Ace Institute of Management Corporate Governance Submitted by :- Maniram Paudel Date :- 6th September 2011

United Finance Ltd. – Good Corporate Governance from an Investor’s Perspective United Finance Ltd. was established in 2049/11/11 BS by registering in the office of company registrar, Kathmandu. It received the operating license as a “C” class financial institution from Nepal Rastra Bank in 2051 BS. United Finance Ltd. has more than 16 years of professional experience in consumer lending of Nepal. United Finance Limited is a leading consumer Finance Company in Nepal with excellent asset quality and strong growth potential. The company, promoted by the Chaudhary Group – the largest conglomerate in Nepal was established in 1992 as per the Companies Act of Nepal. The main objective of the company is to mobilize scattered saving into the consumer financing sector. The major promoters and shareholders of the company are the Chaudhary Group and Morang Auto Works. These groups among themselves hold 60% of the shares in the company with remaining balance of 40% shares held by the general public. United Finance Ltd. current ownership structure is presented in following table: Groups No. of Shares % Shares Promoters 236,217,200.00 68 Public Shareholders 112,540,300.00 32 The trend of Net Profit of the company is in increasing trend and the company is being able to distribute cash dividend since last 5 years to its shareholders. Stock of the company is categorized in the A class company and is regularly trading in Nepal stock exchange. The head office of the company is situated in Durbarmarg Kathmandu and its branch offices are in Pokhara, Narayangadh, Biratnagar, Nepalgunj, Butwal and New road Kathmandu. The management team of the company is led by the General Manager (GM) which comprise of Deputy General Manager (DGM), Assistant General Manager (AGM), Chief Manager (CM) and other departmental heads. Basis for an Effective Corporate Governance Framework NRB is the regulator body of all the banks and financial institutions of Nepal. NRB imposes legal and regulatory requirements to United Finance Ltd. also. NRB is carrying on the supervision of United Finance Ltd. on timely basis. United Finance Ltd. is also regulated by other regulators like SEBON, NEPSE and OCR (Office of the company registrar). BAFIA 2063, Labor act, Bonus Act, Company Act, Unified directives of NRB and other circulars are the basis of effective corporate governance in United Finance Ltd. Rights of Shareholders and Key Ownership Functions Shareholders of United Finance Ltd. have the opportunity to participate effectively and vote in general shareholder meetings. Shareholders are informed of the rules, including voting procedures that govern general shareholder meetings. Shareholders are furnished with sufficient

and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of board members, is facilitated in United Finance Ltd. The equity component of compensation schemes for board members and employees is subject to shareholder approval. Shareholders are able to vote in person or in absentia (proxy). Equitable Treatment of Shareholders: Within any series of a class, all shares of United Finance Ltd. carry the same rights. All investors are able to obtain information about the rights attached to all series and classes of shares before they purchase. Processes and procedures for general shareholder meetings are allowed for equitable treatment of all shareholders. Members of the board and key executives are required to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the corporation. United Finance Ltd. have followed the rule of selecting two directors from general public shareholders as per Securities Board of Nepal Stakeholders in Corporate Governance Performance-enhancing mechanisms for employee participation are permitted to develop through different trainings and development programs. Stakeholders participate in the corporate governance process; they have access to relevant, sufficient and reliable information on a timely and regular basis through quarterly financial highlights and annual reports. Stakeholders, including individual employees and their representative bodies, are able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this. An employee union comprised of 5 members was established in 2008 for the sake of protecting employee’s rights as per Labor Act Nepal. Disclosure and Transparency Information are prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure through Corporate Marketing Department. The financial and operating results of the company are disclosed annually to the general public by the means of an annual report. Major share ownership and voting rights are disclosed annually in the annual report. Remuneration policy for members of the board and key executives, and information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board is disclosed in the annual report every year. Quarterly financial highlights and foreseeable risk factors are disclosed every quarter in one of the national daily newspaper. The company has received – Runner up – Best Presented

Accounting Awards for 2008 & 2009 from Institute of Chartered Accountants of Nepal (ICAN). An annual audit is conducted by an independent, competent and qualified auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects. The Internal Auditor of the company is G Agrawal & Co. (Chartered Accountants), Kathmandu, Nepal. External auditors are accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit. The external auditor of the company is: Mr. Nem Lal Amatya N Amatya & Co. (Chartered Accountants) Bhagwati Marga, Naxal, Kathmandu The company has appointed Mr. Ram Krishna Nirala (Manu Law Firm) as the legal advisor of the company. The internal audit committee of the company is comprised of following people: Mr. Narayan Prasad Mundada (Director) -Coordinator Mr. Suraj Shakya (Director) -Member Mr. Binod Paudel (Manager) - Member Secretary Board of Directors The board of directors of United Finance Ltd. fulfills certain key functions, including reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation. Board has given appropriate authority to MD to run the day to day business. The board of Directors of United Finance Ltd. is comprised as follows: S. No. 1. 2. 3. 4. 5. Name Mr. Basant Kumar Chaudhary Mr. Vishnu Kumar Agrawal Mr. Suraj Shakya Mr. Gajendra Lal Shrestha Mr. Narayan Prasad Mundada Position Chairman Vice Chairman Director Director Director Category Promoter Group Promoter Group Promoter Group General Public Shareholder Group General Public Shareholder Group

Overall, the growing and consistent results posted over the past 5 years are a reflection of the company’s business strategy based on advanced corporate governance practices and the capture of increasing synergies flowing from combined corporate financial discipline, corporate sustainability and responsibility practices. So it can be concluded that there is good corporate governance in United Finance Ltd. from investor's perspective.

Nepal Film Development Co. Ltd- Bad CG Practice from an Investor’s perspective) Nepal Film Development Committee NFDC is a public limited company promoted by a group of committed and innovative persons. It is managed by a group of experienced and professional group. Nepal Film Development Company (NFDC) is by far the largest entertainment company in the country established in 1992/93. It is registered in the office of the company registrar. Nepal Film Development Company (NFDC) is by far the largest entertainment company in the country. We are the defining force in every sphere of the entertainment industry - production, distribution, processing or in cinemas - having started for processing films over three decades ago and laboratory facilities in 1992/93. December 1993 marked the milestone in NFDC when OMNI HOLDINGS LTD stepped into the company and became majority promoter shareholders. With this move NFDC was catapulted to being part of one of the leading business groups in Nepal with a combined market capitalization. Currently, OMNI HOLDING LTD enjoys 51% share of NFDC and remaining shares from public is 49%. Its capital structure is as follows: Groups No. of Shares Promoters 511,337 Public Shareholders 491,285 Core objective of the business entity is set as per below. • • • • • • • • • • % Shares 51% 49%

Create an expanded market for the Nepali cinema Content for the domestic and the World market. Strengthen the National Cinema Industry and expand market of Nepali Cinema Establish technical and production Facilities and create marketing platform for Nepali cinema Arrange Financial and Technical needs of cinema Industries and organize professional Distribution system Organize Exhibition Facilities for Nepali Cinema and prepare for Future Global Trend of the cinema Industry Create products with optimized cost and maximum market. Expand the offering of the business by establishing Films, which will clearly differentiate itself from others. Bring back pride in Nepali Cinema and lead this to become the leading National and International movie business in Nepal. Invest in selective and related ventures (like quality theaters), which ensure and makes movie going a fun and enjoyable experience for different segments of the audience. Establish a business system which addresses production and direct distribution issues ensuring maximum transparency in collection.

• • •

Create a trustworthy business platform and incorporate quality directors into the overall system. Obtain both product and market diversification to minimize risk Establish an accurate MIS and make efficient changes to the business process real time.

Nepal Film Development Company of Nepal is the central agency established to encourage the good cinema processing and development in the country. The primary goal of the NFDC is to plan, promote and organize an integrated and efficient development of the Nepali film industry and foster excellence in cinema. Over the years NFDC has provided a wide range of services essential to the growth of Nepali cinema. The NFDC (and its predecessor the Royal Nepal Film Development Company (NFDC)) has so far funded / produced over 230 films. These films, in various Nepali languages and some of ethnic languages, have been widely acclaimed and have won many national awards. The board of directors is comprised of following members: S.No. Name Position 1. Mr. Uddhav Paudel Chairman 2. Mr. Ujjwol Paudel Director 3. Mr. Niraj Paudel Director 4. Mr. Nirak Paudel Director 5. Ms. Nikita Paudel Director 6. Dr. Bhola Rijal Director 7. Mr. Min Raj Regmi Director 8. Ms. Dhara Joshi Director 9. Mr. Ramesh Budhathoki Director Category Promoter Promoter Promoter Promoter Promoter Public Public Public Public

Company management team is leading by Executive Chief Ms. Nikita Paudel. She is also one of the members of board. The other members of the board are as follows: Mr. Naratan Dhwoj Panta – General Manager Mr. Ujjwol Paudel – Business Director Mr. Surendra Bhakta Mathema – Technical Director Mr. Khuma Aryal – Financial Advisor The company claims that it has maintained the highest standards in terms of the corporate governance. Further, NFDC claims that it is strictly guided by the guidelines of the regulatory authority in the trading business sector. But the operation of NFDC doesnot seems to be well regulated due to the absence of a regulatory authority of trading and manufacturing sector. The office of the company registrar is the organization to register the business entities but there are no regulatory authorities. Though the Corporate governance practices adopted by NFDC may be good in terms of management and employee perspective, but the board member leading the company in the capacity of Executive Chief shows that the company is in problem of relationship between principle and agent which is not an encouraging from the investors’ perspective in corporate governance practice. Further, Most of the board members of NFDC are not independent. Mr. Uddhav Paudel who is the chairman of the company is considered to be an

entertainment tycoon of Nepal. 5 board members along with Mr. Uddhav Paudel are from the same family. Mr. Paudel has aapointed his brother, two son and one daughter as the director of the board. Other board members too are not independent. Findings and Recommendations: The composition of the board itself shows that NFDC is not following the international norms of Corporate Governance practice. The overall composition of the company shows that the 51% of the share is owns by the promoters and remaining 49% share is issued to the general public. Even in the promoter group majority of the share is owned by Chairman himself who has significant influence in the board and management team. As per the CFA the significant influence of a few of the shareholder who possess the majority of the share indicates that the company is exercising the bad corporate governance practice. The company has not carried its Annual General Meeting (AGM) since last few years. Therefore it is highly recommended to perform the AGM of those years. Due to the unmatched composition of the board member and the conflict between the role between executive chief and board directors have created the environment of the company confusion and even more worst. The composition of the board of the company may influence the formation of the board committee like the audit committee that furnish the financial reports based on the interest of the limited number of the shareholders rather that all the investors which leads company to push behind to follow the good corporate governance practice. Company's board of directors are advised to include majority of independent directors-independent meaning that directors don't have financial or close personal ties to the company or its executives. But in NFDC, the board members are in management team leading the position of Executive Chief. The composition of the board members in the company denotes the bad signal in the market which result the negative impact to the general investors. As all the family members of the chairman are involved in the company in one or more way they have a high influence in the overall management of the company. Board of Director herself is the Executive chief of the company and another director is the business director of the management group they have a direct influence on the financial activities of the company. Beside an external auditor the company has not formed an audit committee which regularly carries on the audit of the company. Furthermore the company is not found to be disclosing the financial data of the company to the general public. Further all the salary and remuneration decisions along with other allowances and facilities are made by the board itself. The company should form an independent compensation board to determine the same. There is no specific retirement date for the directors of the board. As per the good OECD guidelines, it is strongly recommended to appoint an independent Chief Executive Officer to carry on the day to day activities. Further it was noted that the code of conduct of the company wasn’t communicated to the employees. The board of directors was found to be interfering on day to day business operation and influence other employee to act in their interest. Directors are directly approaching the functional managers to get things done. Managers are also not clear about the line of reporting.

The employees are getting the instruction from directors directly which has created working environment very difficult. The board members was also evidenced to be involved in day to staff recruitment, financial reporting, internal audit etc, promotion and making decision in approval of credit. Conclusion: Nepal Film Development Corporation Ltd. (NFDC) is very weak in maintaining the corporate governance inside the company. In conclusion corporate Governance is very crucial for each and every organization. Corporate Governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board and the board's accountability to the company and the shareholders. Good corporate Governance should provide proper incentives for the board and management to pursue objectives in the interest of the company and shareholders and should facilitate effective monitoring. The responsibility for good governance lies within the company and the senior management which is lacking in NFDC. Regulators can only facilitate but not ensure improved governance. Therefore SELF REGULATION IS BEST REGULATION.