Any dilution of corporate disclosure standards could reinforce the permissiveness already manifesting in some areas of corporate governance.

The Securities and Exchange Board of India Chairman, Mr M. Damodaran, has expressed his scepticism over the utility of companies reporting their financial performance, as mandated by the current regulatory framework. True, it may have been his personal view, as the SEBI chief made amply clear in the course of his recent lecture at the Indian School of Business. But considering the importance of the issue raised by him as also his position as the regulator of capital market activity in the country, it deserves to be discussed at length. He had based his proposition on two grounds. One, that nothing much happens between one quarter and the next; and, two, it distracts managements into focussing on factors that will bolster quarterly numbers rather than on doing things that would sustain the company in the long run.

Take the second argument first. No doubt, when shareholders appoint directors to company boards, they expect that that under their stewardship the company will do better than it has done in the past, even if not quarter after quarter. For directors, it boils down to a question of effectively communicating and convincing shareholders about the validity of the management's strategic agenda. Yet if directors and managers are obsessed with short-term performance, do not blame just the burden of shareholder expectations; managers themselves want to look good in the eyes of the equity market what with stock options exercisable right through the year. As to the argument that nothing much happens in three months warranting companies to report to their shareholders, it could easily be postulated that there is no need for directors to meet roughly once every three months. The communication of quarterly performance has to be viewed as part of the broader framework of managerial accountability to the community of shareholders whereby a personal interaction once a year in the form of annual general meetings is reinforced by written communication through quarterly results reporting.

Any dilution of the standards of disclosure of performance could only reinforce a culture of permissiveness that is already manifesting in some areas of corporate governance. Norms of disclosure once held sacrosanct are systematically being dismantled on the pretext of preserving competitive advantage in an era of globalisation and of saving printing costs. Thus companies seek, and are happily given, exemptions from disclosing quantitative particulars of operations, or furnishing financial details of subsidiaries, to name just a few instances of opacity. As for public access to documents available with the Registrar of Companies, the less said the better. Even SEBI's own Web site does not carry corporate annual reports even long after the annual general meetings. The quarterly results may or may not reveal much, but their absence is sure to foster the belief that managerial accountability to the investing public is expendable.

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(This article was published in the Business Line print edition dated August 16, 2006)
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