Nepali Times
Strictly Business
The soft stuff


Running a business is often thought of as being all about doing the 'hard' stuff: poring over financial statements, running the numbers and quantifying results. These activities are important, to be sure.

But since most businesses have accounting or finance departments, arranging and re-arranging numbers alone will not separate a company that's poised for long-term success from one that's succeeding simply because it happens to enjoy the wind at its back. Think about Nepali garment and carpet companies. They had the numbers on their side. In fact, fifteen years ago, when the industry cost structure was favourable, every third house in Kathmandu seemed to be full of either sewing machine operators or wool spinners. These days, only a few high-end companies are still in those businesses.

Besides, smart investors know that all accounting numbers tell is a story about a company's past, while projection numbers are just that: an optimistic reading of the future despite all the unknowns. As such, when given projection figures, one can pretty much believe what one wants to believe, much like when one listens to an astrologer.

Over the years, I've come to understand that more than the 'hard' stuff, assuming all other variables are constant, it is the 'soft' stuff - of governance, culture and iterative persistence in meeting goals - that really pushes a company forward.

Governance: CEOs who give lectures on corporate leadership rarely talk about the context that makes acts of leadership possible. Good governance sets up the context. And good governance in any company boils down to agreed-upon clarity on who makes what decisions to safeguard the shareholders' interests.

Most Nepali companies, with the increasing exception of banks regulated by the Central Bank, see little need to practice good governance. That's because there's little demand for it. Understandably, they do not want to subject themselves to outside scrutiny, even if that helps attract new investors and capital for growth. But the only solution is increased competition, which will sooner or later either make the companies practice good governance or bump them off the market altogether.

Culture: How easy a company makes it for employees to share information for growth is an important indication of a healthy corporate culture.

The easier it is, the more the culture acts as a glue to keep motivated employees productive. Such a culture is reinforced by an environment that encourages openness and candour in internal communication. True, some people fear that too much openness will lead to a competitive disadvantage. But my experience is that sharing information is often a credible way of signaling to staff that the company sees 'sunshine as the best disinfectant'. In practice, this signal leads to openness up and down the ranks, thereby loosening up the rigidities of hierarchies to move the company forward.

Accountability: Accountability does not happen in a vacuum, and it's not helpful to constantly appeal to people's innate sense of responsibility. Governance and culture, when applied to all employees equally, set the stage for individual accountability. Most employees want to be valued. If not, it's hard for them to be accountable for work they aren't proud of or that others do not see as meaningful or valuable to the company.

One reason why most employees do not do their work is because they've come to accept the company's culture as something that devalues their work or makes it anonymous, and they don't see the point of toiling away.

The hard stuff of arranging numbers is easy. It's getting the soft stuff right that's hard.

(11 JAN 2013 - 17 JAN 2013)