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IIM-A gives green light to new pay scale

: “The foundation of any structure of corporate governance is disclosure. Openness is the basis of public confidence in the corporate system and funds will flow to centers of economic activity that inspire trust.” -Sir Adrian Cadbury

The issue of Reliance Communication (RComm) reporting inflated wireless revenues to bourses for improving its valuation and at the same time underreporting its wireless revenues to TRAI for avoiding license fees is a typical corporate governance problem arising out of multiple reporting standards. Nowadays, a company’s innovations do not stop with its products and extends to finding innovative ways of using the loopholes that these multiple reporting standards provide.

According to Parekh and Co., an independent audit firm appointed by DoT for looking over this issue, RComm had reported revenue of Rs 15,213 crore to the stock markets for FY07-08, a 23% over its actual revenue of Rs 12,298 crore. At the same time it underreported its wireless revenues to TRAI and doing so it avoided license fee payment of Rs 224.79 crore for FY07-08. Moreover this was not the first time RComm avoided the license fee by underreporting. It avoided Rs 91.11 crores license fee for FY 06-07 by adhering to similar practices as per the Parekh and Co. report.

The above issue raises some serious concerns over the relevance of corporate governance to the corporate performance. The excessive importance for short-term gain can have major impact on upcoming sectors like Indian wireless market in a long run. Companies should realise this and adhere to proper reporting standards for its sustainability. But it’s easier said than done due to the different needs of its stakeholders and hence the regulatory bodies need to play a pivotal role.

In RComm’s case the regulatory bodies SEBI and TRAI failed to check the consistency of the financials submitted by Reliance communication with each other. The whole issue was brought to forefront by Kotak securities an equity research firm after two years of license fee evasion by RComm causing a total loss of Rs 315.90 crore to exchequer. When the need for different reporting standards is unavoidable, in such case the different stakeholders including regulatory bodies need to work in liaison to avoid such corporate governance issues.