Corporate Governance Issues in Nepali private companies This is why private equity investors are very skeptical while investing in frontier market like Nepal...... This article has spot-on identified issues related to corporate hygiene. "The first gaping imbalance in the emerging markets private equity equation was the accuracy timeliness, and transparency of financial and operating information provided to investors, and the willingness of managers to subject themselves to some degree of accountability to outsiders.
Even in the best of circumstances, relationships between investors and the managers of their portfolio companies are complex and often contentious, but the absence of sound corporate governance practice has sharply accentuated that tension. Nowhere does this issue become more problematic than with family owned firms. Although widespread in all countries, family ownership tends to be even more prevalent in developing countries. The prototype is an entrepreneur who has built a successful business with virtually no capital or shareholders beyond his or her immediate family and close friends.
Absent any accountability to outside shareholders, the interests of the owner and the firm are indistinguishable, and financial accounts are frequently intermingled. These traditions of autonomy, secrecy, and independence run deep within the corporate culture of most developing country firms, rarely challenged until the need for outside capital becomes imperative. Few entrepreneurs, for example, have ever undergone an independent audit or adhered to international accounting standards that are the prerequisites for virtually every professional investor.
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The prospective investor is thus at the mercy of the entrepreneur for access to information necessary to make critical judgments about company performance and value. The common practice, for example, of maintaining two or even three sets of accounting records in order to avoid the tax collector frustrates the due diligence team’s task of gaining an accurate picture of performance. Opaque bookkeeping and disclosure habits also may impede access to other important information that might alter investor perceptions of company value, such as environmental liabilities or unresolved legal disputes. Read about Corporate Governance at Wipro
As one investor noted, “One big problem is skeletons in the closet. Many of these great companies have hidden subsidiaries, offshore sales and other tax avoidance schemes. ” Nor is the lure of badly needed capital likely to overcome resistance to outside investors who are inclined to push and prod management to make painful changes they believe are needed to increase transparency and enhance company value. It is not surprising, there".
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