Large corporates have large boards. The members are chosen from the elite group of professionals, speakers, management gurus and consultants. They have academic credentials from the best global institutions and have worked for the best global corporates. They are expected to bring on board the best global practices of governance. They are sincere, hard working and honest. Still the company face a quagmire of frauds and controversies. Why?
The board meets as per law, just four times in a year. They are also part of committees; unfortunately, these also meet just four times a year. Mostly on the same day. Then these board members are also on other boards. The quality time spent and value added is just so much. Most of the time is taken up in reviewing presentations, compliance and maybe strategy. The expected cross pollination from diverse set of experiences of different business models and strategy, is hard to come by.
Then the frauds happen!!
So the law tries to catch up with different sizes and shapes of ‘Band Aid’. When it was Satyam the focus was more on processes and controls, hence, IFCR (Internal Financial Control & Reporting), or then the AS (Accounting Standard). In the present scenario with financial structuring, now outstanding loan and deposits have to be reported (DPT 3), payment delays MSME (Form 1), Substantial Beneficial Ownership SBO (similar provision was earlier introduced by the Income Tax authorities), Legal Entity Identifier (LEI) a global identity for undertaking any financial transaction, NFRA (National Financial Reporting Authority) they need to disclose details of auditors , ACTIVE (Disclosure of directors, KMP’s, head office geo tagging etc), etc.
The Kotak report will further bring in a sea of changes from 1st April 2020. Now the CMD, have to be two separate posts. Two distinct individuals and not related! Imagine what is about to happen to family owned businesses, especially where even the spouses find place on the board as lady directors! The business owners will seriously have to look at succession planning and family boards.
This leads to similar data being fed through different forms and increase in compliance cost. Not to forget the scare or distrust being created. The message seems to be that the Government does not trust anyone. Having said that, in any case, the trigger always happens post the event. And it is never the statutory auditors or the internal auditors who uncover the same. It is always a ‘whistle blower’! Even the USFDA finding against Ranbaxy was because of a whistle-blower, or for that matter the ICICI case.
Discipline versus compliance, is like building character through culture and practice, versus capital punishment!
Stay in touch with us at our breakfast meetings to prepare for the major changes!
