5Qs for Every Corporate Professional: CimplyFive’s Five Qs to Ask to make Annual Compliance & Governance Stocktake Comprehensive & Effective

March month not only marks the end of the financial year for most companies, but it is also the month when stock take for the year and plans for the next year are drawn up. The domain of compliance and governance is no exception, where the objective of stocktake and planning is for building a more effective and efficient system of compliance and governance. This article identifies the five contours or questions that we need to ask to ensure that the stock take is not only comprehensive, but also effective in building a more robust system for the year ahead. While the business can only generate Earnings Per Share (EPS), it is a good compliance and governance systems that adds the multiplier of a higher Price-Earnings Ratio to create higher shareholder value.

  1. What were the non-compliances during the year and why did they occur?

A good compliance and governance system is built on three or more layers of checks and balances. At the operational level, it could be as elementary as maker-checker approval system or a sophisticated automated compliance management system. At the review level, it would be the leadership team and the board scrutiny and at the tertiary level, the domain of auditors -internal, secretarial, and statutory who provide external validation of the compliance system.
In companies with institutionalised compliance system, while the scope for non-compliance is limited, every case of non-compliance is a subject for incisive root cause analysis to prevent its recurrence. An assurance that there were no non-compliances during the year is the best answer once could get to this question.

  1. What are the changes in the team responsible for compliance and governance? How does this change affect the implementation of compliance and governance practices?

Effective compliance and governance system is a result of two forces at play- effective and well defined systems coupled with a competent and committed team. The importance of the team is vital in ensuring that the system works as defined. Hence a key element of annual review is to take stock of the team in place and plan for changes that have happened in the year gone by or for changes anticipated or scheduled for the next year. This would involve identifying competent individuals and providing them with adequate training and exposure to ensure that the team works as desired to ensure that there are no shocks or unpleasant surprises that could arise, going forward.

  1. What are the compliance and governance policies in operations? Is there a need to review the same?

Any system of compliance and governance is only as good as it is designed for. Hence, it is essential for the annual stock taking exercise to review the inventory list of all the compliance and governance policies and thoroughly scrutinise them for any shortcomings or improvement to be made to ensure that they stand up to the test in the years ahead. Where required, as part of the annual stock take, external specialists or benchmarking with the leaders would be an essential part of this exercise.

  1. What are the changes in the regulatory environment and is there a need to add/enhance any practice for the next year?

We live in a dynamic world and the regulatory environment is no exception, often mirroring the development in the business world is as dynamic as the real world if not more. In the Indian context, especially the corporate law consisting of the Companies Act, 2013 and SEBI regulations, there were more than 100 changes each of the last three years. Given this state of flux, the annual stock take exercise should account for the regulatory changes that have taken place and validate if all these changes are accounted for in the system and compliance calendar that is planned for the year ahead.

  1. What were the major/visible mis-governance events during the last one year and how is our company insulated / learning from it?

‘Wise men learn from the mistakes of others’ is a popular idiom that has much more relevance in the field of compliance and governance. There is a huge price to be paid for non-compliance and misgovernance, which in some extreme cases can impair the very existence of the entity. Hence learning from the case of compliance and governance failures in other entities both in India and overseas and enhancing the governance systems is essential to ensure that non-compliance and misgovernance is kept at bay for the benefit of all stakeholders of the Company.

Overall, the annual compliance stock-take provides valuable inputs enhancing compliance system for the years to come. Planned and systematically executed, this exercise can also be used to induct new members into the compliance system thereby creating value on multiple fronts.

Schedule a demoGo to CAIRRSubscribe to Newsletter