Beed Insights Issue 1

beedinsights issue 1

4 september 2012

beed completes four years It has been four years since we got the registration certificate from the Company Registrar Office and decided to rent a boot camp in Patan Dhoka, a room with one table and eight chairs. From there the beed journey has been the most fascinating one. Serving over 50 clients in four years, beed has come a long way in establishing itself as a consulting and advisory firm that believes in and delivers excellence, in Nepal. We never spent column centimeters in advertising, neither hosted lavish dinners

but we focused on client satisfaction, which we have learnt is the biggest investment one can make. We continued our attempts to make inroads outside Nepal and Rwanda became the first country we worked in. From the world of consulting we dabbled into the world of portfolio management through beed invest. From management consulting we also set foot in the world of development consulting.

Through Nepal Economic Forum, we increased our outreach activities through discus-

sions, research and dissemination of policy ideas. With beed leadership center, we institutionalized and innovated in the world of coaching and thought leadership. We move to make Nepal known for positives rather than negatives. We are very anxious to make the next big announcement of another feather in beed's cap.

beed leadership center conducts “Thinkshop” inside this issue leadership In nepali context

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deals and transaction 3 advisory challenges of family businesses

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what can management learn from sports?

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co founder profile

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Seven thinkshops were conducted by beed leadership center, a division of beed management across various institutions especially banks, entitled: Unleashing Nepal – Unleashing You©

training modules, over two decades of experience and his recent completion of Certificate in Coaching from Columbia University, USA to deliver a unique experience to the participants.

The ‘thinkshop’ – a combination of workshop, training and group coaching was conducted by beed CEO Sujeev Shakya.

Sujeev combined his previous

The participants termed the ‘thinkshop’ a lifetime experience that helped them to introspect, learn about themselves, set goals for their future and

make commitments to achieve their mission especially working in a Nepali context.

The program was conducted using global tested tools adapted to Nepali context and delivered in a bilingual setting was dubbed by the participants as ‘a unique experience that equips them to perform better in Nepal’.

the beed people beeds are fiercely passionate but approachable people who want to bring about positive change in individuals and organizations. Fifteen people, with education and exposure outside Nepal, are focused on adapting global practices to local conditions. Every member at beed is called a “beed”, no designation - no hierarchy. We

believe that the best delivery is always undertaken by teams, irrespective of who leads them. More than forty people have gone through the beed experience and are working in different firms around the world. beed is now the most sought after firm for an intervention, be it internship or gap year programs, or Pharkeka

Nepali program. beed people are not only inspired by the Apple computer advert of "People who are crazy enough to think that they can change the world are the ones who do" but believe that if everyone makes small, pos itive, changes the collective change is phenomenal.

clients we have served: NMB Bank ● Clean Energy Development Bank ● Everest Bank ● Nabil Bank ● Laxmi Bank ● Rastriya Banijya Bank ICIMOD ● Word Wildlife Fund (WWF) ● DFID ● Practical Action ● USAID ● Helvetas ● Centre for Reproductive Rights ● SNV Surya Nepal ● Ennovent ● Altai-Himalaya ● The Asia Foundation ● Niti Foundation ● Nepal Army Welfare Fund ● Nepal Gas Nepal Medical College ● Summit Trekking ● International Finance Corporation (IFC) ● Sherpa Adventure Gear Gokarna Forest Resort● Godavari Village Resort ● Hotel Del Annapurna ● Summit Hotel ● Dwarikas Hotel ● Astrek Group BIOCOMP ● Furse Khola Farmhouse ● Himalayan Distillery ● f1soft ● Nimbus ● Shikhar Insurance Sujal Foods ● Yeti Airlines ● Tiger Tops Group ● Yeti Travels ● Premier Insurance ● SCT ● NLG Insurance Government of Rwanda, Ministry of Education

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beedinsights

leadership in nepali context

sujeev shakya ceo, beed

“In every family, society and community, we find individuals, who would take the initiative to reach out to those in need, whenever there is grief or sickness in the family.”

Whenever we talk about leadership in Nepal, the immediate image that comes to mind are of politicians, who make promises but never deliver. The discourse of leadership in Nepal has been judged not by performance, but by the number of titles one carries on one’s business card, or the number of sycophants that hang out with one, the number of interviews and pictures that one sees in the newspaper or the minutes of exposure on television.

Leadership in Nepal is still represented by the badges with ribbons that people wear at functions, the sofa seats placed on the stage, or the individuals seated in the first rows, that people crowd around. Leadership in Nepal is still defined by how late one can attend events and how far one can exceed the allotted speaking time at meetings. It is still seen as a feudal phenomenon whereby there has to be a significant gap between the leader and the follower.

The concept of leadership especially in a democratic set up is something that has flowered in the West. The advent of corporations, the emergence of family trusts and foundations and the start of the concept of notfor-profits brought about the concept of an organization that polychromic societies found alien. People had to understand the rationale of having a chairman elected in a board of directors rather than nominating

one's son or relative, when looking for someone to head a philanthropic organization, instead of appointing the eldest son to take over.

One of the Rotary Clubs in Nepal is identified with a mother, whose daughter is identified with another rotary club. The democratic substitution to leadership, contrary to hierarchy, is still seen as unacceptable. The Alumni of Hubert Humphrey Fellows, a US based fellowship elects its President based on seniority, therefore one can only head the organization once one has passed the most active part of one’s life.

Because of the political influence associated with leadership in Nepal, one visualizes having more than 10,000 people at Tundikhel listening in rapt attention while one speaks. The linking of a leader to a patron, is another outcome of our feudal past, which makes it even more difficult to come out of the rut of the lopsided view of leadership.

The big question we forget to ask in Nepal, something that even our religions support, is to ask ourselves: “Who am I?” Am I the person in the business card, whose identity is defined by the name of the organization or the designation? If the name and designation is taken away, Who am I? Do I have followers then? The answer is most pertinent to persons such as a recently retired bureaucrat or

Minister who used to have hundreds of people hounding at their door while they held that position. A leader is someone who still has the respect and following, even without the label of an organization or designation.

In Nepal, the culture of doing and delivering without noise is not seen as a leadership trait, while globally, leadership credibility is about constant and consistent delivery. Therefore, work of people like Dr Ram Shrestha of Dhulikhel Hospital, who created one of Nepal's finest institutions in 15 years, goes unnoticed.

It is individuals like Dr Ram Shrestha that keep societies going. In every family, society and community, we find individuals, who would take the initiative to reach out to those in need, whenever there is grief or sickness in the family. There are these familiar faces that we find at hospitals, bringing new patients every time or at the cremation ghats of Pashupati, helping people in the execution of their final journey. Even though they have been helping for decades, these people are never noticed. The same goes for teachers, who believe in imparting education, unlike many others whose primary focus is on maintaining a smart face for a newspaper interview to show their dedication to education. Leadership is about replacing one's desire for publicity with real action.

sujeev shakya introduces world of coaching to nepal Founder CEO Sujeev Shakya after completing Columbia Certified Coaching Program has started individual one-on-one coaching. Recently FHI 360 has become the first institution in Nepal to engage coaches on an organizational basis. The need for coaching is growing worldwide as workplaces, work procedures and work cultures become homogenous throughout the world in an environment of fast paced innovation. Managing work through cultures and work-life balance in an age of working spouses along with parenting expectations is making the need of coaching essential.

Coaching is partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal goals and professional potential.

Coaching is different from therapy, mentoring or training. The coaching process includes some aspects of the above techniques but is a more empowering, collaborative, focused and progressive process.

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deals and transaction advisory It has just been a few years since the Nepali Corporate world has gotten familiar with the word “deal”. Previously, simple words like “buy” and “sell” were used to refer to situations where a majority of shares of the company, private or public were handled. Most transactions are done based on valuations of existing physical assets (including land and building) with transactions being facilitated by corporate lawyers.

Since, the book of accounts of many businesses, particularly of private limited companies are improper, the buyer feels uncomfortable in acquiring the shares of the company. This restricts the deal to buying of fixed assets of a business. Such trends do not provide continuation to businesses due to which the concept of “brand” has never got an opportunity to flourish.

The concept of Deals slowly got formalized in the private sector in early 2000. It formally got noticed in the private sector in 2006, when the American Group’s holding in Bhote Koshi Power Company was bought over by local partners through acquisition finance arranged through local banks. The deal was carried out professionally with the involvement of the company’s internal team and lawyers, as well as external communication experts.

Subsequently, the private company list grew with the inclusion of Yeti Travels, Gokarna Forest Resort, and Gorkha Brewery, with a few more still in the pipe line. Slowly corporate Nepal has started understanding that undertaking deal is not just about buying and selling, but involves complex activities that require professional services, ranging from valuations, legal drafting of water tight agreements, financial closings with waterfall and cash trapping components, structuring of special purpose vehicles, negotiation of the price, due diligence and sequencing of transactions. Globally, organizations like Mckinsey, Accenture, Bain have been exclusively involved in

deal making over a long period of time and have coined this package service as “Transaction Advisory”.

In a deal, hiring an advisory firm creates tremendous benefits to both, the buyer and the seller.

Deals are complex activities, and to comprehend the overall steps in these activities require service and guidance from experts. It is not as simple as buying or selling electronic goods in the market, wherein the process gets completed in 15-20 minutes. At times, completion of a Deal may run over two to three years depending on its complexity. Following are few of the activities involved in the process of deal making in Nepal, and highlighting why the role of Transaction Advisors are essential: Valuation At the end of the day, the best valuation is the price at which buyers agree to buy and seller agrees to sell. However, for a seller to know the worth of the company’s share, a detailed valuation exercise based on future cash flow is required.

This helps the party to be at the “starting line” and gives them a fair understanding of the pricing. Negotiation and discussion of the valuation are normally very technical discussions wherein every issue and query is based on figures and assumptions projected in a spreadsheet. Every change in the assumption that is agreed upon, impacts the valuation of the Deal, which is normally thrown back to the buyer or seller for their agreement.

Valuations are done based on internationally accepted practices and methodologies, thus providing the initial idea for the party to begin with.

Due Diligence There is always a fair chance to reduce prices based on the due diligence carried out on the target company to be acquired.

This process is beneficial particularly for the buyers. After signing the Sale Purchase Agreement (SPA), due diligence is done to validate the overall price that is normally based on the financial statement pro-

vided by the company. Advisors dig up a lot of relevant issues for subsequent price negotiation and it is in this process that advisors earn and justify their fee being paid. suman rayamajhi Patience At times, irrespective of all the co founder, beed effort put in by a buyer, seller or advisor, Deals sometimes get stuck. Experience shows that sometime you need to “give time a time”. Deals involving foreign parties incorporate all “In any deal, consultants the bureaucratic time lags scream, fight, argue and shout which may spill over the timeline by a couple of years. Any for their clients to save an third party involvement having an imperative position in the extra penny to justify their fees deal may just spin off the whole planning process if they are not and it’s always worth it for taken into consideration inithe buyer/seller to sit back, tially. Closing of the finances, right sequencing of the transacrelax and enjoy the show.” tions, understanding the probable impediments and taking precautionary steps are few aspects that cannot be ignored while planning for a successful Deal. However, keeping your cool and sometimes letting the time take its course also creates a unique space for the Deal to overcome some impossible hurdles.

Taxes and legal compliances There are various tax and corporate law related matter that need to be considered in any Deal. These relate to capital gain taxes, issues relating to Section 57 of Income Tax Act or Section 101 of the Companies Act during the structuring of SPV. All these issues are cards kept under the sleeve and need to be brought out as the deal progresses.

As the size of the Deal gets bigger, so does its complexity.

Buyers and sellers have to be on the look out for professional transaction advisors who can help them think through the whole transaction and stay with them to protect their interests throughout the deal. Parties involved are finally realizing that paying these consultants and advisors initially, will save their future risk or increase their take away valuation in multiple folds at the end of the Deal.

It is a known fact that good

deals can never be made, if the real buyer and seller sit face to face and decide, because windows for any negotiations are completely wiped out. Their entry is always at the end during the time of signing and when all the issues have been tackled by consultants from both sides. In any deal, consultants scream, fight, argue and shout for their clients to save an extra penny to justify their fees and it’s always worth it for the buyer / seller to sit back, relax and enjoy the show.

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beedinsights

challenges of family businesses

puja tandon co Founder, beed

“Conflicts over ownership and future leadership can create bigger dents than any bad business decision ever could”

A family business is a business where one or more family members have substantial ownership interest whether they manage it themselves or through professionals. About half of the listed companies in Asia and about two thirds in India are family owned. A substantial number of fortune 500 companies are also family controlled.

Similarly, the majority of businesses in Nepal are family businesses.

Again, mostly successful businesses worldwide are the ones that are controlled by funding families. However, unfortunately statistics show that only 30% of these businesses survive into the second generation, only 12% into the third generation and just 3% into the fourth generation.

Family businesses can have an edge over other businesses, for instance: family members work twice as hard as outside staff and are usually loyal and dedicated to the business, decisions are taken at a faster speed and control is retained within the family. Also unless listed on the market, family businesses can take a longer term view in their planning and generally have more dedicated and loyal staff.

On the other hand they can also have some inherent weaknesses and drawbacks as well – there is trouble when interests of the various family members are not aligned with each other and with the business; for instance when family members desire board and management positions without having the required exposure, skills or competencies; and mostly when interpersonal issues and personal conflicts affect important decisions and at times even create deadlocks.

Besides, family businesses face a unique challenge of succession planning, which is very crucial and sensitive. Succession does not only mean ownership succession but management succession as well.

Again, writing a mere will is not succession planning. There have been instances of successful Nepali companies, run as a one man show by the foun-

ders till the time of their deaths, after which they have almost fallen apart despite the availability of a will dividing business assets, interest and responsibilities amongst the heirs. Conflicts over ownership and future leadership can create bigger dents than any bad business decision ever could.

Transfer of reins from one generation to another, therefore has to be systematic and agreed to by all. There may be equal division of shares in the business but unequal entitlement to profits and dividends depending on engagement in work.

Examples of conflicts between the Murdoch’s at News Corporation, the global media company, and law suits between In-N-Out, a U.S burger chain and its executive demonstrate how misunderstandings and lack of a proper succession plan can create deadlocks. Also drawing on the example of many Newari family businesses in Nepal, where the founding generation is apprehensive of passing down trade skills, business proficiencies and networks to their sons for fear that the sons would take away the business from them. This explains why a lot of old family businesses in Nepal have not been able to withstand competition and have succumbed to oblivion.

Increase in the number of women-owned family businesses is another drift unfurling in the past few years. Studies show that women-owned family businesses are more conservatively run, not leveraged much and have better success rates.

In the light of the above challenges that family businesses face, their objective is therefore to keep family business in the family.

At times family business shareholdings have more emotional value than financial value to heirs, as more often than not their interests lie elsewhere.

Moreover, the second generations are found not as committed or involved in the family business, as compared to 2030 years ago. With a weakened

sense of obligation to join the family business, but a growing sense of entitlement to it, road to continuing family legacies and its smooth transition into the next generation is long.

However, it is never too late to start! Propositions like below might hold a way out for the success and continuity of family businesses:

• a good balance between •

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personal interest of the family and business needs clear financial policies and codes of conduct that segregate family issues from business ones Regular family meetings should be held to keep the communication channels open and working amongst the family members There should be clear compensation polices amongst all family members involved.

Also if some drawings are made by members not involved, it should be explicitly put down Children should be involved and exposed to the family business at an early stage so that they get a chance to work alongside the staff and see firsthand the problems and challenges that they might have to face in the future. It is more likely that children have inherent entrepreneurial skills and better risk taking capacities than outside fresh blood Formal succession plans should be made after consultations with the family members, employees and external consultants. Tax implications of the succession plan should be carefully evaluated; Buy in from family members should be obtained on the succession plan and the staff, should be prepared for the transition; There should be a corporate culture and a sense of formality amongst family members while at work.

And finally board room conflicts should not extend into dining rooms.

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what can management learn from sports?

Joe Torre, a four-time Major League Baseball World Series winner, as manager of the New York Yankees said this about sports, “Competing at the highest level is not about winning. It's about preparation, courage, understanding and nurturing your people, and heart. Winning is the result” Similarly, management is not just about making profits. It is about preparing yourself and your team, nurturing them, and having the courage to make the right, and sometimes tough decisions to steer your business towards making profit.

The role of a manager in business isn’t much different from a manager at a football club. They both have to get their teams, comprising of diverse groups of people with different skill sets, to work together and motivate them to achieve a particular goal. There are several areas a business manager can learn from a sports manager.

Keep ‘em hungry While management in both sports and business is about managing and motivating your team, sports management has evolved to allow for separation of duties of manager and coach. Business managers on the other hand tend to do both, coach and manage. Business managers can therefore strive to increase output by creating a role for coaches who can add a more personal side, as they work closely with teams to bring out peak performances. Bales and Slater (1956) discovered that such division of roles leads to self-emergence of two types of leaders, with a distinct set of roles- the ‘task leader’ and the ‘socio-emotional leader’. It was found that a task leader has to be identified before a socioemotional leader can emerge, with a good manager being able to handle both tasks and lead his/her team.

Sports managers have long known that athletes perform best when they are in the fired up zone. In training, they are normally in the middle or down

zone. When they are in the down zone, their coaches lift them up, and if they are fired up during training, the coaches settle them down. Similarly business managers should identify the motivational levels of their team to know when an individual needs extra motivation or calming down. Teams are made up of different individuals with different reasons for getting motivated. As a leader, the manager should not only lead but also be aware of individual personalities and their needs, to keep them hungry enough to get things done.

Get it done A good manager knows that he cannot do everything and needs to delegate some authority to his team. In the sports arena, the manager makes the major decisions regarding the team, strategy and tactics. But once on the pitch the team makes play by play decisions depending upon the situation. Similarly a business manager should be able to delegate as far down the line as possible in order to allow the team flexibility and creativity in their work and personal growth as individuals.

Managers can therefore assist in bringing out the best in their team instead of trying to run everything.

Plan to adapt Sports managers plan for every game separately, taking into consideration the strengths and weaknesses of the opposition as well as that of their own team. Similarly business managers should take each project as a separate game and plan its execution based on the scope of the project, strengths and weaknesses of the team, meanwhile also keeping in mind the financial and human resource needs. While all projects may be similar the challenges faced in the projects may differ drastically. The downside to planning however is that outcomes can never be confirmed. Changing circumstances coupled with unlimited variables related to the business, indicate the importance of flexibility and adaptability of a manager. The team will therefore need to adapt to changing circum-

stances, whereas business managers should always plan their broad strategies with an allowance for flexibility and change to deal with unforeseen circumstances. suvash thapa, beed Be prepared In business, as in sports, preparation is key. Sports managers In business if you turn in a spend hours going through vid- profit or increase turnover, then eos of their opposition to deci- managers might be satisfied. pher their strengths and weak- But does it mean that they are nesses, prepare dossiers on the the best in their area of work? opposition team and its star Performance measures should performers, and go through be quantifiable and a manager their own play book to come up should have Key Performance with the best way to tackle the Indicators (KPI’s) which can opposition. Business managers give a good indication of pershould learn from sports man- formance and verify performagers in preparing for their pro- ance improvements. jects by doing the same in regard to all aspects of a project Simplify the complexities before its execution. They To the layman, sports in genshould try to figure out possible eral, is simple. In football you hurdles and be prepared, be- pass the ball around and put it fore it happens. Such exercises in the net for a goal. In tennis can help highlight areas that you try to put the ball past your the team needs to improve in, opponent. But that is only the helping them constantly stay tip of the iceberg. There are numerous hours of preparation ahead of the competition. and individuals working as a Get better team that is not readily visible.

The best sports managers are In such situations it is up to the not the ones who win all the sports manager to make sure trophies. Even if they are, they that all these complexities do not rest on their laurels. come across as simple. In a Great ones go straight back to similar way, business managers the game and point out areas of should be able to handle the improvement. Just winning isn’t complexities of work, like logisenough for them and they want tics, time management, and to ensure that all weaknesses personnel management to bring of the team are eliminated, for about a good performance. The the team to stay on top. Simi- manager should realize and larly, business managers should discern the complexities which also constantly look towards may seem simple to others. improving as a continual proc- This is perhaps the biggest lesess. Business managers tend to son for business management get complacent after turning big from sports. profits for their company, instead of looking at how they All good managers know that can ensure a better perform- they can get their team to perance the next time, be it form better if they are well prethrough higher profits or lower pared and have a shared vision costs. It is only when they strive with the manager. If they can to get more that they will be visualize the task and results, their performance will improve. able to stay on top.

It doesn’t matter if it is in sports Establish transparent results or in business; managers need One big advantage that sports to be able to transfer their have over businesses is that in thoughts to their team properly sports the results are transpar- in order to realize their goals. ent. You either win or lose. You Managers may be different, can also gauge the level of per- some are unassuming while formance in the win or loss. If others want to take control. But you win trophies or medals, at the end of the day, how they then you are successful, and if get their team to perform is you don’t then you aren’t. what matters.

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beed management private limited p.o. box 7025 krishna galli pulchowk lalitpur-3 nepal phone: +977 - 1 - 5548405 e-mail: beedinsights@beed.com.np website: www.beed.com.np

The beed eco-system comprises of beed management, the flagship management consulting and advisory firm; beed invest, a portfolio management firm; beed leadership center, a division dedicated to the work on thought leadership, beed reality, a division that works on real estate advisory; beed devCon, a division that manages development consulting assignments in conjunction with Nepal Economic Forum, the notfor-profit promoted by beed. business oxygen, is a fund management company. credit rating agency nepal (crane) is a credit rating agency to be operated through a joint venture arrangement with Care Ratings India.

beedinsights is an in-house production Š beed management private limited, all rights reserved.

co—founders profile

puja tandon is a management consulting specialist and has more than ten years of experience with the private and public sector. Due to her strong interest in private sector development, she has worked closely with international organizations, local nonprofits, institutions of the public and private sector including various ministries of Nepal throughout her career. She has extensive knowledge and skills in areas of the private sector related to corporate advisory and has led diverse teams on development consulting assignments. She has varied exposure in international class legal documentation and project feasibilities for new business development.

sujeev shakya is the Chief Executive Officer of beed. With a keen economic sense and extensive corporate experience in developing strategy, business development, consulting and planning, as well as in direct line management for over fifteen years, Sujeev is essentially a Chartered Accountant and also has a Diploma in International Marketing from Boston University, USA. He is one of the few from the private sector to be awarded the Hubert H Humphrey Fellowship by the US Department of State. With extensive domain knowledge in various industries, good risk management and environment management abilities and a strong network within the financial and multilateral community, Sujeev is an enterprising corporate executive who believes in and delivers business excellence.

suman rayamajhi is a chartered accountant with ten years plus of working experience in the corporate, capital market and financial sectors. Suman has experience working with the World Bank for the Financial Sector Reform Project, a Regional Manager at Rastriya Banijya Bank (RBB) for year and half, and expertise in enterprise valuation, deal structuring for merger & acquisitions, diagnostic studies of organizations, strategic planning, fund structuring / management and financing of hydro projects; and has a varied exposure in equity research and portfolio management activities.

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