Need for a ‘cost-neutral’ agenda: The New Companies Act

Companies Act ImageIn an ever intriguing debate on how much impact the New Companies Act has on the business leaders, the conservatives also agree on the need to have an increased level of diligence by the Boards/ CEOs to effectively discharge an array of direct responsibility that the act has imposed on them.

Gone were the days when the Boards/CEOs could have been comfortable with the shield of ‘reliance on work’ and with direct accountability/ onus falling on them in the areas of compliance, risk management, internal financial controls (more in the listed companies), nowadays, the business leaders require a fresh thought on how to practically address these requirements and use this opportunity to improve the businesses.

While one evaluates on what needs to be done depending upon an organisation’s maturity, a starting point often is an independent assessment of the as-is-situation. This assessment should not only focus on ‘current vs ideal’ state, but should focus on using the gap assessment to develop a road map that is aligned with an organisation’s culture and operating philosophy.

Many areas offer opportunity to not only be a good corporate citizen and protect the leadership layer in the organization, but also to improve business efficiency and reduce costs. As a starter, thinking about internal controls should include thinking about smart controls, automated controls, process optimisation and reducing the overall costs. This way, the exercise to be compliant will also pay rich dividends through improvement in financial performance.

Similarly, while deliberating on the related party transactions, setting up an effective fraud & vigil mechanism or compliance mechanism, a wider evaluation is required to assess how the same can be improved through the use of technology which in turn will help in reduction of penalties, leakage and value erosion.

While review of similar legislations around EU, UK and US would strengthen our belief that all key aspects have been incorporated in our version of the law as well, however, the fundamental question remains on what are the learnings of the boards/CEOs in these countries which we can leverage.’

When you evaluate the learnings few things stand out:

  • Right level of ownership and accountability;
  • Effective use to technology;
  • Strong tone at the top;
  • Consistent organisation culture; and
  • Conscious focus on efficiency

Even when you look at activities like CSR, it all starts with setting the right tone, strong accountability/ ownership, consistency in action and use of technology, the benefits then delivered would be better synced with the organisational philosophy. It is just not spending money, but spending money which helps an organisation further its purpose.

To conclude, the need of the hour is to use this opportunity to improve business, processes and overall operating way. One should thrive to make it a ‘cost – neutral’ compliance agenda.

 

 

 

One thought on “Need for a ‘cost-neutral’ agenda: The New Companies Act

  1. Well written Article. Yes the provisions of Companies Act,2013 pose great challenge on compliance including internal controls. I concur with the Author that this is an opportunity to review each area critically and suggest ways at improving efficiency of operation and reduce cost. CSR is a step in the right direction. I recently attended a Seminar on CSR activities. Each Company only talked about what they are doing to society at large. The benefits accruing to the Company and the process of doing the same were sadly not touched upon. Speaker after speaker wanted to bask in the glory that their organization is doing something great. If only an introspection was done about the way such activities are carried out, benefits would have been better.

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