Corporate governance has been in vogue for many
years. But thanks to the corporate and financial scandals of early 2000s that
it received most attention. Every major
government functionary, political parties, industry association and corporate
captains have started advocating the need for better corporate governance
practices. Many famous corporation were brought under the microscope of
corporate governance to unfortunately realize they were not operating as par. Starting
from the very famous Enron scandal to the Satyam Computers case in our
neighboring country to the case of KIST bank from our own country, it’s the deficient
corporate governance founded on short-termism, greed of managers, corporate and
even investors. This has questioned the role of board, independent directors,
auditors, audit committees, and regulators.
Lets
view the corporations in Nepal under the microscope of Corporate governance. According
to the Report on the Observance of Standards and Codes (ROSC) which assessed
corporate governance in Nepal, the
awareness of the importance of corporate governance is growing which can be
seen in the increasing directives from various regulators. However, loopholes
still remain. According to the report, Disclosure is poor, especially for
non-financial companies. Standards for auditing and accounting are still being
developed. The controlling family remains in charge of both the board and company
management, and further the directors have limited guidance on duties and
power. The key governance institutions
as SEBON, OCR lacks resources and authority. Also, Weak corporate governance
frameworks reduce investor confidence, and can discourage outside investment,
this can be a sad news for emerging country like Nepal.
Having talked about Corporate governance, its
principals and the situation in Nepal, now, I would like to concentrate on the
part of directors for the corporate governance. Managing is different from
governing and the responsibility of governance rests with the board of
directors. As the name suggests “Director”, it’s them responsible to direct the
enterprise towards goal by overseeing the managers and the management
practices.
As realized the role of BODs for Corporate
governance. now I would like to write about the composition of board. There is a need of independent directors, especially
when the chairman is also the chief executive. The basic reason behind this is
to have an independent judgment of various aspects relating to business to
enable the check and balance in the governance process. However, it is not a
good practice to have same person as independent in many companies or its is
not good when they are constrained by the threat of losing their position on
board.
The next thing I would like to focus is the Board
diversity. The diversity can be observable one in terms of race, ethnic
background, nationality, gender and age while it can be non observable in terms
of educational, functional and occupational backgrounds, experience and skills.
Research indicates that diverse groups of individuals with different
backgrounds, skills and perspectives outperform homogeneous groups. Diverse
boards allocate more time and effort to monitoring, auditing and ensuring
transparency. It may just be a coincidence, but some of the most costly
corporate scandals in history- Enron, Worldcom, AIG and Tyco- had very
homogeneous board comprising of only old aged male directors. Had it been a
heterogenous board to welcome functional conflict, the scandals would not have
been there in the history.
With this fact , I would like to advocate the need
for significant number of women in boards to ensure corporate governance. A
study suggested that women possessed the CMR or “Critical Moral Reasoning” more
than men which involves making consistently fair decision when competing
interests are at stake. Also, women
tend to raise questions their male counterparts often tend to disregard. It is also found that women on boards improve the
behavior of male board members and be it in terms of attendance records or the
overall performance. This is the reason why some
European countries, including Norway, Spain and France, have introduced
mandatory quotas for female representation on boards, all targeted for better
corporate governance.
All in all, to wrap up, I presented
the concept of corporate governance, its principles along with its state in
Nepal. Further, I exhibited the importance of independent directors and board
diversity. Finally, I advocated the need of significant women directors in the
board room to ensure a robust corporate governance.
