Communicating Required Information: Trimming the Corporate Governance Report

Just as salt enhances the taste in food, brevity in communication enhances comprehension and effectiveness. More so in corporate communication to shareholders, where the audience consist of individuals with a wide range of interest and knowledge.

The Corporate Governance Report that forms a part of the Annual Report of listed companies in India, despite being one of the latest reports to be introduced has quickly grown to become quite voluminous, thereby reducing its effectiveness in communication.

Given the change in both the communication scenario with increased internet penetration in India and the business environment where electronic communication to shareholders is promoted as an environmentally favorable move in a big way, there a need to evaluate the content in the Corporate Governance Report and trim it to make it more effective and useful.

While this article looks only at the Corporate Governance Report, there is a similar need to look at the Annual Report in entirety to remove duplication and eliminate superfluous information thereby making it much more effective.

ISSUE   

Corporate Governance Report that forms a part of the Annual Report of listed companies today runs into 10-15 pages based on the quantum of company specific details required to be provided. A detailed analysis of this report indicates that some segments of the report may have outlived their utility or in the case of the other, they are better placed elsewhere in the annual report for a more effective communication and value addition to the corporate governance system.

Even the recently appointed committee under the chairmanship of Uday Kotak to review Corporate Governance Practices had a specific term of reference, item 7 which required the committee to review issues related to ‘Disclosure and Transparency related issues, if any.’ However, it appears that trimming the Corporate Governance report was not an option this committee looked at.

Our review indicates five elements in the Corporate Governance Report the can be removed as they are better placed in the website of the company under the investor section, as the information is more dynamic in nature or the data placed elsewhere where it is more appropriate.

In the class of information that are better placed in the website of the company the following three top the list:

1. Graph of share price movement during the year compared with the index.
2. Monthly high and low of share price with volumes traded on that day
3. AGM details and the details of the last 3 AGMs with list of special resolutions.

Being dynamic in nature, the first two can be updated on a daily and monthly basis respectively and regarding the third item, details for a longer period could be made available if the company thinks appropriate.

Turning to information that is better placed in the Management Discussion and Analysis (MDNA) section is the section on Foreign exchange risk and hedge activity. Many company even today provide details of this in the Corporate Governance Report only by providing the page reference where this is contained in the MDNA section.

Finally, the information on CIN (Corporate Identification Number) is better placed in the Corporate Information segment at the beginning of the Annual Report as they introduce the company more comprehensively and effectively.

Solution

Since the annual reporting season has already started with some companies publishing their annual reports, SEBI can make these changes in the month of October 2018 and make it effective for all annual reports published in the year 2019.  This will not only make the annual report brief and concise but also make the communication to shareholders and investors more effective.