Banking Sector Reforms in Nepal-III
Implications for Corporate Governance

Dr. Yuba Raj Khatiwada, Member National Planning Commission , Nepal

In the above context, specific measures needed to improve corporate governance of the financial system should include the following:

Improve the requirements and the frequency of disclosure and publication of financial information to bring them into line with best international practice, especially from listed companies, banks and other companies raising money from the public.

Improve disclosure of related party transactions and improve the rules and enforcement against the use of inside information.

Improve standards of accounting and auditing in line with international norms and provide more training for accountants and auditors.

Strengthen rules governing the responsibilities and accountabilities of boards of directors and internal and external auditors.

Improve the quality of the boards of directors by increasing the required minimum number of outsiders on these boards, set criteria for the selection of directors and provide them with training as needed.

Strengthen all aspects of the supervisory capacity of the central bank, but especially its capacity to monitor and enforce compliance with rules on public disclosure.

Develop and implement a Code of Good Corporate Governance and initiate measures to improve existing regulations, implementing new regulations and strengthening public institutions responsible for encouraging and enforcing good corporate governance.

Encourage private initiatives and self-regulation through programs using the media as well as public meetings, conferences and seminars to develop public awareness of the need for transparency and improvement in the governance structures and mechanisms of the banking and corporate sectors.

Publicise that better corporate governance and transparency can bring benefits to all: the general population, customers, suppliers, employees, investors, shareholders and management alike.

Encourage shareholder activism as a means of enforcing good governance on public corporations. Such activism has been a major riving force for change in developed countries.

Encourage NGOs, civil societies and other "watchdogs" to act as pressure groups for reform.

For good corporate governance, the authority and ability of the NRB would be enhanced for effective supervision by improving the existing legal and judicial processes for enforcing financial contracts, improving auditing and accounting standards within the banking sector and promoting financial discipline through adequate disclosure and competition.

Restructuring the board of directors of the financial institutions is a must for better corporate governance. As recommended by the Adam Smith Institute, the number of directors on public enterprises (PE) boards should be not more than five. But what is much more needed is the underlining qualification of the board member to hold the responsibility. Academic qualifications, experience, area of specialisation and personal integrity are some of the points that must be mentioned in the act as the minimum qualification of the directors. Besides, an act limiting a government official to appointment as director of not more than two PEs should be implemented so as to ensure sufficient time of the directors for the benefit of the assigned PEs.

There are suggestions that directors should be made responsible for the loss incurred by the PEs due to their negligence, insincere and deliberate actions and "a company must not indemnify a director of the company in respect of liability for any act or omission in his capacity as a director". This should be no less applicable for the chief executive as well. If our recent experience with omissions made by the boards and their liability ending with the dismissal from the position of the directors or executives is any indication the act should be more stringent in this regards so that they cannot escape with impunity.

Appointment of a professional chief executive through the recommendation of the selection committee fairly constituted is appreciated. Past experience is also encouraging in this regard. So following that example, a high level selection committee may be constituted whether with the consensus of national parties or through the institutional representation of the professional organisations like Management Association of Nepal, the Chartered Accountants Association of Nepal and the Public Administration Association of Nepal.

NRB has already issued a few regulations on good governance in mid-September 2001. They include the following:

Code of Conduct for the Board Directors: commit to the code of conduct issued by NRB, not to involve in any financial business with banks clients, not to participate in more than 10 percent share of share brokers or dealers, no appointment of alternate director if the term of the incumbent expires, not to involve in loan proposals for the relatives as defined by BRB, to maintain records, reports and confidentiality, to do impartial and equal treatment and to report the compliance on code of conduct to the NRB;

Duties and Responsibilities of the Board of Directors: prepare and implement personnel policies and regulations and appoint professional staff, constitute internal audit committee headed by non executive board member, submit internal audit report directly to the board, prepare investment, capital, credit, profit, personnel and project planning and implement the, monitor the compliance of NRB regulations:

Appointment of Chief Executive: appoint professional and capable persons, inform NRB if any changes, inform if some body in deputation or acting for some time, the chief executive not to possess more than 1 percent share of the company;

Personal Code of Conduct: make available information to NRB for inspection, not to work anywhere else as a full timer and take permission for part time, take permission to be director of nay other organistion, not to misuse information an maintain confidentiality.

These corporate governance measures initiated in the process of banking and financial sector reform are entrusted to ensure a healthy functioning of the financial system and provided efficient financial services.

Nepal should now move towards the concept of a "Newropean" state

By Yuba Raj Koirala, Political Analyst, Kathmandu.

Enough of political jabbering, we suppose, which in the last 12 years has produced nothing but a nationwide network of democratic orphans in the kingdom leaving their mouth wide open in the hope that few drops of that global gasoline would trickle down to their belly and help them ignite their locomotive enabling them to catch up with the rest of the jolly good looking folks who are busying themselves somewhere in the well orchestrated grazing land, arguing and debating bottom up approach and producing miracles.

Nepal seems to be on the verge of becoming a story of yesterday, "failed state" so they say- the all swinging and floating folks who chew much of the globe's fat and throw the remains at our door steps. Then follows the series of reform or rehabilitation programme such as environment, good governance, human rights, pro-poor tourism, Tourism for rural poverty alleviation, just to name a few. Presiding over these a la carte agenda they then tell us that Nepal must abide by the dictates of their high command or else face the consequences of being a tips ridden state. These high ranking commissioners who often frequent to the third world countries on a package tour like assignment tend to sense very little that most of the Nepalese are seeking salvation on their leftover. Abandoning their Ram, Krishna and Buddha, the youths are fleeing the country in search of Tom, Dick and Harry who have promised the rest of the world that theirs is the land which flourishes only milk and honey and is open to all. This is evident when one actually set his or her eyes on the plethora of treatment these fleeing folks receive in its most Orwellian manner when they present themselves before the high commission to receive their visas.

With our corrupt and self-seeking politicians who have kept the nation divided throughout these years, there is little hope that things may change. These magic monkeys won't serve the people. The parties and politicians offer no redress to this pervasiveness since they themselves are contaminated with the evils of the system they support. Just look at our post offices, our public transport, our government offices, our academic institutions, our hospitals, our judicial systems, the nation's only flag carrier RNAC and last but not the least, our social manners - are not they sufficient enough to evoke in us a sense of indignation? Just look at an ordinary Nepali going on about his day-to-day business and you will see how humiliated, how timid and how insecure he looks.

Nepal has never failed and let it be know that it is not a failing country. We should not be fooled if someone reinforces their prejudices against our people and our land. This is the land which from time immemorial has been embracing that fairytale imaginations of that heavenly kingdom where our myths and legends, our songs, signs and national symbols are sufficient enough to recapture that epoch making imaginations and give a new lease of life to this decaying civilization. This is the center of that earthly gravity where gods and angels play their mythological drama and rejoice their continuation. To say that they have failed and we have excelled would be very time consuming and futile an enterprise. In every inch of her land there exists an innumerably vast, serene and calm Nepal and if the whole country hymns in a single rhyme her splendor would then unfold in its totality.

Not Nepal but we have failed, our vision has become blurred. We have become slaves and the slavery has been imposed on us by our so-called leaders. They simply don't know what was and is this very concept of Nepal. They don't have the vision to nurture this country. All they have done so far is humiliated us to that extent where all Nepali are rapidly degenerating to be Khate and there are many khates being born in every house everyday than the country can afford to sustain.

The concept of Nepal as a nation state now needs to be redefined to suite our own needs and for that we need to go back to our past. Nepal must now look to a new movement to rise up her again, to make her stronger and restore to her people the dignity, security and prosperity, which were their birthrights. We must now reinvent that old Nepal with virtues of discipline, dignity, dynamism, and self-reliance. We must now look for new ways so that we may be able to uphold justice, peace and progress. We must make our institutions vibrant and thriving and this potency should be reflected on every single individual. And to achieve this, we should not budge an inch from where King Prithivi Narayan Shah had left us. And the time is ripe enough for us once again to embark upon this historical undertaking and be a smart people belonging to that great tradition which flourished not only milk and honey but also nourished the rest of the humanity. If we are able to sum up all our strength and courage then a new civilization can certainly flourish known as the Newropean having the combined elements of best of the Nepali + European socio- cultural fabrics.

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