India's publicly listed firms need better mandatory and voluntary disclosure: FTI

FTI Consulting has launched its first index benchmarking the disclosure practices of India's leading listed companies. The report has found that most of India's firms are failing to follow mandatory disclosure practices and few offer information classified as voluntary disclosure.

MUMBAI – The firms on India’s Bombay Stock Exchange (BSE) 100 Index with the best overall disclosure practices are Infosys, ICICI Bank and BhartiAirt, finds FTI Consulting. Only these three firms scored a 10 out of 10 versus the average composite disclosure score of 6.5.

Eight firms trail on the other end of the scale, however, including United Spirits, Unitech, Indian Oil Corp, Hindustan Zinc and CanBank. These firms scored only 3.5 out of 10 on average.

To compile the index, FTI reviewed publicly available disclosed information by India’s leading publicly listed firms and created a weighted, composite disclosure scoring system with six mandatory disclosure parameters and five voluntary disclosure parameters. This was then applied to the BSE 100 Index.

Mandatory disclosure parameters included the firm’s quarterly financial information; annual report; shareholding information; management and board team information; investor contact information and analyst transcripts.

Voluntary disclosure parameters on the other hand involved the provision of the firm’s profitability and margin improvement information; operating metrics; business strategy information; debt related information; and key corporate developments.

"We looked at disclosure in a holistic manner, covering voluntary as well as mandatory practices, to get an accurate picture of current practices amongst Indian companies," explained Amrit Singh Deo, senior director in the strategic communications segment of FTI Consulting.

When scored on a composite scale of one to 10 (with 10 indicating that all 11 mandatory and voluntary disclosure parameters are publicly and readily available), the index found that only 41 per cent of companies in the BSE 100 index were fully compliant on mandatory disclosure parameters.

The report also revealed low levels of voluntary disclosure by Indian companies with a median score of 3.5 out of a maximum of six and with most providing inadequate information relating to business strategy and debt.

"This is particularly concerning at a time when international institutional investors are demanding higher levels of voluntary disclosure from emerging market companies," said the report.

Even more concerning, it added, is the introduction of an amended Clause 49 in the Equity Listing Agreement by the Securities and Exchange board of India (Sebi) that demands board-level oversight for ‘disclosure and communications,’ while acknowledging weak enforcement of mandatory disclosure standards. This places the onus of adequate disclosure on the listed company’s board of directors.

The report also found that 51 percent of Indian companies don’t provide analyst transcripts on websites and 68 percent of BSE 100 index constituents did not provide adequate information on debt-related information. Furthermore, 57 percent of companies currently did not provide adequate strategy-related information on their corporate website.

"The low mandatory disclosure scores are surprising, but also something that can be easily fixed," commented Deo. "The real challenge, is to convince Indian boards and management teams that they need to go beyond mandated levels and disclose more information. At the heart of it, more disclosure and transparency are excellent proxies for better corporate governance."

The full report and rankings can be viewed here.

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