Last word

The latest buzzword to have entered the corporate lexicon is ‘governance’. Nepal is now seeing many projects and assistance in improving governance at all levels – government as well as corporate. The issue however is that to ensure corporate governance there have to be corporates, not merely companies that have just been registered with the Registrar of Companies. These may be companies in the legal sense, but we need companies that understand the distinction between the shareholder and the company. The pertinent question is do we really have companies in the real sense?

The garb of the corporation has been used in Nepal mostly as a form of partnership that suits the law. The fact that one’s liability is limited has been a better attraction for conversions into corporates rather than the fact that corporations are required to do business more efficiently and effectively.

Our social system does not understand the corporate culture. We are more tuned to autocratic system with a patriarch rather than a democratic system of governance. The entire socio-economic system of Nepal is yet to accept a corporation as a complete system in itself. This can be explained from the fact that banks ask for personal guarantee of promoters to provide a loan to the corporation. Similarly, taxation system also looks at taxing the person or entity behind the corporation rather than the corporation itself. On the other hand, promoters of companies have equally taken advantage of this fact and therefore whenever problems surface, they sacrifice the company and ensure that they emerge unscathed.

Corporations require a long-term mindset - a trading mentality does not support it. The issue of perpetual succession is hardly understood, as we cannot completely alienate ourselves from the company. This means no mergers – no acquisitions, no restructuring and therefore no growth. Companies are identified with individuals rather than individuals being identified with companies.

There are many issues related to bringing about a corporate culture in the country. There are various deterrents to it. Primarily, the tax system is a pure hoax that discourages disclosure and transparency. The corporate and other laws are antiquated, therefore, the framework for innovative thinking is completely absent. The government and bureaucracy are yet to understand the meaning of a joint stock company. The stock exchange is still in its crude form that uses systems and methods that are very old. Further, the people in business community have never been faithful to the concept of corporation. These issues are compounded by the fact that there are very few professionals who know the right solutions. The breed of ‘do-all-consultants’ operating under the veil of registered auditors and tax consultants are clueless on the issues relating to the role of the companies as well as its functioning.

In the present context therefore, a lot is to be done and corporate governance is definitely a far cry. The starting point may be to look at an overall corporate policy for the country. This means that the Companies Act needs to undergo a massive transformation to become a more contemporary document. Laws relating to bankruptcy, securatisation, ownership and leasing need to be initiated. The tax system needs revamping that would build the trust of the common man on the tax man. The era of paperless trading of securities should begin and of course the regulator of the securities business has to be much stronger. Transparency and disclosures should become the order of the day. The business community should be encouraged to institutionalise into corporation by providing them conducive environment and education. And finally the knowledge base has to improve. Consultants with half-baked knowledge should give way to trained and educated accounting, taxation and legal professionals.

The objective of the policy should definitely be to bring about good corporate governance, but it would do even better if it is more to aim at bringing about the understanding of the concept of a corporation and its practice in the true sense.

The tax system is a pure hoax that discourages disclosure and transparency. The corporate and other laws are antiquated, therefore, the framework for innovative thinking is completely absent. The government and bureaucracy are yet to understand the meaning of a joint stock company

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Corporate Governance and Corporate Niti

By Chanakya