Indian SOX - Clause 49

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India Inc warms up to Clause 49
NEW DELHI:
India Inc appears to have taken the new corporate governance norms under Clause 49 much more positively compared to their counterparts in the US where Sarbanes Oxley (SOX) Act was brought into the picture in 2002, according to a Grant Thornton survey.

The survey revealed out that while half of corporate India was undecided if the new norms have benefited their organisation, a significant 45% indicated of that it did benefit them. The survey, which was conducted after the deadline for implementing the new norms ran out on April 15, brought out that a significant proportion of the respondents indicated that they benefited from improved processes, controls and enhanced awareness of risks.

This apart, 56% of the respondents also mentioned increased investor community perception on corporate governance as a benefit derived from compliance with the revised Clause 49. However, the views were divided on the issue of differential norms with companies having lower market capitalisation getting an extended deadline for compliance as in the SOX Act.

Currently, Clause 49 is applicable to all companies seeking listing for the first time, seeking in-principle approval for such a listing and all existing listed companies which have had a paid up capital of Rs 3 crore and above or net worth of Rs 25 crore or more at any point of time in its existence.

The survey also brought out that majority of small and medium size companies are driving the compliance process which includes areas like process documentation, identification of risks and controls, internally.

Given the differences in responses, it appears that larger companies have relied more on outsourcing some of the processes like controls assessments, compliance framework and assessments, while smaller organisation — where the impact of compliance costs can be higher — depended on internal mechanism hence cutting additional costs.

When queried on the views related to further extension of the deadline for compliance to the new norms, the verdict was a clear, no. Majority (54%) of the respondents were not in favour of further extensions and only 20% felt that it should be extended.

But what is the perception with respect to the success factor of Clause 49? According to Grant Thornton, “From our survey there is no clear mandate on whether Clause 49 has been a success in terms of achieving its objectives. The verdict was hung with 54% of the respondents remaining undecided, while 34% of them believed that the exercise was a success. It is still early days and much will depend on the actions taken by Sebi on companies who would fail the acid tests of compliance.”

On the issue of effective mechanism to facilitate compliance, respondents indicated their preference for FAQs by Sebi, or a combination of initiatives such as FAQs. Sebi hotline for compliance issues and an implementation facilitation agency on the lines of Public Company Accounting Oversight Board in the US.