The recent Royal Audit Authority report, which showed prominent mining companies creating subsidiary companies to transfer profits into the hands of a few big promoters, at the expense of minority shareholders is a matter of concern.
This, however, is also indicative of a larger and more widespread problem of corporate ethics and corporate good governance among the cream of Bhutan’s private sector that gives the bulk of the corporate tax revenue.
This is also the reason why ordinary Bhutanese cannot trust private companies easily, especially when it comes to buying their shares or investing in them.
We have all been very vocal and active in our condemnation of the government agencies or government owned companies whenever they make financial mistakes or commit financial misdeeds. The common logic is that it involves public money and so we have a right to make sure it is used properly.
This logic should also start extending to major private companies that has public shareholders as these companies are dealing with the money of members of the public. Also their acts of omissions and commissions can make a huge impact in terms of collecting tax revenue and meeting the nation’s developmental needs.
Like it or not, Bhutan’s private companies largely do not enjoy a good reputation, and at least in this case, they have no one to blame but themselves. For too long major private companies have committed financial breaches and engaged in unethical conduct at the expense of tax revenue or their shareholders.
A sampling of corporate disputes both in and out of court will show the ‘wild west’ nature of our major private companies where everything seems to go.
The regulators have either been entirely absent or have not been able to catch the offenders due to a host of issues like inadequate laws, manpower constraints, resource constraints and lack of political will.
The foundation of all good business and strong economies is trust. It is the trust that people have in banks which enables the banks to collect money from people and in turn loan it out for economic activities. It is also the same trust that allows for companies to float shares and people to buy them. If this trust is shaken in anyway then the economic system is bound to suffer.
In Bhutan’s case the past bad behavior of major private companies when it comes to corporate ethics and governance has hampered public trust.
What does not help and worsens matters is the strong presence of a ‘Commission economy’ where power brokers and middlemen close to those in high offices earn easy money for lubricating major deals which are questionable at best.
This has also been in an atmosphere of crony capitalism and policy corruption which became even stronger after the advent of democracy in 2008.
For Bhutan to become a vibrant economy it will be important for the companies in the private sector to gain the trust and goodwill of ordinary citizens, otherwise they will find themselves relegated to the margins on nearly every issue that concerns them.
The regulators and the government must also put in adequate safeguards and checks that protects the rights of every shareholder and also ensures good corporate governance.
The Companies Bill 2014 is a good start but several more measures are required from all stakeholders to ensure good and reliable corporate governance.
Trust is built with consistency.