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M. Ramesh

Not too many corporates are really sharing pertinent information with their shareholders, despite strict norms.

Unscramble this: Industrial Development Bank of India has granted to the Company Rupee Term Loans under the Corporate Loan Scheme towards securitisation of disinvestment proceeds of the Heavy Chemicals Division receivable from Tamilnadu Petroproducts Ltd and by debt substitution of existing working capital facility of Rs 75 crore granted to the Company besides outstanding loans of Rs 52 crore granted to the Company's Pharma Division, of Rs 57.50 crore and Rs 127 crore respectively.

What did you understand?

This sentence, picked up from the latest annual report of SPIC, is ironically from the `Explanatory Statement'— a section meant to tell shareholders in simple, clear terms, why their approval is being sought for a particular Special Resolution. But, as is evident, such is the language used that shareholders have little scope of figuring out what the company wants to say.

This is typical of many annual reports that companies produce these days. Corporates, who are going through tough times now, are caught between statutory disclosures and the demand for transparency, and the huge problem in disclosing reality. The result is often a nice and colourful annual report, printed on glossy paper — in short, strong in form and weak in substance.

To take the example of SPIC's annual report again, nowhere does the report mention that the company has initiated steps to sell off its stake in the overseas subsidiary, Indo Jordan Chemicals — although the full annual report of the subsidiary is appended to SPIC's report (as is mandatory). Also, nowhere does it mention that the company intends to hive off its pharma division into a separate company. Information about the Indo Jordan sell off and the pharma hive off has been repeatedly given to the Press, but held back from shareholders.

Communication between a company and its shareholders and the public, which has never been very open, is getting to be more and more perfunctory in nature. "We'll only disclose what the law mandates us to, nothing more," seems to be the practice.

A company may say, "a lead bank from UK has given its in-principle acceptance for syndicating the debt... ", without mentioning the name of the bank!

If you look at the `Loans and Advances' section, there is little information of any consequence on either; individual loans are aggregated and there is no means of knowing the borrower, even when it is either a subsidiary or an associate company.

Earlier, companies never used to disclose the shareholding pattern, but now they are mandated by Corporate Governance rules to give this information. Even here, there is no disaggregation of the `promoters' stake', with the holding of the core promoter and his associates clubbed into one entry.

Likewise, existing rules necessitate companies to provide segment-wise information of turnover and expenditure, something that the corporate world was loathe to disclose earlier, on the grounds that it is `competitive information'. However, many companies still duck the rules, hiding behind technicalities. For example, if a company produces auto component A and auto component B, it would not disaggregate the turnover of the two products separately.

Again, companies that are listed on the overseas stock exchanges, take an easy way out of outlook queries, saying that they are not allowed to make `forward looking statements'. But actually, they can disclose projections and anticipated profits; they would only have to make it amply clear that these are `forward looking statements' and there are bound to be slippages between targets and performance.

What happens in annual general meetings is even more funny. The questions asked by shareholders are bunched together for response. Unfortunately, normally half the `points raised by the shareholders' pertain to the poor arrangements in the AGM hall or the unsatisfactory quality of the coffee served there, or at best, their personal problems with the shares department of the company. Only a few points may relate to the operations of the company. But when the time to reply comes, managements take up a lot of time responding to the `arrangements and coffee' kind of questions and gloss over the relevant ones.

This leads one to wonder if this reluctance to share information with the shareholders has anything to do with the feudal mentality of some managements. Many a time when an industrialist promotes a company, he regards it as his own, and maintains this attitude towards it enough after it has gone public. Such an attitude makes many shareholders, who take the trouble to attend AGMs, that the managements consider them as one-day sultans, whose voice can reverberate through the AGM hall, but not necessarily be heard.

Until a change comes about in this psyche, the law should mandate even stricter disclosure norms. Today corporates are grudgingly disclosing information, which they used to call `competitive information'. A ruthlessly strict enforcement of filing of returns with the registrar of companies — which is lacking today — ought to be introduced in the interests of real transparency.

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