A New C-Suite to Draw Up a Com­pli­ance Road Map

With In­dian reg­u­la­tions ris­ing sev­er­al­fold in vol­ume and com­plex­ity, more com­pa­nies are cre­at­ing ded­i­cated teams to study and adapt to the changes and man­age risks

The Economic Times - - Careers: The Fast Track -

Mum­bai: As the In­dian reg­u­la­tory en­vi­ron­ment gets stricter by the day, com­pa­nies are scram­bling to set up a core group or a task force of se­nior ex­ec­u­tives from across func­tions to help un­der­stand the im­pact on busi­ness as well as iden­tify and mit­i­gate risks.

These core teams con­sist of four to six se­nior ex­ec­u­tives and ex­perts from across func­tions such as tax, tech­nol­ogy, com­pli­ance, le­gal, sup­ply, mar­ket­ing or sales and au­dit. Com­pa­nies like Tata Mo­tors, HDFC Bank and Go­drej Group, among oth­ers, have al­ready put in place such cross-func­tional core teams of top ex­ec­u­tives for a seam­less tran­si­tion, said in­dus­try in­sid­ers. In most cases, the core group re­ports to the au­dit com­mit­tees in the com­pa­nies. “Com­pli­ance is be­com­ing more and more an im­por­tant driver of busi­ness prompt­ing com­pa­nies to cre­ate cross-func­tional teams to un­der­stand the im­pact of reg­u­la­tory changes on busi­nesses, to look at the busi­ness model and take proac­tive steps to man­age risks,” said Jig­nesh Thakkar, part­ner ad­vi­sory ser­vices, EY. Their main task is to relook at old busi­ness strate­gies to trans­form to next level of strate­gies, said Thakkar.

One of their ma­jor func­tions is also to mit­i­gate and man­age fu­ture risks. “There are a lot of cross func­tional im­pacts and risk man­age­ment that a com­pany has to do,” said a per­son close to the de­vel­op­ment. “Like the im­pact of choos­ing a new au­di­tor for some of the on­go­ing projects,” he said. As per the rule, au­di­tors are not al­lowed to help the com­pany with any ad­vi­sory work. So if a com­pany is al­ready ad­vis­ing a firm, it can­not be hired as an au­di­tor.

Ac­cord­ing to the EY data­base in 2016, more than 25,000 dif­fer­ent no­ti­fi­ca­tions and cir­cu­lars were is­sued by gov­ern­ment au­thor­i­ties, an in­crease of three times in the last three years. Com­pa­nies need a ded­i­cated team to go through the changes and see what they need to do.

About 50-60% time of all sup­port func­tions like tax, reg­u­la­tions and com­pli­ance is go­ing in iden­ti­fy­ing and analysing change in re­quire­ment and up­dat­ing the man­age­ment

is on the rise with new rules and frame­works such as GST, GAAR, PoEM, BEPS, au­dit ro­ta­tion, Ind-AS, ICDS, new cap­i­tal gains guide­lines in the Bud­get and in­ter­nal fi­nan­cial con­trols

putting in place core teams com­pris­ing lawyers, tax ex­perts, au­dit­ing ex­perts, mar­ket­ing and tech­nol­ogy ex­perts say in­dus­try ex­perts.

As com­pa­nies and banks face a max­i­mum num­ber of reg­u­la­tory changes they have to com­ply within a year ever, from GAAR (Gen­eral An­tiAvoid­ance Rule) to GST (Goods and Ser­vices Tax) and au­dit ro­ta­tion to Ind-AS (In­dian Ac­count­ing Stan­dards), this core team can help com­pa­nies pre-empt and an­a­lyse how one change may have an im­pact on the other and over­all com­pany strat­egy.

For in­stance, a change in the ac­count­ing stan­dards could mean the com­pany may have to relook at its merg­ers and ac­qui­si­tions (M&A) strat­egy. Or select­ing a new au­di­tor could mean putting a turn­around project in a sub­sidiary at risk. These core teams have to make sure that while com­ply­ing with one reg­u­la­tion the com­pany shouldn’t be caught on the wrong foot un­der an­other reg­u­la­tion.

With the statu­tory reg­u­la­tions chang­ing every day, the Go­drej Group started a sys­tem of a por­tal­based com­pli­ance tool which tracks more than 400 laws of the land to en­sure com­pli­ance with each one of them. “It is a team ef­fort and hav­ing a for­malised sys­tem helps us track level of com­pli­ance and crit­i­cal­ity,” said V Swami­nathan, head – cor­po­rate au­dit and as­sur­ance at Go­drej In­dus­tries. “At the com­pany risk as­sess­ment level, we have a risk com- mit­tee chaired by an in­de­pen­dent di­rec­tor where the busi­ness head is the key per­son along with his teams,” he said. Com­pli­ance per se is one of the top­most risks for com­pa­nies to­day, he said. Tata Mo­tors and HDFC Bank did not re­spond to ET’s queries.

In­dian com­pa­nies are set to see a num­ber of reg­u­la­tory changes in­clud­ing those on tax and au­dit­ing that could en­tirely change the way busi­ness is done. In next two years, In­dian com­pa­nies will see a slew of reg­u­la­tory changes in­clud­ing GST, GAAR, PoEM (Place of Ef­fec­tive Man­age­ment), BEPS (Base Ero­sion and Profit Shift­ing), ICDS (In­come Com­pu­ta­tion and Dis­clo­sure Stan­dards) au­dit ro­ta­tion and new ac­count­ing stan­dards to name a few.

“Adop­tion of a new ac­count­ing stan­dard may re­quire a com­pany to revisit the com­mer­cial terms in an M&A trans­ac­tion or the move to the GST frame­work may re­quire com­pa­nies to re­work their sup­ply chain wor­ried that while com­ply­ing with one reg­u­la­tion they shouldn’t be caught on the wrong foot un­der an­other reg­u­la­tion strate­gies and the IT and ac­count­ing sys­tems,” said said Sai V, part­ner, KPMG. “Every one of these reg­u­la­tory-driven changes could have an im­pact on a seem­ingly un­re­lated area in an­other part of the or­gan­i­sa­tion, and no one per­son may have full vis­i­bil­ity on all such po­ten­tial is­sues, and this is where the role of a cross-func­tional work­ing group / steer­ing com­mit­tee be­comes very rel­e­vant in manag­ing these changes,” he ex­plained.

“One vi­tal rea­son for the need of a strong com­pli­ance func­tion now is to avoid big-ticket non-com­pli­ance le­gal is­sues,” said Karl Fer­nan­des, vice pres­i­dent, head of in-house prac­tice group / gen­eral coun­sel search prac­tice at le­gal and gov­er­nance re­cruit­ment spe­cial­ists Vahura.

Re­fer­ring to the in­crease in cost bur­den on com­pa­nies to com­ply with the reg­u­la­tions due the new Com­pa­nies Act and Sebi, Arun Dug­gal, chair­man, ICRA, and a mem­ber on sev­eral In­dian boards, said, “Com­pa­nies have to now de­vote a lot of re­sources on in­ter­nal teams and en­gage ex­ter­nal con­sul­tants that take away from the core busi­ness of the com­pany. It is right for gov­ern­ment and in­dus­try to con­duct de­tailed re­view of cost ben­e­fit of ad­di­tional reg­u­la­tory bur­den and iden­tify which reg­u­la­tions are serv­ing use­ful pur­pose and which are not.”

Rica Bhat­tacharyya & Sachin Dave Com­pli­ance bur­den Cor­po­rates are Com­pa­nies are

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