We all know the prime objective of the company and the Board is to focus on value creation for shareholders. But to have better corporate governance and to safeguard the interest of the company and all stakeholders including shareholders with renewed attention to statutory compliance, regulators now also want boards to focus on value management and value protection by doing a formal review of compliance obligations which includes set system of rules, practices and processes. It is all about indirectly or directly balancing individual goals, as well as, economic and social goals.
As a result, corporations are looking to replace informal compliance frameworks with well structured, documented and presentable compliance structures that help management monitor and report compliance risk, status and exposure to the Board.
There is a provision for listed companies (LODR Regulations/ Listing Agreement) that the Board shall periodically review compliance reports of all laws applicable to the company, and will present before the Board the steps taken by the company to rectify instances of non-compliances.
Please refer [Section 205(1)] of the Companies Act 2013- Functions of the Company Secretary;- shall include: (a) to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;
It is important to note about ICSI’s Mandate (Vide its Letter to Members dated December 22, 2014: “Examining and reporting whether the adequate systems and processes are in place to monitor and ensure compliance with general laws like labour laws, competition law, environmental laws.”
Please note that in the Director’s Responsibility Statement it has to mention that Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. [Section 134(5)(f)]
It was stated for Corporate Governance – “Failure to implement good governance procedures has a cost beyond mere – regulatory problems. Companies that do not employ meaningful governance procedures will have to pay significant risk premium when competing for scarce capital in today’s public market”.
Possible risk of non-compliance
Corporate law compliance
√ Imposition of penalty/fine
√ Vacation / prosecution of directors / senior management
√ Loss of reputation
Labour law compliance
√ Imposition of fine/penalty
√ Prosecution of directors / occupier
√ Loss of reputation
√ Employee dissatisfaction
Environment, health & safety laws
√ Stoppage of operations
√ Loss of reputation
√ Imposition of fine/ penalty
Direct tax compliance
√ Imposition of fine/penalty/disallowance of tax benefits
√ Prosecution of directors
√ Loss of reputation
Indirect tax compliance
√ Cancellation of licenses
√ Imposition of fine/penalty/disallowance of tax benefits
√ Prosecution of directors
√ Stoppage of operations
√ Loss of reputation
| HURDLES:
1. Large number of legislations and multiple regulators. 2. Multiple business locations attracting state legislations 3. Lack of ownership /awareness of functional staff about compliance requirements 4. Segmented compliance initiatives 5. Time-consuming and unreliable manual reporting 6. Dynamic legal environment, lack of a robust updation process, frequent changes in process owners and internal processes. 7. Unpredictable compliance where compliance framework not designed or not in place, No formal training or communication of compliance status |
MANAGEMENT:-
1. An integrated statutory compliance framework with continuous monitoring by management with regular improvement. 2. Compliance framework is designed with adequate documentation and communicated to process owners. 3. Standardized compliance framework with periodic testing for effective design and operation with reporting to management. 4. Automation to support compliance process and allow rapid changes, if required. 5. Stages from Information, standardization, monitored to optimization.
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SOLUTIONS AVAILABLE:
1. Conduct Due- Diligence for all applicable compliances, statutory forms, licenses and even evidences for compliances.
2. Compliance be listed accordingly based on maturity level and customize on organizational needs and practices.
3. Enable creation of complex Compliance Organogram.
4. Enable creation of multiple approval and escalation levels for respective compliance.
5. Enable customizable dashboards and compliance status and exception reports with matrix.
6. Facilitates customizable alerts and reminders to the process or business owners.
7. Follow up Audit to track compliance at every step.
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