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Cos Act, 2013: Need For A 'Cost Neutral' Agenda

Published on Tue, Dec 09,2014 | 13:10, Updated at Tue, Dec 09 at 13:10Source : Moneycontrol.com 

By: Sardul Seth, Partner-Advisory Services, EY

In an ever-intriguing debate on how much impact the New Companies Act has on the business leaders, the conservatives also agree on the need to have an increased level of diligence by the Boards/ CEOs to effectively discharge an array of direct responsibility that the act has imposed on them.

Gone were the days when the Boards/CEOs could have been comfortable with the shield of ‘reliance on work’ and with direct accountability/ onus falling on them in the areas of compliance, risk management, internal financial controls (more in the listed companies), the business leaders require a fresh thought on how to practically address these requirements with effective reliance and also use this opportunity to improve the business as well.

While one evaluates on what needs to be done depending upon an Organisation’s maturity, a starting point often is an independent assessment of the as-is-situation. This assessment should not only focus on ‘current vs. ideal’ state, but should focus on using the gap assessment to develop a road map that is aligned with an organisation’s culture and operating philosophy.

Many areas offer opportunity to not only be a good corporate citizen and protect the leadership layer in the organization, but also to improve business efficiency and reduce cost. As a starter, thinking about internal controls should including thinking about smart controls, automated controls, process optimisation and reducing the overall cost of controls. This way, the exercise to be compliant will also pay rich dividends through improvement in financial performance.

Similarly, while deliberating on the related party transactions, setting up an effective fraud & vigil mechanism and setting up an effective compliance mechanism, a wider evaluation is required to assess how the same can be improved through use of technology which in turn will help in reduction of penalties, leakage and value erosion.

While review of similar legislations around EU, UK and US would strengthen our belief that all key aspects have been incorporated in our version of the law as well, the fundamental question remains on what are the learnings of the boards/CEOs in these countries that can be leveraged.

When you evaluate the learnings few things stand out:
1.  Right level of ownership and accountability;
2.  Effective use to technology;
3.  Strong tone at the top;
4.  Consistent organisation culture; and
5.  Conscious focus on efficiency

Even when you look at activities like CSR, it all start with setting the right tone at the top and with strong accountability/ ownership, consistency in action and use of technology, the benefits delivered would be better synced with the organisational philosophy. It is just not spending money, but spending money which helps an organisation further its purpose.

To conclude, the need of the hour is to use this opportunity to improve business, processes and overall operating way. One should thrive to make it a ‘cost – neutral’ compliance agenda.

 

(*Views expressed are his personal)

 
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