The Hindu Business Line : Corporate reporting reduced to form-filling

Browsing through Indian annual reports, what comes as ‘the overpowering feel’ is of ‘form-filling and compliance fulfilment,’ rues Shankar Jaganathan in Corporate Disclosures: The Origin of Financial and Business Reporting 1553-2007 AD (Routledge).

“The absence of three vital aspects of good communication – executive summary, exception reporting, and balanced communication – contribute to this feel,” he explains.

From a content standpoint, however, the author is of the view that the reporting practices of the top Sensex companies match the global top 10, item for item, though the depth differs.

“In some aspects like corporate sustainability reporting, the global top 10 companies score over the Indian companies, while in presenting financial statements, Indian companies present such a rich amount of detail to the point of almost obscuring the information.”

The book narrates the story of accounting and disclosures over nearly five centuries, clearly identifying ‘the turning points’ for the corporate executive eagerly in search of a perspective when reporting.

“In the process of researching for this book, I discovered that many of the Indian companies with a long history have not invested in an archive,” Jaganathan observes.

“Neither was the financial press well developed prior to the late 1990s, nor is there enough documentation of the corporate practices of those periods.”

Imperative read.

Learning to learn

If you are one of ‘the well-educated, high-powered, high-commitment professionals who occupy key leadership positions in the modern corporation,’ it may come as a rude shock to hear Chris Argyris fault your learning.

“Most people define learning too narrowly as mere ‘problem solving,’ so they focus on identifying and correcting errors in the external environment,” he bemoans in Teaching Smart People How to Learn ( www.tatamcgrawhill.com ).

“Solving problems is important. But if learning is to persist, managers and employees must also look inward,” he instructs.

“They need to reflect critically on their own behaviour, identify the ways they often inadvertently contribute to the organisation’s problems, and then change how they act.”

Quite ironically, they may then learn “how the very way they go about defining and solving problems can be a source of problems in its own right.”

Prescribed study.

Risk is in the tail

Though risk is difficult to define, it is forever with us, writes Roy L. Nersesian in Corporate Financial Risk Management: A Computer-based Guide for Nonspecialists ( www.jaicobooks.com ).

“We run the risk of not being alive one second from now, of not marrying the right spouse, of not selecting the right career, of being in the wrong place at the wrong time.”

The book looks at risk not so much as the potential of just losing money but of losing too much money.

We can live with the average loss rate, but the potential for horrendous losses is hidden from view in the tail of a probability distribution, the author warns.

Risk is, therefore, truly in the tail, he declares.

For instance, having many holdings in a diversified portfolio of risk instruments assures the insurer that he or she will bear something close to the average loss rate and will have a smaller chance of experiencing the pain of severe losses, Nersesian illustrates.

In contrast, “Fewer holdings in a non-diversified portfolio provide no advantage with regard to the average loss rate but open up the door to the possibility of severe losses.”

In a chapter on markets, the author takes on the question whether price movements are random.

“They appear to be random when peering ahead and are perfectly explanatory when looking back,” he answers.

“If price movements are purely random, that is if on any given day there are a 50 per cent chance of rising and a 50 per cent chance of falling, then we may eventually end up with a price falling below zero or rising to unrealisable heights.”

Recommended addition to the finance professionals’ shelf.
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D. Murali

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