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Experts bat for sharing info without over-burdening management

G Balachandar Chennai | Updated on June 19, 2020 Published on June 19, 2020

(Clockwise from top left: TT Srinivasa Raghavan, Managing Director, Sundaram Finance; JN Gupta, Managing Director, Stakeholders Empowerment Services; TV Mohandas Pai, Chairman, Manipal Global Education; R Anand, Chartered Accountant (Resource Person) and SC Srinivasan, CFO and Executive Director, Bosch, at the webinar

Companies need to ensure transparency and put in place safeguards to protect people against information asymmetry

Should quarterly results be done away with? Will such a move hurt retail investors by creating information asymmetry? What about the work load it will impose on the top management of a listed company if quarterly reporting of performance and all the compliance formalities are taken together?

Is it distracting the CEO and his team from strategy and execution? Is quarterly reporting taking the management focus away from the long-term outlook? And, after all, quarterly results have been in vogue for the last two decades and they have not stopped India from having its shares of corporate scandals.

These were some of the issues that were hotly debated at the BusinessLine Knowledge Series webinar on Is it Time to end the quarterly results? on Friday.

The discussion, sponsored by the Bombay Stock Exchange, was moderated by Raghuvir Srinivasan, Editor Designate, The Hindu BusinessLine. Chartered Accountant R Anand set the tone by asking whether it is time to review the quarterly reporting model, which was introduced by the market regulator way back in 2000-01. He said CEOs were expressing concerns over the exhaustive compliance measures and committee meetings that were consuming a lot of time, leaving little scope to focus on the business. He also pointed out that many countries like UK, Singapore and, recently, the US, moved to half-yearly reporting. “We need to arrive at a possible and tangible solution which will be acceptable to all — regulators and corporates — small, medium and big companies,” he added.

However, TV Mohandas Pai, Chairman, Manipal Global Education and former CFO of Infosys Technologies strongly argued against moving away from quarterly reporting.

Information asymmetry

“Earlier, information was flowing out of several companies to financial intermediaries and insider trading was very rampant. The need for quarterly reporting is to reduce the asymmetry of information among the stakeholders. In the last 20 years, it has served India very well — more information in the public domain, companies report periodically and the regulator is well-aware. So there is no case for doing away with this reporting,” he said.

This norm, he added, increased the discipline in accounting and financial reporting among the companies in the country. About 25 years ago, shareholders’ meeting happened in September, and dividend payouts in October or November — so everything was delayed. Now, shareholders’ meetings start by the end of May and get over by June end, he stated.

‘It is insulting’

But Managing Director of Sundaram Finance, TT Srinivasaraghavan, who has been advocating for the shift to half-yearly reporting, pointed out that because of some bad companies, majority of other honest managements are being penalised through exhaustive regulations and compliances. “It is insulting,” he said.

“Businesses are like a marathon and not a 100 m race,” he said, adding that short-term focus is not the right approach. He also said that there were enough uncertainties like pandemic, seasonality, cyclicality etc and there is no way any one can be on top of all this all the time. He then talked about IndAS, which is all about fair value accounting on a given date. So, this argument of information asymmetry doesn’t hold water, he pointed out.

But Pai vehemently denied quarterly reporting would take away the long-term focus. “Not at all. It is all about your communication to stakeholders,” he said.

Agreeing with Pai, JN Gupta, Managing Director of Stakeholders Empowered Services, said that though the businesses are run like a marathon, quarterly reporting would help update the investors about how the company is performing at various stages of the marathon as they would be keen on knowing true and the fair picture on the progress. Quarterly results is about reporting on the progress and even the objective of the regulations is the same. One need not be under pressure to give rosy picture and it is all about giving updates, he added.

Comprehensive reporting

SC Srinivasan, Chief Financial Officer & Executive Director, Bosch suggested more of a middle path. The key question should be about the behaviour of the quarterly reporting, he said.

Of course, investors are very important stakeholders. But there are other stakeholders too — employees, customers, society and government. So, the information one needs to share is broader than a set of pre-stated financial information. The focus should be to bring reforms that take care of multiple stakeholders. “So we should move to more comprehensive reporting. If we move to longer period reporting cycle, there is a need for greater safeguards and transparency measures,” he added.

The consensus that appeared to emerge towards the end of the discussion was one of a mid-path — share all necessary information without over-burdening the management even if means re-looking at all compliances and throwing out those that make little sense. “We are not saying to go back to the dark days of reporting once in a year. All we are saying is moderate this. Of course, we need transparency, disclosure and need to make sure that people do not benefit from information asymmetry,” Srinivasaraghavan said.

Published on June 19, 2020
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