LODR - Comply in spirit but will it evaporate

When SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (that is referred as LODR) was introduced professionals exclaimed OMG (oh my GOD) but the speaker in a seminar referred it as OML (oh my LORD). As professionals we may need to only look up to the Lord for solutions for this regulation. It surprises me why every time a new legislation is introduced; there is unrest among the stakeholders, not with regard to the intention to comply but the difficulty in understanding the ambiguity in these legislations.

In a recent seminar one enthusiastic company secretary walks up to the regulator and questions about the deadline to display or disclose the various policies on the company’s website. The representative of the regulator replied that the provisions of the Regulation are already notified by SEBI and applicable from December 1, 2015.

We have yet another legislation and there is little or no educationfor stakeholders, whether it was Companies Act or the LODR which is applicable for all listed entity. Regulators seem to be in a hurry to bring in legislations and set in the fear of prosecutions for non-compliance. Education in this context is not for professionals to understand and implement, but for regulators to clear the ambiguity of various provisions in these legislations. There seems to be no awareness programs for corporates and thus works against the slogan -  ease of doing business in India.

DRACONIAN LEGISLATIONS

On April 1, 2014 the regulators introduced Companies act, 2013 that includes the Act, Rules, Schedules, Forms, notifications, Circulars, Removal of difficulty orders and list goes on. On December 1, 2015 the regulators have introduced SEBI (Listing Obligations & Disclosure) Regulation 2015 that is applicable to Listed Companies that includes Regulations, schedules, annexures, Removal of difficulties and the list goes on. It sends a wrong message that corporates in India are being over regulated. Are these legislations formulated on account of mistrust in the functioning of corporates or is it to protect regulators in anticipation of any unexpected frauds. With LODR the stock exchanges seem to don the role of a bloodhound that is unleashed to go after corporates by SEBI.

AMBIGUITY

There are too many instances where the word SPIRIT is used and that is bad drafting as the onus is cast on the professionals who include the company secretary, auditors, independent directors and of course finally the Board of Directors to follow the spirit of complying  with the provisions of the legislations in true spirit. There is even a mention of such other person who can be held liable and it is anybody’s guess it can be somebody when nobody is found guilty and there lies the real spirit.

It seems a company will require at least 10 policies to be displayed on the website and includes everything in the imagination of the regulator. The vague ones are the policies on Materiality; the word itself is ambiguous as what is material for one may not be material for another. This is height of imparting philosophy in capitalism. The other policy is a policy with respect to obligations of directors and senior management, which appears only in disclosure and not as part of the regulation.  There is an entire chapter on obligationsin which the regulator has laid down what a director can do,  then where is the need for one more policy.

SPRIT or LETTER

Sprit can be assessed in four different ways, the first being compliance in sprit that has always ensured corporate governance evaporates into thin air as very few seem to be serious to do initiatives that are voluntary. The second is in forums where corporate governance is discussed in the midst of high spirits. The third is after such discussions there is hardly any spirit to comply. The fourth is, no one has ever till date has been able to crack a fraud before it is done and that is spirit, where the boards could never see or failed to see (ghost invoices and employees). The regulator should first remove the most ambiguous term SPIRIT in this legislation and in fact in all legislations. 

Why leave corporates to guess if corporate governance has to be practiced and implemented in letter or in spirit, surely it cannot be both. If disclosure is what the regulators are looking for, then why not restrict this entire LODR in letter and let the corporates know what has to be submitted and the deadline for submission, which will leave no room for interpretation.

That leaves us thinking if the regulators have introduced an Uniform Listing Agreement; should we not have another regulation titled Uniform Disclosure Regulation and let corporates know what is required to be disclosed.