Annual report delayed is annual report denied
It is the annual general meeting ( AGM) season. The annual ritual of conducting the shareholder meetings, complete with tea, coffee, samosas and some incidental work such as passing of resolutions, begins somewhere in June and goes on till September.
An integral part of the season is the annual report, prepared in great detail and released to the shareholders.
It would contain audited annual accounts and the balance sheet, it had details about remuneration of key managers and even details of sexual harassment cases reported. Till now, it even contained the notice and agenda of the AGM.
The old listing regulations required that the AGM notice be posted on the stock exchanges 21 days in advance. Thus, the annual report became available in the public domain well before the AGM. Shareholders and other stakeholders had enough time to study the report and prepare themselves to face the management and ask relevant questions at the AGM.
Though at many AGMs this process is reduced to a joke by the usual suspects who start singing praises of the promoters and take up frivolous matters, there are many exceptions. It is the stuff of corporate folklore as to how Infosys co- founder Narayana Murthy was impressed by Mohandas Pai at one such AGM and invited him to join the management.
However, the new LODR (Listing Obligations and Disclosure Requirements) Regulations, now in force, have considerably reduced the chances of another Pai event. Under the new Regulation 34( 1), the annual reports need to be sent to the exchanges “ within 21 days” of it being approved in the AGM, in line with the Companies Act, 2013.
Other provisions under Regulation 36 require the soft copies of annual reports sent to shareholders by e- mail for those who have declared their e- mail IDs. However, a large number, especially in nonmetro locations, do not have e- mail. The physical reports sent to these do not reach in time. For these people, the advance publication on the exchange site was a godsend, now gone.
Further, there is a wider community that is not a shareholder in each listed company. These include analysts, data aggregators, fund managers and even journalists. Reporting and analysis by these also help a shareholder to better understand a report and gather perspective. Under the new regime, these nonshareholders technically have no access to the annual report.
As if this is not enough, the Street is guffawing about companies that are not filing even the AGM notices, which still have to be filed 21 days in advance. The exchanges are yet to wake up and crack the whip.
What purpose does this move serve? Is there any logic? Or it is only a drafting anomaly? The only logical explanation is that if the report is published later, it could contain resolutions passed by shareholders in the AGM, rather than those proposed to be passed. It very rarely happens in listed companies that the resolutions proposed by the management do not get through, given the stranglehold of promoters over votes.
Since there are better ways of doing this than by creating an information asymmetry in the market between existing shareholders and potential ones, it makes one wonder if the measure was a drafting error. In either case, the anomaly deserves to be rectified.
The regulator should step in to ensure both annual reports and notices are available on exchange websites well in time.
Business Standard New Delhi, 21th June 2016