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More is not necessarily better. And, while the moral brigade may be unhappy about this, revealing more - though less often - may be the best solution for giving investors the true picture of financial statements and accounts of Indian companies.
In the 1980’s companies listed on the Indian stock exchanges declared their financial statements annually. Monthly data on cement sales, steel production, or automobile production was sourced from industry associations that maintained such data. Research analysts and fund managers - and there were very few of us - had to go and meet dealers and stockists to get a sense of trends on production and sales.
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In our desire to ape the west, we moved to a 6-monthly reporting statement and then, eventually, we moved to the Wall Street phenomenon of quarterly results. The rationale being that more information would result in a better armed investment community which would then lead to better investment decisions and, hence, a more efficient allocation of capital.
Less frequent reporting
The other distortion - mostly in the US - led to this focus of rewarding useless CEOs for work they did on a quarterly basis. Decisions were allowed to be taken that inflated the near-term profit of companies - and made many companies go bust in the long term. Maybe AIG, Bear Stearns, Citibank and Lehman Brothers would still be in "business" if their boards - and the regulators - were more focused on the long-term consequences of business decisions on their financial reporting.
Maybe a Global Trust, Satyam, Enron and WorldCom would not have occurred if companies reported results only two times a year. A six-monthly, partially audited interim result and an annual fully audited result. This "time gap" in reporting would give the auditors, lawyers, and members of the boards a lot more time to scrutinise the data before they signed off on the "true" representation of a company’s business and financial position.
And some tougher questions
Satyam - and the failure of the financial giants globally - have shown us that frauds can (and do) occur and boards have failed in their role as an agency of internal oversight. Regulators have failed in their role to create rules within a framework that protects investors.
This is because the present framework assumes that we are angels working in a factory of sin. Maybe we are all sinners working in a factory of sin.
The existing definition of "corporate governance" and "minority protection" in the Indian context fails to address the true environment in which companies operate. Many Indian companies are engaged in some act of corruption and pay bribes. Once you have allowed this immoral culture to dominate, what stops the management in control from rewarding themselves more than they deserve? Taking a personal bribe, if you will - and justifying it for some "higher" cause. CEOs are, after all, gifts of god bestowed upon mankind. And the founder-shareholder-CEO is the lord of all gods.
There are a few key areas where minority protection and corporate governance needs to be addressed more openly and honestly:
For a country that boasts of a lot of gods, we seem happy to live with - and invest in - a lot of demons. And these demons wear green chaddies. While converting the colour of greed to pink - the colour of love - may be a Herculean task, let’s make a start by forcing companies to air their true colours by asking some blunt questions. Then, if we still choose to invest in these companies, the regulator does not have to waste time protecting us. Instead, the regulators can then move on with the true task of improving the playing field, not guaranteeing the result.