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By Dipesh Ghimire

NEPSE Governance Code Aims to Bolster Transparency and Accountability in Listed Companies

NEPSE Governance Code Aims to Bolster Transparency and Accountability in Listed Companies

The Securities Board of Nepal (SEBON), the capital market regulator, introduced the Institutional Governance Guidelines, 2074 (2017 AD) to standardize and improve the conduct of listed organized institutions. The directive is based on six core principles set by the OECD (Organisation for Economic Co-operation and Development), focusing on shareholders’ rights, equitable treatment, disclosure, accountability, board responsibility, and stakeholder obligations.

Key Objectives and Interpretation

SEBON's guidelines aim to bring discipline, accountability, and transparency in the operations of listed companies. By enforcing these directives, SEBON hopes to protect minority investors, reduce conflict of interest, and ensure companies act in alignment with long-term shareholder and institutional goals.Detailed Provisions and Analysis

1. Disclosure and Information Flow

Companies must follow international disclosure standards and regularly publish financial status, shareholding structures, and legal updates. This boosts investor confidence and ensures timely access to material information.

2. Board Structure and Appointment

Board members must be elected by the general meeting in accordance with the Company Act. At least one independent director with relevant business expertise must be appointed. Also, if multiple directors are from the same family, this must be disclosed in the annual report — promoting transparency and reducing nepotism.

3. Board Member Ineligibility

Individuals penalized under the Securities Act or those involved in blacklisted or non-operating companies are disqualified from serving. This prevents compromised individuals from influencing capital markets.

4. Duties and Responsibilities of the Board

Boards are responsible for enterprise risk management and ensuring good governance. They are encouraged to appoint competent chairs capable of leading with integrity and vision, particularly to safeguard small investors.

5. Director Conduct and Conflict of Interest

Directors must disclose personal or family dealings related to contracts, shares, or ownership within 15 days of appointment. Engaging in self-dealing or financial conflicts is strictly prohibited.

6. Prohibited Practices

Directors or their relatives cannot lease property to or engage in transactions with the institution if a financial interest exists. Similarly, directors cannot simultaneously serve as auditors, agents, or intermediaries for any institution. These rules ensure institutional independence and integrity.

7. Risk Management and Internal Controls

Every listed entity must form a risk management committee with independent directors involved in strategic oversight. Internal control mechanisms must address fraud prevention, conflict of interest, and misuse of authority.

8. Compliance Officer Appointment

A compliance officer with at least a bachelor’s degree in management, law, or commerce and three years of experience must ensure timely adherence to laws and directives. The officer’s report must be included in the annual audit for external validation.

9. Audit Committee Formation

A three-member independent audit committee, including a representative of public shareholders, must oversee all financial records and accounting policies to uphold financial integrity and protect investor interests.

10. Restricted Activities for Listed Companies

Listed entities are prohibited from engaging in financial transactions or partnerships with insiders having vested interests. They also cannot operate unauthorized or off-the-books assets. These provisions aim to curb corruption and preserve asset transparency.

The Institutional Governance Guidelines, 2074 serve as a comprehensive legal and ethical framework for all listed companies in Nepal. If effectively enforced, this guideline could revolutionize corporate culture in Nepal, enhancing trust in the capital market, protecting small investors, and attracting foreign investments. However, the effectiveness will depend largely on strict implementation and regular compliance audits by SEBON.

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