KUMARI BANK LIMITED: (BAD Governance from management perspective) Kumari Bank limited (KBL) started its operation

from 3rd April 2001 as a fifteenth commercial bank of Nepal with an objective of providing competitive and modern banking services in the Nepalese financial market. The bank has paid up capital of NRS 1,485,000,000 of which 70% is contributed from promoters and remaining from public. As with any other bank, the core business of KBL lies on the deposits and lending. The products and services of KBL cover the whole range of banking requirements of the customers, from retail banking, SME banking to corporate banking. The Bank since its inception has been providing IT based solutions like Internet banking, SMS banking and globally accepted electronic VISA debit cards. Within a short span of time, KBL has established itself as one of the fastest growing commercial bank. The bank has been providing modern banking services through 28 branches located in various urban and semi urban part of the country, 19 outside and 9 inside the valley. The bank offers Internet Banking Service, SMS Banking, ATM services from 33 ATMs, etc. Similarly the bank has been providing 365 days banking facilities, extended banking hours till 7 PM in the evening, Utility Bill Payment Services, Inward and Outward Remittance services, Online remit Services and various other banking services. KBL is one of the successfully established banks among the commercial banks. With professional and dedicated team of management having long experience, commendable knowledge and experience in conventional and modern banking, the bank has achieved success among its peer group within a short span of time. The key focus of the bank is always center on serving unfulfilled needs of all classes of customers located in various parts of the country by offering modern and competitive banking products and services in their door step. Ever since the start of operations, KBL has shown tremendous growth, the bank has expanded its operations to the various parts of the country and the implications have been the increase in the deposits and lending therefore increasing the overall profitability of the bank. The bank has been generating its revenue stream mainly through the interest income further, the fluctuations in the foreign exchange rates and the service charges on the various services offered by the bank also account for the banks revenue source.

CORPORATE GOVERNANCE: KBL adheres to the corporate governance guidelines of the Nepal Rastra Bank, the regulatory authority in the banking industry and has policies and practices in place for the management of various risks like credit risks and operational risks. The board KBL consists of eight board members where 5 members are from promoter group, 1 is independent member and 2 represents general public. This composition of even numbers in the board can generally create the conflict in decision. In KBL the Board members is nominated through the voting of shareholders. I have observed that the Board members in KBL are appointed without much investigation of their background and just appointed with the surface level of fulfilling the NRB directives. Majority of the board members are from promoter group that shows us that that they have invested huge sum of the money in the bank at the same time majority of the board members lack the expertise and education in the field of the banking sectors. It can be clearly visible as no specific indicators are set where the

performance of BOD can be measured. The board conducts meeting regularly once a month. Before the meeting the BOD is provided Agendas and Minutes of previous meeting in advance. There are different committees that consist of Audit Committee comprising three NonExecutive directors, Human Resource Sub- Committee, Executive Sub- Committees comprising three Non- Executive Directors, Business Development and Promotion Sub Committee and Other committees. The audit committee is in good stage where there is a transparency in all the financial statements and information regarding the business. Management From the Corporate governance view and from the available information regarding the KBLs annual report, it provides only the information regarding the remuneration of chief executive officers and the other facilities of CEO provided by the policies of the bank but there is no any clear information regarding duties and responsibilities of the CEO. From CG perspective, though the banks in Nepal comply the NRB rules there is not much transparency and disclosure of internal activities of management and board. The stakeholders are not disclosed the information regarding the resignation of former CEO Mr. Radhesh Pant. Currently the KBL is operating though acting CEO Mr. Uday Krishna Upadyaye from about months. Shareholders and stakeholder relation The shareholders and stakeholders gets the information of the company only through Agenda, Annual Report (term report), AGM minutes shared to investor, Newsletter and website. As for the communication with the general public or the stakeholders, KBL has just provided a suggestion box but there is no proper department or any authority for investor relation.

DECISION / RECOMMENDATION: As prospective CEO perspective and through the lens of only CG I do not want to work at KBL as its Next CEO because of the following reasons: i. Long term planning for CEO and senior managements development and succession is one of the boards most important functions. The board should review the corporations succession plan at least annually and periodically, as it is critical to the organization. This is where KBL Board highly lacked in its function. It might be because of poor mix of skill and expertise in the composition of the board. As the BOD consist of only one expert and other from promoter and general public shows completely lack of education and expertise in the banking field. They might not have the clear idea of the governance principles where they failed in emergency succession planning for the organization. As in Nepal, it a bitter truth that the board members think that they have ultimate power and have high authority in the organization and have misconception that they own the entire organization that leads to the poor governance. The resignation of the CEO can be understood as the principal and agent problem in the company. With in around 4 years, two CEO has resigned from KBL. This compels to suggest that the company is build around the individuals at the top level rather than the structure and processes and has a high conflict between board

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and management. After the resignation by Mr. Radhesh Pant, KBL is currently operating with acting CEO MR. Uday Krishna Upadhyay from about six months. Before Mr. Radhesh Pant joined in to KBL it was operating by another acting CEO. So, we can say that there must be high interference from BOD in the daily operation of the business. BOD should act as an advisor, monitor that should suggest but not interfere in the daily operation of the CEO. It seems that KBL is run by the BOD not the management. Therefore it might be the result of the frequent resignation of the CEOs where the board completely failed in retaining them and failing in the chemistry of BOD and Management.

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KBL is only limited to the NRB guidelines and lacks effective corporate governance practices in the organization. There is a lack of proper disclosure and transparency in the organization. The division of responsibilities among different authorities is not clearly articulated. The poor corporate government practice in the KBL can negatively influence and affect the motivational level of CEO in the organization.

Hence, the poor practices of the corporate governance rules and policies in the KBL are not appealing to most of the CEOs who wants to work in the company.

BUTWAL POWER COMPANY: (Good Governance from investors perspective) Butwal Power Company (BPC) was established in 1966 with an aim to enhance capacity development in the hydropower sector by a visionary Norwegian engineer Mr. Odd Hoftun as a private company and converted into public limited company in 1993. BPC is registered with the Securities Board of Nepal and listed in Nepal Stock Exchange Limited. Starting off with electrification plan of a small city in the south central Nepal, BPC is the only enterprise which can look back to a four decade long history of success, sustained growth and capacity building in the country. Butwal Power Company (BPC) is one of the leading companies in Nepals power sector with generation and distribution as its core business areas. BPC pioneered various concepts for developing self-competency in various facets of the hydropower industry like engineering, construction, operation, maintenance and manufacturing of hydroelectric equipment. BPC have served numerous clients in government and private sector as well as numerous INGOs and NGOs. Through its subsidiary companies, BPC is engaged in operation & maintenance of power plants, consulting engineering of hydropower and infrastructure projects, manufacturing and repair of hydro-mechanical and electro-mechanical equipment for power plants. CORPORATE GOVERNANCE: BPC Corporate Governance Code is based on the best corporate governance principles embodied in the OECD Principles of Corporate Governance and the requirements of the Companies Act, 2006, the Securities Act, 2007, Securities Registration and Issuance Regulation, 2008 of Nepal and the Memorandum and Articles of Associations of the company. Shareholders: The shareholder structure of BPC consists of Shangri-La Energy Limited that covers 68.95% of ownership in the company followed by General Public / Individuals (10.00%), Government of Nepal 9.09 (%), Interkraft Nepal AS (6.05%), United Mission to Nepal (2.79%), Employees (2.00%), Nepal Electricity Authority (1.06%), Nepal Industrial Development Corporation (0.06%). Shareholders are informed about the business performance and progress of the company through letters, e-news, national daily newspapers and the Company website. Notice of an annual general meeting is published at least 21 days in advance while that of an extraordinary general meeting at least 15 days in advance. The company publishes a notice of every annual and extraordinary general meeting twice in national daily newspapers requesting shareholders to attend. The notice, agenda, reports and other information regarding annual and extraordinary general meetings are uploaded on the web site of the company to increase its reach to shareholders and other stakeholders. BPC encourages and welcomes suggestions from Shareholders that are reviewed, analysed and implemented on merits in the business interest of the Company. The board: BPC board consists of eight non-executive directors including one independent director appointed by shareholders. The appointment of directors is based on the shareholding ratio.

Six directors are nominated by institutional shareholders for tenure, one director is elected by the general public and employee shareholders for a tenure of four years, and one independent director is nominated at the shareholders meeting with the recommendation of the board of directors for tenure of four years. The members of the board possess a good balance of qualifications, skills and experiences from diverse areas as are appropriate to meet the requirements of the business of the company. The independent director has sufficient expertise that he or she can make a positive contribution to the growth and development of the company. There is a periodical evaluation of performance of the board and board committees. BPC board main function is to ensure compliance with the code of conducts and ethics also with legal requirements. They review, monitor and approve major financial and corporate strategies, monitor and approve financial results and new business investments. Board also ensures that the mechanisms are in place for maintaining the integrity of the business and ensures the adequate framework for risk assessment and management, provide counsel for development of top management team, delegate appropriate authority to the top management so that it can manage business operations electively and efficiently. The board has constituted the following five committees that reports back to the board and provide feedback on matters of significance: Audit committee: The Audit committee comprises three members of the board of directors that are authorized to seek information from any employee, director, or advisor, and to obtain an external independent professional opinion as is required. Budget committee: The budget committee comprises two members of the board of directors. Remuneration committee: The remuneration committee comprises three members of the board of directors that reviews and approves performance based remuneration system in alignment with the corporate goals and objectives set by the board. Shareholder grievance committee: The shareholders grievance committee comprises of three members, the board chairperson, the company secretary and the CEO. The committee hears the grievances, comments and suggestions of shareholders and makes appropriate recommendations to the board. Healthy, safety, and environment committee: The health, safety and environment committee comprises two members of the board of directors. The CEO and VP-Corporate attend the meetings of health, safety and environment committee. This committee evaluates the position of the company and the perceptions of stakeholders with respect to corporate social responsibility and the environment and reports shortcomings with recommendations for addressing them to the board.

Management: CEO delegates responsibilities to the management team and staff to carry out specific management and administrative functions and provide leadership to the overall management team as per the guidelines of the company set by the board. The views of the management are represented at board meetings by the CEO as well as by other senior executives when required. CEO formulates the business strategies and implement the strategic direction set by the company and is responsible to provide accurate, clear, timely and sufficient information to the board also provides his recommendation to enable the board to make sound decisions.

CEO acts as a mediator and is responsible for the relationship of the company with their every stakeholder, shareholders and the board members. DECISION / RECOMMENDATION: Looking from the overall CG perspective and from an investors point of view, I would definitely recommend this company to the investors because of the following reasons: i. BPC has implemented high quality CG policies and practices. All the board members and management related to the company has a sound knowledge of CG policies and practices. This might be the reason that BPC has fulfilled the highest levels of transparency, accountability and equity in all facets of its operations and in all its interactions with its stakeholders, including its customers, shareholders, and employees as well as government, statutory authorities, regulators, lenders and the wider community. Any investor who is thinking of investing in BPC can get full information about the company without much of effort as it is easily available that must have helped BPC to attract more investors as well as safeguarding trust of the existing shareholders. The company financial disclosures are relevant, faithful and timely representation of its economic transactions that will help BPC to generate trust among existing and new shareholders. In addition to submitting its annual report, the company reports its financial statements to the Securities Board of Nepal and to the Nepal Stock Exchange on a quarterly basis and publishes the same in the national level newspaper. The audited financial statement is communicated to the Office of the Company Registrar along with the board of directors report, auditors report and the minutes of the annual general meeting of shareholders and is posted on the web page of the company. In 2010, BPC has been awarded National BestPresented Accounts Award by ICAN for the sixth time in a row for best presentation of its financial statements and annual report. These accolades testify BPCs commitment to transparency. The companies risk management and controls are sufficient to ensure sound stewardship of the companies asset and compliance. BPC reviews the components of our internal control system on a yearly basis to ensure that the system is functioning well. The company has an effective risk management system that includes mechanisms for identifying risks, updating and/or amending the companys risk profile, identifying the process owner responsible for each risk, and monitoring risks to ensure that they are mitigated properly and adequately. In addition, internal audits are being carried out periodically by an independent auditor for assessment of the internal control and risk management of the companys assets, financial and accounting procedures. The recommendations of the internal auditor and the decisions of the Audit Committee are implemented effectively.

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Hence, the active participation of the board and management and the strong practices of the corporate governance rules and policies in the BCP are appealing to any investor who wants to invest in the company.