Sebi chief says many companies lacking on disclosure front

Sebi chief Ajay Tyagi on Wednesday said many companies are lacking on the disclosure front and asked such firms not to treat it as a check box exercise.

Sebi rules primarily require listed firms to have two sets of disclosures – periodic disclosures where formats have been prescribed by the regulator; and disclosures of material events where certain events have been deemed as material and must be disclosed, and the others to be disclosed if considered by the company and its board to be material.

"On both these aspects, I must say, disclosures by many companies are lacking.

"On periodic disclosures, such as annual reports, while all the fields are being filled in, in many cases, they appear more like a check-box exercise. This is not acceptable," Tyagi said at Ficci's annual Capital Market Conference.

He further said that documents are as important as the financial results, annual reports, corporate governance reports, and others need the level of quality the investors deserve.

Not only the periodic disclosures, he said, often companies do not go beyond the deemed material events specified in Sebi rules to disclose material events.

"In several cases, articles appear in the media, which are followed by stock exchanges seeking clarification on the same from the companies and the companies then replying to the exchanges on the queries sought. This is surely not the right way to go," Tyagi noted.

He asked the companies, their management and board to actively revisit their materiality policies and see whether disclosures of material events as per the rules are being met not just in letter but in spirit as well.

The Sebi chief noted that shareholder and board meetings have moved from physical to virtual mode, which is positive, especially in today's times where physical meetings are difficult.

However, he said, the virtual mode has created its own set of concerns.

Of particular concern are the issues of confidentiality in board meetings and whether shareholders' voice is being properly heard in those meetings.

While Sebi will examine specific cases, which are brought to its notice, he asked companies and their top management to ensure that such concerns are adequately addressed.

Tyagi stressed the need to continuously improve corporate governance standards and transparency.

"The need to continuously improve the corporate governance standards and transparency is something which should come from within the company itself, especially from its board of directors," he noted.

With the increased awareness and maturing of capital markets, well-governed companies carry the trust of investors and reap benefits in the long run, Tyagi said.

"If the industry self-governs well, the need for the regulator to step in every time will not arise," he added.

While independent directors have a critical role in protecting the interests of minority shareholders, another set of directors -- who ought to play a more active role in improving corporate governance standards -- are representatives of institutional shareholders on the board, whether as nominee directors or otherwise, the Sebi chief said.

Tyagi asked such representative directors to act as a bulwark along with the independent directors in support of strong governance in the companies.

Photograph: Shailesh Andrade/Reuters