Regulatory bodies fail to enforce corporate governance code

KATHMANDU, AUG 30: 

Despite ample legal provisions to punish those who flout corporate governance rules, regulators are unable to enforce the regulation. 

“Those agents that need to make sure that directors are not taking undue advantage of their positions and make them tow the line are somewhat irresponsible and have failed to take appropriate action,” said former finance minister Dr Prakash Chandra Lohani during an interaction on Corporate Governance: A Nepali Scenario, today.

He spoke about the bad corporate governance culture 

existing in public enterprises that has caused the nation to lose billions of taxpayers’ money. Though the financial sector is more or less professional 

due to transparency in Nepal, they are also not free from bad governance. 

Financial institutions especially need to follow the corporate governance code as they mobilise the public’s money, and the failure of one institution can bring about a systemic failure, bringing down the whole financial system. 

According to executive director of Nepal Rastra Bank (NRB) Bishnu Nepal, most of the boards of financial institutions are unaware about their responsibilities, and the financial institutions that ran into trouble had their executive chairmen taking unfavourable decisions leading to the downfall of the concerned institutions. 

“The conflict of interest that arises when directors are also borrowers deteriorates the financial health of the institutions as part of their loans are fake and backed by substandard collaterals,” he added. 

Banks run into trouble when the board fails to asses the risk appetite thus being involved in insider lending which is an extremity of bad governance for a financial institution, pointed out deputy director of NRB Muktinath Sapkota and CEO of National Banking Training Institute Sanjeev Subba, during their presentations on corporate governance. 

Both expressed that the regulator backtracking on its decision and regulations worsens the corporate governance culture. Former chairman of Securities Board of Nepal Dr Surbir Paudel also lamented that the capital market regulator, despite all the existing laws, is unable to enforce the corporate governance code among the listed companies due to its limited capacity. 

“To avoid the need to follow proper corporate governance most of the business houses in Nepal are not willing to issue shares to the public even after knowing that it is cheaper than borrowing from banks,” he pointed out. 

Likewise, former managing director of Nepal Stock Exchange Dr Rewat Bahadur Karki pointed out that earlier regulators were lenient and let go of flouting of corporate governance codes which has deepened the crisis.

Finance minister Barshaman Pun also expressed that bad corporate governance will diminish returns no matter what size the investment is. He informed that government enterprises will soon be either privatised or operated under pubic-private-partnership concept or be liquidated to improve their governance capacity and save taxpayers’ money.

Source: THT