Speech by Mr. Padma Jyoti, President of NBI:

In Nepal today we can not ignore our political mess while talking of day to day business or even simple living. We have just come out of a violent conflict and are in the middle of a political overhaul. However the current feeling is that the political parties seem to have failed the country. The level of trust among them is at the lowest ebb. They are totally divorced from the feelings and the needs of the general public including business.

Peace is not progressing as planned; we seem to be going in the opposite direction. Lawlessness is rampant. The situation of Nepal has relapsed into a very worrisome phase.

During any conflict the local private sector also suffers greatly. Moreover its options are limited because of its vulnerability and big liabilities they carry. Another complication is the extreme politicisation of all sections of the society like workers, unions, students, teachers, health workers, even garbage collectors. This makes it impossible to work with any logic, reason or rules.

To reword what Woody Allen once said, the Nepalese public was afraid of the dark and now is getting suspicious of the light they thought they saw at the end of the tunnel.

I don’t think all foreign agencies fully understand the extreme situation the private businesses operate in and the compromises they have to make just to survive. On this score the private sector in Nepal has been amazingly resilient so far.

Private sector can not function in extremely deprived circumstances. A basic minimum set of enabling factors like law and order, presence of state machinery, restoration of destroyed infrastructure are needed. And these don’t exist in Nepal at the moment. So some may wonder – are we in the right mood to talk about corporate governance.

In less than a year a new constitution of a Federal Republic of Nepal is supposed to be written. Our immediate focus has to be on how to ensure basic economic freedoms and a business friendly constitution in future Nepal. It is no use to expect any major economic reforms or any ambitious government initiatives. In this interim period if the government just gives us some stability, law and order and a little peace we should be happy.

To compound our problems further, the rest of the world is having a financial crisis. Let me rephrase again what a witty person has said – a recession is a time when you tighten your belt. A depression is a time when you have no belt to tighten. When you have no trousers to hold up, it’s Nepal. But the Nepalese private sector, even without pants, is resilient if nothing else. We must look beyond one year.

The Nepalese Companies

In the Nepalese society the general attitude to profit, risk taking and entrepreneurship is not very positive. Moreover the history of modern corporations is very short in our country. Most of the families, who are in business in Nepal, started as traders, merchants; and only in the last few decades went into modern company style organisations governed by company act. The majority of the business is family business, most are small or medium sized. In a few families the 3^rd and 4^th generation has taken charge now. Some of our families have also gained experience of running publicly listed companies with mixed feelings and results.

Banking sector is the most visible publicly traded sector which has emerged as a new and different breed from the real sector. The few multinational companies or subsidiaries are closely held companies. I hope my more qualified fellow participants will throw light on these sectors.

But all of this does not mean that we can afford to stagnate. Private sector business has to drive our economic growth. However for expansion of its business activities the form and the structure of business entities have to transform. So we in Nepal have to learn the good things from the rest of the world to become more efficient and more competitive. All of us know that even to sustain peace in our country the growth, the quality and the pace of economy is vital. Growth has to be dramatic, quality has to be inclusive and the pace has to be fast. In this drama private sector has to play the hero’s role.

Corporate Governance for Nepal

The term, Corporate Governance, has a very specific modern meaning. Other distinguished speakers have elaborated on its various nuances. This workshop gave me an opportunity to read through some of the definitions and codes, like The Cadbury Rules, The Combined Code on Corporate Governance which originated in UK. They are excellent guides for the mature corporations who have separation of ownership and management, who work with multitude of major and minor stakeholders, who raise and use capital from the general public not directly connected to the operations of the company and so on. So the first natural reaction of the Nepalese business will be – corporate governance is not for me.

Many of us went through somewhat similar thoughts when Corporate Social Responsibility or CSR was first talked about in Nepal. We had a rich culture of charity and philanthropy, but we never connected it to business. So there are a number of things to learn, for example, how to integrate the charitable and philanthropic work the Nepalese families have been doing for so long with the businesses they run. In other words, make CSR mean good business.

Therefore I am also convinced that many of the elements of good corporate governance are excellent goals to aim for and valuable benchmarks for the Nepalese companies of all sizes. Some may argue that in the recent global crisis even large corporations and banks, supposed to be role models in corporate governance, were not saved. Let us leave such analysis to cynics who are good at post mortem.

Like in many other countries, in Nepal too there are public sector companies owned by the government and companies owned by private investors. Both need to practice elements of corporate governance to treat somewhat different symptoms. The government owned companies need freedom from political interference which sap their efficiency and hinder professional management. I think other participants will throw more light on this topic. Let me say something about Family Business.

Family Business and Corporate Governance

Family business starts with an entrepreneur, a visionary and a courageous member of the family. But as it progresses through a generation or two, it becomes evident that some clear distinctions and conscious decisions by the family are crucial. Managing different members of the family with different aptitudes and different skills becomes a challenge. Keeping family issues separate from business matters becomes a difficult but necessary task. Setting up an objective yardstick for taking business decisions becomes a complicated task but essential.

When I read the Corporate Governance Code I find that many of its provisions can be applied to family business with slight modification. The initial decision to start may be the hardest one, fraught with hesitation, emotional blockade or even disagreement in the family. But in my opinion those families which cross that hurdle will ensure a more stable future for their business. I suggest that experts and agencies like you should develop an introductory code suitable for family and small business in a country like ours. I think our business associations like FNCCI or NBI will be happy to work with you on this.

I also believe that the sole purpose of corporate governance is to ensure transparent, ethical and prudent behaviour by the companies. Transparency, ethics and prudence are great qualities for every type or size of business in any country. These virtues are not only for large public companies. It is also not true that family business or smaller business are any less transparent, less ethical or less prudent with stakeholders it needs to interact with. If I may say so, such businesses have standards of their own choosing.  In fact good family businesses maintain high values of their own for prestige, goodwill, tradition and heritage. These may not be codified but they exist.

But when such businesses need to grow in the fiercely competitive economy or when they are trying to bring in higher efficiency; they have to start adopting some formal structure and formal systems similar to those prescribed in Corporate Governance codes. When they need to spread their wings by borrowing from international institutions or doing business with larger companies in developed countries they may require adherence to these governance norms.

A final point I would like to make is about the stage and the maturity of the economy of a country. What is the quality of the legal framework, implementation capacity and taxation system? How deep and wide are the business activities in the country? What is the business culture existing among the customers, suppliers, lenders, distribution channels, employers, employees? All of these have to improve in quality for the practice of corporate governance to succeed. Therefore when we talk of corporate governance we must also look at and lift the readiness of the country’s economic institutions. A tide of progress has to lift all boats and fish who live in the ocean. Otherwise many will perish.

I admit I don’t have all the answers and probably asked more questions instead. But as a wise writer once said – it is better to know some of the questions than all of the answers. I am looking forward to learning very useful answers in the days to come so that the Nepalese private sector can be reincarnated in new Nepal, fully prepared to face any demon in the world.