Business Responsibility report - a new regulatory norm for micro-cap companies!

SEBI last week decided that it wants the top 1,000 listed companies by m-cap to provide a business responsibility report to investors along with their annual report instead of the earlier practice of top 500 listed companies providing such information. The report is intended to bring the investors' attention on the efforts and practices of a company to maximize profits and be responsible to the society simultaneously.

Given the SEBI new classification of anything beyond top 250 listed companies as small cap, it is clear that the maximum impact of such regulatory practice will fall on the small & micro cap space which are in the midst of a deep economic slowdown.

Following three points are noteworthy with respect to such kind of 'forced' regulation:

(a) These small & micro cap companies should be first allowed to build enough expertise to comply with basic regulatory requirements. Liquidity crunch, job losses, GST filing and ever changing exchange regulatory changes have impacted operations severely for many of these companies. To comply with such an additional new requirement is unwarranted at this time.

(b) To compare a large cap company with a small cap company to have same commitment towards social consciousness is preposterous. For example : To expect a small-cap company to have the technological know-how or bandwidth to make its product environment conscious or reduce its carbon footprint (as cited as one of the requirements in the new norms) is bizarre to say the least.

(c) Data to create such report remains bit of an unknown. Giving wrong or outdated information in the annual report due to lack of data is more harmful. Explanations could be either incomplete or too complex to be of any use to shareholders.


The author may have positions in the stocks as mentioned in the article above, please assume us to be biased. This is not a recommendation to buy or sell securities. This is purely information about the company mentioned. Equity investing contain risks and please consult your financial adviser for any buy and sell securities!

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