February 2007
Management

Two Nepali Management Styles

This article compares two management styles practiced in two organisations in Nepal . We use fundamental frameworks of management studies as the basis for these comparisons. We refrained from mentioning names to avoid offending any one. But again, we might be talking about your own organisation. In this process, we offer analysis, solutions and finally we give you recommendations on the best management practice.

Management has many aspects such as planning, organising, leading, controlling, staffing, communication, networking and decision-making. If you are a manager you must be doing one or more of these tasks. Now let us suppose you are the manager of a company and one of your employees asks you for an appointment letter even though no other employee has one despite putting in many years of service. What do you do? Just give it to him right? Wrong!

Style 1

The manager of the organisation we are talking about, call it ABC, said, "Why give appointment letters? Appointment letters mean more responsibility on the management. If any thing happens to the employee, the organisation becomes liable. Why take up unnecessary liabilities?" Then he acted on his words and fired the employee who had asked for the appointment letter.

So what kind of message has this action sent down the line? Do not raise your voice and cry "Foul". What role of a manager does this action fall under? Definitely it is a form of controlling unnecessary expenses and leading to an autocratic fashion. Let us analyse this 'firing'.

Was it the right or the wrong thing to do? As a manager it is his duty to save costs, so by not giving appointment letters he did the right thing. Again it is his duty to keep order in the organisation: any one who challenges policies must be perceived as a threat and must be removed like a weed just when it starts to sprout. But this action might backfire causing punitive consequences in the form of law-suits increasing the legal costs on the balance sheet. People might cease to challenge policy but they will also cease to think at all, leaving open possibilities for greater problems in the future, mainly in the form of customers being provided inadequate services.

Moreover, stories like these become legends and are passed down much faster than reassurances given from the top. These then have the capacity to paralyse people's brains and energies. Turnover will increase, staffing will become a constant problem and negative advertising about the organisation in the market will commence. It is then only a matter of time before customers start leaving, since all educated customers understand that an organisation whose employees are unhappy is like a sinking ship. This exodus is similar to the recent pulling away of funds from the NB Bank after the media flashed that it was making losses. Investors know that profits indicate the organisation's health and customers know that the motivation and satisfaction levels of employees indicate the health and quality of an organisation. So if we take a look at this cause-effect chain shown in the figure in the next page, the manager of ABC was right in the short-run but wrong in the long-run. This is quite logical since no one would do anything which harms him. What differs is the time-frame: if you too thought within the same time-frame as the ABC manager, you would say his decision was correct. However, if you think about a longer time-frame, you would say his decision was incorrect, if not alone the symptom of troubled times for ABC.

Most organisations in Nepal at best tend to focus on the short-run. That is good and a lot of the kudos go to the large inflow of MBAs in the Nepali economy. Thanks to them, noodles are no longer just food but a trend. The same phenomenon is taking place in the banking sector with major banks entering our homes through our televisions and newspapers. Lately, even cement distributors have joined the band-wagon with new marketing strategies. ABC too is one among such organisations who are marketing proactively. They have realised that good marketing and branding work magic on the balance sheet. But in the diagram, ABC and similar well-branded organisations have been said to lack the long-run approach to profits. In the short-run, customers buy because the infrastructures are better and the brand-image associated with the product is what they long for. But most of these organisations have not considered that in the long-run, once the customers come to them, they will expect top-class service. Who is going to provide that? The employees. And will they do it for free? Why should they? So we need to invest in employees too and in designing management systems that succeed in getting the highest quality results from employees. Even though all of these cost less than infrastructure and marketing, it yields much more in the long-run. We give you an example of an organisation which has succeeded in growing from nothing to an undeniable presence by incorporating both the long-run and short-run policies.

Style 2

Let's us call this organisation XYZ. To get customers it used a marketing strategy which is unique. Instead of placing adverts in major newspapers, it started its own newsletter. Circulation was good and it began a bi-monthly magazine. Mind you, this organisation is not a publishing house but it collaborated with a radio channel and aired its messages, which had educational value. At the same time, they received investment to increase the infrastructure. They hired salespersons to get subscriptions for their magazines. In this way they got the attention of the customers, who come to buy their services. That is the short-run part.

Unlike ABC, XYZ knew the importance of happy employees. They designed and implemented management structures that even the world number one management-consulting firm 'McKenzie consultants' would drool over. Here are some features of their management:

l Job rotation to ensure no one gets bored and that every body knows how to do everything

l Promotion and demotion to cater to the status needs as suggested by Maslow's hierarchy of needs. There are various colours of coats to signify contribution to the organisation similar to the belts in karate.

l Rigid organisation structures dictating the flow of tasks, orders, information and communication, that are regularly changed according to the problems encountered. For example, at one time absenteeism was high and people from one department ended up doing the work of those from another. So a rule was made such that in the absence of staffs from one department, those from the other departments wouldn't take over. The intention was to make the absentees feel the responsibility but the customers suffered. So after receiving such a feedback, the rule was changed. Another example is that seniority is important but if the performance is unsatisfactory, authority is taken away, although the title remains. Such a change in organisation systems keeps the employees alert without creating a sense of chaos.

l Training is high on the XYZ list. It is mandatory for all staffs to pass through a series of trainings before starting work and after promotion too. The trainings are made high-profile by arranging them outside the organisation premises and are attended by the top management. Refreshment trainings are also organised on an ad-hoc basis.

l Incentives are provided in the form of gifts and public recognition during the training programmes.

l Weekly meetings are held. Ad-hoc meetings are held within departments and agendas prepared in advance.

l Documentation is a priority. Every thing: what comes in, what goes out, who has done what, etc. is recorded.

l Lottery is held every week for all the staffs to test their luck!

As a whole, XYZ has all the ingredients of a successful organisation that is rapidly and surely moving towards a bright future. This cannot be said of ABC, though. Finally our recommendation to you is that you do not limit yourself to managing for the short-run but for both the short and the long run.

Instrument for Evaluating Management Style

Based on the research done for this article, here is a questionnaire for you. It will give you an insight into your own management style.

Imagine that you are the CEO of a company. If you are already a CEO then all the better. Tick the management actions will you take to counter the 10 situations given below

1) An employee starts to logically challenge your orders. Do you:

a) Ignore him

b) Debate with him

c) Fire him to set an example for the other 'smart asses'

d) Take him up as an advisor

2) Your employees complain of boredom at their jobs. Do you:-

a) Ignore them

b) Counsel them

c) Introduce job-rotation

d) Redesign the work flow

3) Pay no longer motivates people. Do you:

a) Ignore them

b) Increase their pay

c) Devise a new promotion/demotion system

d) Ask them how they can be motivated and help them design their own motivation system

4) People complain of lack of order and flow of commands. Do you:

a) Ignore them

b) Convince them that no fixed organisation system is the best way

c) Design and implement an organisation system satisfying the need for order and control of people

d) Organise a corporate retreat to allow all the people to express their discontent and re-bond

5) Your organisation structure receives many complaints. Do you:

a) Ignore the complaints

b) Dissolve all form of structure

c) Put a new structure in place

d) Engage a management consultant to identify the problems and design a new structure that will solve the problems

6) Once promoted, good employees become bad. Do you:

a) Scold them

b) Let them be

c) Send them to training to orient them on the new job

d) Assign a coach to them who they meet on a regular basis

7) The organisational goals/targets are not being met. Do you:

a) Shout at under-performers

b) Request for higher performance

c) Begin an incentive system

d) Transform the goals/targets into things that employees can identify with by organising a workshop showing them what they are to gain individually for every organisational goal/target that is met.

8) There is lot of confusion about tasks, deadlines, responsibility among the staffs. Do you:

a) Ignore the situation

b) Personally explain to every one of your employees

c) Arrange weekly meetings

d) Develop an intra-net portal where people can post their queries and anyone can help

9) Every time an employee leaves, the new one has to almost re-invent the wheel. Do you:

a) Ignore the employees

b) Teach the new employee

c) Make it compulsory for every employee to document their work

d) Engage a knowledge management consultant and develop a system to capture the knowledge, information and decision-making models of all the key-employees in the organisation.

10) Employees complain of monotony. Do you:

a) Ignore them

b) Organise parties

c) Begin a lottery game with presents sponsored by the organisation

d) Expand the activities/business of the organisation

A majority of A’s means that you cannot be truly called a manager since you are not concerned about people at all. Your board of directors will perceive you as a good manager but when strikes and conflicts arise, which surely will if you continue ignoring the situation, you will be on the firing line. Your organisation is headed into deep trouble.

A majority of B’s means that you are an people-oriented manager. That is good but there is a danger that good will never be good enough. As a result your board of directors will find any possible excuse to get rid of you.

A majority of C’s means that you are a result-oriented manager. Employees are happy and the board of directors believe that their organisation is in good hands. It is definitely bound to succeed.

A majority of D’s means that you are an enlightened manager. Your organisation is headed towards excellence and a multinational presence. If you float shares we will put our property on mortgage to buy as many shares from you as possible!

Corporate Governance BFI Perspective

By Sujit Mundul

We all know and have heard a lot by now about corporate governance. We read papers everyday and very often we get to read about corporate governance. Why has this buzz suddenly arisen? Many of us have been in financial and banking businesses, running institutions for many years. Fifteen years back, there was no such buzzword called “corporate governance”. Then why has corporate governance suddenly come into action? Does this mean that there were no business principles and ethics in the past? Everything was there; but financial indiscipline in many countries compelled the regulators to get deeper into the fact. I can very well recollect an event, which happened in India back in 1992. It was a security scam and the magnitude was very high. The whole financial system got a heavy jolt. Think about Baring Brothers. A hundred year old company got burst by a single person’s act or negligence. There were many other events happening across the globe. So, that was the background, which pushed us to think about corporate governance.

Against the above backdrop let us see what is happening in Nepal, especially in the financial sector.

Corporate governance is a manner by which organizations are directed and controlled. Corporate governance provides a structure through which a company’s objectives are set and the means of monitoring the performance of those objectives are outlined. So, these are the stated objectives with which a company is formed or an industry starts integration or disintegration. It includes the laws governing the formation of individual units, firms, companies, etc. and the bylaws established by themselves, and the structure they formed. How they want to operate is outlined in their memorandum of association and articles of association. It is connected with the relationships and responsibilities between the board, management, shareholders and other relevant stakeholders, within a given legal and regulatory framework.

The fundamental concern of corporate governance is to ensure the condition whereby a company’s directors and managers act in the interest of the company and its shareholders and to ensure the means by which managers are really accountable to the capital providers. That means the collective responsibility of the directors and the board to all the key stakeholders. Good governance aims to protect shareholders’ rights, enhance disclosures and transparency facilitating an effective functioning of the board and provide an efficient legal and regulatory environment and enforcement framework.

Corporate governance is all about responsibility and accountability of the directors and the management team to the stakeholders.

In a developed economy you will see that the levels of disclosure are very high. You cannot stop providing any information to anybody in the market or to your stakeholders. That is all about transparency. It has to be a transparent and fair system where all the shareholders are treated equally and have the opportunity for redressal for violation of their individual rights. A push back is necessary to relate corporate social responsibilities (CSR) with corporate governance. There has been a strong correlation between these two and the way they are evolving.

Against this background, what is corporate governance all about in the banks and financial institutions of Nepal? We all know banks play a very critical role in building the economy. Effective corporate governance in banks and financial institutions helps foster financial stability, strengthen risk management and ultimately contribute to a strong financial system. A sustainable growth in the economy is critically dependent on a sound financial system. Nepal is in the critical stage of development. At this juncture we need to have good corporate governance practices in the financial sector. The working board requires individuals who are informed, competent and independent to ensure enterprise integrity, which can promote sound economic growth. Increased competition resulting from entry of international players has significantly improved corporate governance in the banks of many developing economies. In the Nepali context, the regulators very kindly agreed to the entry of international players like Standard Chartered Bank. This shows that government/regulators are open to international competition. They want this market to become competitive. In other developing markets the entry of international players has made all the difference; they have educated the market and made the market effectively competitive.

Banking reforms can only be fully implemented once prudential regulatory systems are in place. Honestly, Nepal has plenty of it. There are too many laws and byelaws. Laws are critically important for making corporate governance effective in an economy like Nepal. Most of the markets, which have developed today, have gone through this phase for many years. Nepal is not an exception. Hence too many laws. What do these regulatory requirements ensure? From the banks’ and financial institutions’ viewpoints, it is capital adequacy, transparency in the publication of accounts, management of operational risk, credit risk, market risk, environmental risk to name a few. When we started banking many years ago, we were aware of only two risks viz. operational risk and credit risk. If you look it at today, so many added risks have come through the process of evolution because markets have matured and newer instruments have been introduced. So as a sequel to that, regulators had to devise additional control mechanisms. The forthcoming Basel II is a good reference to make.

In Nepal, NRB has issued directives on good corporate governance. This is a great step for which I must congratulate the regulators. This is a clear indication of Central Bank’s and the government’s commitment to bring about a high level of corporate governance to make this market more perfect. To be very specific, Directive Number 6 of the central bank is related to the code of ethics to be observed by directors and chief executive officers of banks and financial institutions. Under the new Bank and Financial Institution Act 2063 (2006), there is a clear provision. These codes of ethics require all the directors, regardless of their executive or non-executive status, to sign a declaration. It prohibits the directors’ involvement in activities against the interest of the company. Prohibition for the chief executive officers to work part time: is the global requirement and hence nothing special for Nepal. There is prohibition also for directors to hold trusteeship; but unfortunately, Nepal does not have a proper trusteeship law. Once that comes into place; I think this prohibition can go without compromising the quality of corporate governance. As to the prohibition to misuse the position for personal benefit; I strongly believe honesty is the basic premise. Maintenance of confidentiality and fair and equal treatments are global requirements and critically required for Nepal at this stage.

I firmly believe that good governance and good performance reinforce each other. I believe in this formula that with good governance, good performance comes automatically. There are quite a few codes on corporate governance. One is that issued by the Cadbury Committee. It spelt out the methods of governance needed to achieve a balance between the essential powers of the Board of Directors and their proper accountability. Greenbury Committee, an independent committee formed under the aegis of Lord Greenbury talks about the remunerations part. Then Combined Code of Corporate Governance, 1998 came into the picture and to guide companies on this. Turnbull Committee was established which took out the Turnbull Guidance. Further, The Combined Code of Corporate Governance was changed and reissued in 2003. So, we can see where the corporate governance level has moved. The committees are now empowered to review matters very independently and provide their opinion to the shareholders.

Recently the FSA, UK has introduced Market Abuse Directives, which is applicable from July 1, 2005. Companies like Standard Chartered Bank which are governed by FSA are required to conform to the directives.

In conclusion, I would like to emphasize that governance should be observed by all - the regulators, the companies, the directors, the employees and the shareholders. It is our collective responsibility and we cannot just point our fingers to the Central Bank or to the chief executive officer. I strongly feel that banks and financial institutions reforms can fully be implemented if and only if prudential regulatory systems are in place. We need to have a proper legal system too for effective implementation. Good governance protects shareholder’s rights, facilitates effective functioning of the board, which is of critical importance for good performance, enhances disclosure and transparency and provides an efficient legal and regulatory enforcement framework.