged the immense significance of this effort. He was the former chairman of the Securities and Exchange Board of India, and an advisor to several companies post his retirement. He and the jury – comprising Marezban Bharucha, founder and managing partner at Bharucha and Associates, Abizer Diwanji, senior partner at EY, Ketan Dalal, chairman Katalyst Advisors (and formerly from PricewaterhouseCoopers) -- sat down on 1 November to filter out the best and the most deserving for the First Best Annual Reports Awards 2022.
During the jury deliberations Damodaran pointed out that “this document, which is extremely useful, is a kind of challenge, both to the authors of the document if they are seeking to communicate and to those that are reading to see what they are getting out of it."
To ensure that the first ever such awards focussed on a manageable set of companies, we decided to focus on just nine sectors, which account for a large population of the companies in the corporate universe. The nine sectors included three from the BFSI sector – government owned banks, private banks, and other BFSI companies (including insurance, MFs and NBFCs). The other six were Consumer Goods, Energy, Metals and Minerals, Pharmaceuticals, Automobiles and ITES.
The jury team decided to keep the cutoff limit at Rs. 5,000 crore. This would help eliminate smaller companies. Another condition was that the jury would consider only those companies that had filed their annual reports by 31 August 2022. The reasoning was simple. You cannot be a good company if you cannot file your annual reports in time. The companies that file their results first are invariably those with better systems and a respect for deadlines, and to provide information to investors as early as possible.
The process was back-breaking. Yet the jury – aided by FT – took up the challenge and waded through the numbers. The Free Press Journal took the help of knowledge partner Grant Thornton, a blue-blooded accounting firm, and jointly laid down the parameters and the process to find the best annual report. FPJ aims to find the best investor-friendly company and create a benchmark for investors to refer to while investing.
Detailed Process
The panel of jury members looked at various sectors to see which companies have the best annual reports with regard to the judging criteria and parameters. To be sure, the jury would only consider companies with the least cautionary flags raised by auditors. The panel had exhaustive discussions, sought the opinion of distinguished lawyers and chartered accountants who were part of the jury.
Jury discussion |
The process is simple and transparent with awards to companies from nine sectors. The preliminary screening process brought down the number of reports to about five in each category for the jury to consider, and the winner in each of the categories will be decided by the jury and the chair together in consultation with Grant Thornton.
The companies were assessed based on a uniform set of parameters which have been defined after considering various financial and non-financial aspects of an annual report. The basic parameters were given weightages with the total adding up to 100%. So, general information about the company’s operations and performance carried a weight of 10%, business information about the company’s products, services and its customer segments 15%, performance analysis by the management 20%, governance 10%, sustainability 10%, and final one being the quality of financial reporting at 35%.
The highest marks went to annual reports that had an investor-friendly presentation for their shareholders, did not conceal issues or gloss over details, and mentioned the benefits they brought to their shareholders and society at large. The panel gave negative points for the red flags that could have been avoided by the company in their annual reports.
Shortlisting
Three winners were shortlisted from each of the nine sectors. Their names would be announced at an awards ceremony that would be held in January 2023. During the jury meeting, Abhishek Karnani, Director of FPJ, said, "This award is one more step among the many taken by The Free Press Journal group to establish thought leadership in India. First, we chose to move beyond print almost a decade ago. Then, six years ago, we moved into conferences, talk shows and discussions on crucial themes that both investors and the government needed to look at – this included discussions on subjects like solar power, food processing, the dairy industry, and the future of education. We then moved into webinars in a big way – to cope with the pandemic – and worked in partnership with educational institutions. This was our way of exposing students and faculty to developments in the economy. Painfully aware that almost a third of the jobs in the country wouldn’t exist by the time they graduated, we felt that by exposing them to new concepts and opportunities we could try to gently nudge them into reshaping their future course of action. Incidentally, to ensure that these ideas have a longer shelf life, we bring out professionally researched policy reports after every webinar or conference and distribute them to policy influencers."
The Free Press Journal, now just a decade shy of a century, is assiduously working towards thought leadership. More concepts will be unveiled in the near future with the best of knowledge partners in each field.
The jury chair, M Damoradan, said during the meeting, "I have often asked myself the question that I have always thought while looking at annual reports whether that whole saying that language was given to banks to conceal their thoughts and not to express them.”
In the context of annual reports, he said these documents are getting more voluminous but are they more informative than before? Except by way of reacting or responding to some regulatory prescription that says that the annual report should contain this information in addition to everything else. “And the more you add to the annual report, I'm sure Grant Thornton has seen this, not in the top companies I hope, but elsewhere, inconsistencies within that one document called the annual report because of multiple authors across different parts of the report. Somebody says something somewhere, some other chapter has something else, this used to be the unique feature of the annual reports of ministries of the central government where multiple ownership led to inconsistencies but now you are finding it in company annual reports," said Damodaran.
"Then the larger question remains: who is the consumer of the annual report? If it becomes very complex, you certainly don't encourage the average investor to look at it to get information. Analysts look at parts of the reports. I don't know whether they see all of it.
Further, he quipped, at annual general meetings there are a few people who have read the report cover to cover and they have “all the questions that exist, shouldn't exist and certainly many to which management don't have answers."
Thus, most people tend to look at the final numbers, and whether the dividend is good enough, which are among the pressing issues. “These crowd out all the performance parameters. In that background, every effort that is waged to recognise good reports, is a very long awaited initiative and I'm glad it's coming from organisations like The Free Press Journal, who are thinking through the entire process. I'm delighted to be a part of it," he said.
Jury's comments:
1. M Damodaran, former SEBI Chairman: "In my opinion one category for the MSME Sector should also be included the next time. All awards and recognitions ultimately encourage people to do better and that is a sector that needs more encouragement."
M Damodaran, former SEBI Chairman |
2. Mazerban Bharucha, Founder and Senior partner, Bharucha and Associates : "Grant Thornton has done a wonderful job with the assessment, and they must be complimented. I was surprised to find that certain companies which I expected to be among the better ones were not in the highlights."
Mazerban Bharucha, Founder and Senior partner, Bharucha and Associates |
3. Abizer Diwanji, Senior partner at Ernst & Young: "Most times when the reports talk about the initiatives taken by any corporate it doesn’t measure the outcome at all. The qualitative outcomes should be rewarded in some way."
Abizer Diwanji, Senior partner at Ernst & Young |
4. Ketan Dalal, Founder Katalyst Advisors LLP: "There is one other yet sensitive sector that we could consider next time, infrastructure. The importance of infrastructure and its disclosure around risks, accounting policies in the infrastructure sector have to be looked into."
Ketan Dalal, Founder Katalyst Advisors LLP |
5. Deepankar Sanwalka, Senior partner at Grant Thornton: "I really appreciate FPJ; to come out with an idea to recognise the best annual report in various sectors; thereby keeping a corner stone and starting a healthy competition amongst the Corporate entities to not only comply with the applicable disclosures but to provide additional, clearer and transparent financial as well as non-financial information which creates higher level of transparency to key stake holders."
Deepankar Sanwalka, Senior partner at Grant Thornton |
