Education

You can’t afford to window-dress compliance

Harpreet Singh Pankaj Tewari | Updated on March 24, 2013 Published on March 24, 2013

To ensure sustainable growth, companies should put in place robust compliance processes and stay on the right side of the law.

Indian retail industry has been growing steadily, in tandem with the economy. Although dominated by the unorganised sector, the growth in mall culture and positive customer experience has widened the reach of organised retail. The Government is upbeat about the sector, and the recent positive developments on Swedish retailer IKEA’s proposal signal a commitment to reforms. The approval for FDI in multi-brand retail, albeit with stringent riders on local sourcing, has given a much-needed fillip to the sector. However, the discretionary powers given to States bring in an element of uncertainty for global brands.

Challenges for the sector

Retail is a very regulated and complex sector. The business model is characterised by high capital and manpower requirements, large premises, wide variety of products, and stores in multiple locations. Furthermore, the absence of a regulator and single-window clearance adds to the complexity.

A plethora of statutory approvals is needed to commence operations and open outlets, such as approval to operate diesel generator sets, fire safety certification, and licence to do a particular trade. Additionally there are business-specific licences for marketing agricultural produce, sale of dairy products, playing copyrighted music, operating a walkie-talkie and so on. Obtaining a licence is only half the battle — ongoing compliances and renewals form the rest of the story.

The large geographical spread involves several State laws and Central laws read with State rules. The laws change frequently and companies should remain updated, especially as information on State and local laws is not easily available in the public domain.

The right set of tools will yield results only when line managers are educated and trained to use them. While overall control may reside at the Corporate Office, statutory obligations are applicable even in far-flung locations. Due to insufficient awareness, lack of sensitivity, and operational pressures, companies are more vulnerable. For example, a warehouse manager may call workers on a holiday to meet an emergency, unaware that it could lead to a statutory violation. The knowledge of compliance requirements should not be confined to legal and compliance professionals alone; operating managers too should be trained, educated and sensitised.

Many compliances fall within the common territory of multiple functions. For instance, a new contractor or vendor could have compliance obligations for both human resources and supply chain management. In large organisations, delay in information exchange often leads to avoidable statutory violations.

The UK Bribery Act was amended to cover overseas businesses that operate in, or have dealings with the country. The law has extra-territorial reach, as it seeks to deal effectively with bribery at home and abroad.

There are strong anti-corruption laws in several other jurisdictions that apply irrespective of location. Opening a retail store involves several statutory approvals, covering operations in multiple sectors — food, agriculture, consumer goods, chemical products, and so on. This invariably involves interaction with multiple ministries and regulatory agencies. Companies should tread cautiously as transgressions can have far-reaching ramifications.

Achieving compliance

Achieving respectable levels of compliance involves inculcating a compliant culture and acquiring the right set of tools. Given the business model and the scale of regulatory obligations, use of technology is vital.

Apart from external challenges, change management in itself is a daunting task. To ensure sustainable growth, companies should put in place robust statutory compliance processes and stay on the right side of the law. The new Companies Bill also proposes to sharpen the focus on compliance, and is a strong indication of the regulatory mindset.

Harpreet Singh is Executive Director, and Pankaj Tewari is Senior Manager, Risk Advisory Services, PwC India

Published on March 24, 2013
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