Comply and Explain - Are you 'tick the box' ready

“Comply or Explain” is a familiar concept in Corporate Governance. Companies Act, 2013 (“Act”) and SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015 (“LODR”) have prescribed strict compliance requirements for listed entities. Listed herein are 12 important disclosures under these legislations and their indicative compliance for ensuring “TICK THE BOX” compliance for March 31, 2016.

‘I just managed compliance for this year’ - Is this the statement that we want to hear from professionals of India Inc. There is tremendous pressure on professionals to be updated on the various new compliance disclosures. Compliance for the sake of it seems to be the quick fix solution as “just compliance” itself seems to be a mammoth task. There are new initiatives and practices that are borrowed from the west and are introduced in the legislations by regulators for compliance in India. While companies may have grown in size multi-fold, the system is still not prepared to face the new realities of compliance and related disclosures.

Every corporate is prepared to report but not disclose the information thus from a “comply or Explain” concept they seem to be moving to “comply or manage” approach. Specific disclosure requirements like Regulation 46 in Chapter II of the LODR that require the various data to be disclosed does not specify the details of disclosures to be made.

The 12 commandments are required to be complied by all listed companies, failing which a new concept of “Suspended Company” has been introduced by SEBI to punish the promoter of erring companies.

Thus emerges the concept of Comply and Explain. In case of compliance companies need to explain the levels of compliance, in case of non-compliance there is nothing to explain and when there is nothing to explain, the regulators can still seek an explanation for not explaining. That leaves companies with no choice but to comply, even if it is “for the sake of compliance”, for heaven’s sake if not for compliance sake ensure that your company has ticked all the boxes in this communiqué.

There are around 61 items to be disclosed in the Annual Report of a Company that may require attention of professionals, out of which a listed company will have at least 50 items, if not less to be reported or disclosed, as the case maybe. These 12 items can directly affect the interest of the Board of Directors as the onus of compliance is also on the Board to comply.

An analysis of NIFTY 50 companies reveals that most companies have not complied with the ‘TICK THE BOX’ in entirety. The Corporate Governance initiatives introduced by the regulators has ensured that compliance in Letter itself seems to be little too far-fetched for companies to adhere; leave alone
compliance in Spirit.

12 Commandments