Nepal: Corporate governance – a must for healthier

Neerab Pudasaini

Detrimental business practice is the main encumbrance of the growth. Why can’t our business houses operate for long? Why can’t they run for 100 years or even for 50, like they do in other parts of world?

Marks and Spencer celebrated its 125 year in the UK last year, Tesco has been operating for the last 90 years and WHSmith has been there for over two centuries – and all of them are biggest supermarket chains.

What’s the reason our businesses can’t grow? The only reason is lack of good working environment, or sense of ownership or lack social responsibility, or shall we say no good corporate governance?

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Corporate governance is the guideline for the corporate world or let’s say, for the business houses, to operate upholding moral and ethical working environment. It is a rule, process or laws, under which the businesses can perform, register and get controlled.

The international chambers of commerce, the world business organisation, defines corporate responsibility as ‘the voluntary commitment of business to manage its activity in a responsible way’.

Corporate governance helps maintain respect and dignity for all, it gives accurate and transparent accounting and financial statement and with this good and ethical business environment can be expected.

Furthermore it teaches the business house understanding customers or clients as a living advertisement leads to fair treatment with suppliers and competitors. Good practice of corporate governance protects the right of every stakeholder.

This issue of corporate governance is not new. Adam Smith said in his book Inquiry into the Nature and Cause of Wealth of Nation that manager could not be expected to manage other people’s money with ‘the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own’, and that ‘negligence and profusion, therefore, must always prevail’.

This practice of realisation gives the sense of ownership to every stakeholder of business which leads to the success.

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During early ‘90s, the financial aspects of corporate governance was known as ‘The Cadbury Code’ which gives the direction as to how a company should be run by its boards, and segregates roles of chief executives and chairmen. It also stresses that there should be three independent non-executive directors.

In July 2005, most popular Greenburg committee gave direction for the remuneration of the senior staff. The committee gave guidelines to pay the directors based on their performance and their calibre so that the organisation won’t have to take extra burden to retain them, as retaining a senior level staff was a major issue in the Unite States and the United Kingdom. Now, this is looked askance in Nepali corporate world. Though the issue should be addressed, there has been no solution in sight yet. But it’s high time the corporate world began discussing corporate governance.

It’s imperative to build up a scenario where there is a sense of belongingness, a sense of ownership. It is only possible with effective corporate governance – the guidelines that drive everyone to work for a common goal, which ultimately helps strengthen business for the country as a whole.

Frail corporate governance interprets into the higher cost of capital and better corporate governance translates into higher return on assets. In this connection, bank’s corporate governance is very crucial aspect because the financial institution’s behaviour influences economic outcomes. Good corporate governance must be transparent, and legitimate;  thus it helps build the nation through well performing public and private institutions.

Commodity derivatives market is widespread – not only individuals but the larger number of institutions such as commodity brokers, hedge funds, mutual funds or other financial institution like banks and insurance company also are directly or indirectly involved as market participants.

In the same way, the huge volume of capital is incurred and high level of professionalism occurs. So, exchange good corporate governance is a regulation, which includes regulatory body as chief executive officer, board of directors, shareholders, employees, customers, and most importantly the society. Furthermore exchange corporate governance must be designed in such a way that it respects the right of shareholders and helps them exercise their rights.

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The well-known fact is that boards of directors are at the top in a company. So, their role and responsibilities must be clear. All the accounting and financial statement should be transparent. It must be ensured that all the shareholders and stakeholders have access to all the information regarding exchange to achieve good and effective corporate governance.

And this should be regularly monitored by its board of directors and the government officials. Likewise, internal auditor must present reliable financial report, and, if possible, exchange should keep on changing the auditor on a regular basis.

(Sourced from The Himalayan Times)