Chennai: “CFOs should avoid making forward-looking statements in the garb of quarterly guidance. They must ask themselves whether the practice of issuing quarterly guidance, in response to analyst queries in media is benefiting the organization in the long run,” said Mr. M. Damodaran, Chairman, Securities & Exchange Board (SEBI) of India at CII’s National Conclave on the Changing Face of Financial Leaders in Chennai on 2August.
Mr. Damoddran informed that SEBI had taken several proactive measures to attract talent to make the board more competent. It had set up an Investor Protection Fund to educate small investors on their rights and is in the process of establishing a National Institute of Securities Market to conduct courses on compliances and corporate governance, among others.
He said that companies must do away with “financial engineering” and put out results in cold numbers, unaided by ambiguous language and adjectives. He pointed out that even after the introduction of Sarbanes-Oxley Act, which is perceived to be very harsh and far more prescriptive, there were several leading companies in the U.S that had revised their published statements, which necessarily implies that the statements did not reflect the truth.
Corporate governance to be part of oranizational culture
Mr. Damodaran said that compliance must not be based on “ticking the box” approach. It must be ensured in spirit, and not just in words. You cannot legislate for honesty. Though regulators can provide frameworks and checklists, corporate governance must become a part of the organisational culture to protect shareholder’s interests.
He observed that the job of ensuring governance cannot be entrusted with the Compliance Officer alone. Rather, it should show the involvement of top management. Also, excess liquidity alone should not lead to CEOs making brave announcements on acquisitions. They should enquire whether the acquisitions would make business sense and whether there are any misfits in terms of business, culture and human resource.
Reduce regional stock exchanges
Mr Damodaran said, “as far as exchanges are concerned, it has to be seen that those regional exchanges that do not have any business, are able to bring their innings to a close, because there is no economic model to take business forward.”
He also said the number of exchanges in India should be reduced. Damodaran said companies were increasingly looking at becoming private than being public companies, because of compliance norms, accountability demanded from shareholders and such other factors. The Chairman of the regulatory body pointed out that such things were necessary to push companies further ahead.
“Ultimately they will realise that the benefits of being private is short term and being public would be advantageous and be able to improve in the long run,” he said.
Additional inputs from Livemint.com