Women in Board for Corporate Governance

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.