Corporate Governance from Boardroom to Practice

PAGE 14

“TO A LARGE EXTENT, THE BACKBONE OF ANY THRIVING ORGANISATION, IS GOOD CORPORATE GOVERNANCE. IT DETERMINES BOTH THE INTERNAL OPERATIONS OF A COMPANY, AND ITS RELATIONS TO THE MARKET GENERALLY”

Introduction: The Gist about Corporate Governance

In every organisation, institution, body, or activity, there are rules of engagement. The rules are certainly not meant to bind, but to free. They are made to serve as guideposts for checking violations and obedience, and for measuring successes and failures as well. We know by now, that governments and agencies are run by a system of organised laws. We are not as well, oblivious of the fact that our ivory towers do come alive and are sustained by relevant laws. We are also witnesses to the dos and don’ts by which any kind of sporting activity that appeals to us are guided by. Where there are no rules by which an organisation or activity runs, where there are no frame of checks, things may go awry.

Companies, like any organised set up, also have their own system of rules to guide their operations. One of these system of rules, can be put under the umbrella term of corporate governance. Entailed in Corporate governance, is a system of rules, practices and processes, by which a company is run. It essentially, has to do with balancing the interests of different stakeholders of a company. The stakeholders may or may not own shares in a company, and traditionally include such categories like shareholders, management, employees, customers, suppliers, financiers, government and the community. To a large extent, the backbone of any thriving organisation, is good corporate governance. It determines both the internal operations of a company, and its relations to the market generally. But what ensures a company’s internal and external relations, is a viable leadership. In a whole sense, this is what determines the ‘fate’ of any company. Companies struggling to cement their place in business, are in that position, because they lack a dependable leadership structure. In the same manner, those that have successfully integrated and sustained their management, have depended on a robust governance structure. To preface the point that I am trying to make: weak companies have weak corporate governance structure; strong companies erect strong corporate governance. And as we may well know, when a company is weak in terms of its framework of leadership, it succumbs to financial crises and sometimes fraud. It becomes really imperative, that companies have a strong and sustained governance structure. In a hugely competitive world where premium is placed on performance and stability, a solid governance framework, is central for any company hoping to surmount the pressures of competitors and to attract business investors.

The Development of Corporate Governance

When the idea of Corporate governance was espoused by those who developed the Agency theory, it was done with an overwhelming purpose in mind: to fully account for the relationship between principals and agents in business. The said relationship between and the roles of the principals – the company’s shareholders – and the agents – the directors – is in turn well-defined beyond doubt in this theory. And it is that in any company, there are directors whose duty is to manage the company’s affair for and on behalf of shareholders. For the benefit of those who may not be aware, Directors may not necessarily own shares in a Company. Since the directors are not the same as shareholders, there are occasional conflicts of interests. Directors may have plans that may not go down well with shareholders. Certainly, this can strain relationship between both. One effective way this strain may be handled, is to apply the principle of corporate governance. In fact, one way of analysing the plans that directors may have for a company and the desire for maximum profit of shareholders, is to deploy the principle of corporate governance. Corporate governance therefore, develops to reconcile the divergent interests and ensure that companies are governed in such a way as to attain their objectives.

Laws Regulating Corporate Governance in Nigeria

Various laws addressing corporate governance have been developed by different countries, in order to solve the crises of interest that may arise between directors and shareholders of companies. In Nigeria, for instance, there is the Company and Allied Matters Act (CAMA), the Investment and Securities Act (ISA) and the Bank and Other Financial Institutions Act (BOFIA). Primarily, these have been made to take care of matters relating corporate governance.

Apart from the above laws, Nigeria also has corporate governance provisions. Some apply to companies that a given statute may have direct authority and, for this reason, may be regarded as industry-specific. Others apply to all companies registered in Nigeria. Key of the industry- specific provisions made in Nigeria are: Corporate Governance for Banks in Nigeria Post- Consolidation (2006), the Code of Corporate Governance for Licensed Pensions Operators (2008) and the Code of Corporate Governance for Insurance Industry in Nigeria (2009). Only the Code of Best Practices on Corporate Governance in Nigeria, issued by the Securities and Exchange Commission (SEC) in 2003, applied to all companies in Nigeria, regardless of whether or not they were listed in the Nigerian Stock Exchange. The code was however, replaced by the Corporate Governance in Nigeria in 2011. What is fascinating about the code is that, it has a clause which indicates that in the event of a conflict situation between SEC’s code and those of other provisions, especially as it relates to companies under the obligation to abide by their own code and that of SEC’s, that with stricter provisions shall apply. This certainly has implications for corporate governance, seeing the way various companies’ interests overlap into those of SEC’s.

Interestingly, other codes have been initiated, to cover up for the flaws that another may have. For instance, the Financial Reporting Council of Nigeria (FRCN) issued the National Code of Corporate Governance (NCCG) in 2016. This code was designed specially to take consideration of all the activities of all organisations in Nigeria: private, public and not-for-profit. Becoming effective in October of 2016, the code seemed to take care of issues of enhanced management credibility, preserve long-term investment, improve access to new capital and lower cost of capital, as they relate to corporate governance. This code was well-intentioned. Its introduction was meant to boost transparency and accountability, in Nigeria’s business environment. In spite of its good intent, it was suspended by the Federal Government, owing to scandals and controversies that rocked some sections of the code. I understand that a Technical Committee was set up in January of this year, to review the suspended code, and make recommendations for its improvement. This is quite commendable and I do hope that the lacunae in this code and others like it, will be filled. In the same breath, it will be interesting to see how the controversial sections of NCCG, when put to rest, will harmonise corporate governance codes in Nigeria, in the coming years.

An Effective Corporate Governance Framework

Many have been severely critical, about the process of corporate governance. Some have considered it, as slowing down decision making. Some have criticised it, as allowing for bureaucracy and red tape that should have been easily avoided. In their reasoning, corporate governance slows down the ability to ‘make things happen’. These opinions are not unexpected – for most of them are products of sheer ignorance, total lack of faith for innovation, a consumed sense of impatience, not to say anything of their sense of total business vacuity. Nevertheless, what I am concerned about, is the potency of corporate governance in Nigeria. How truly effective is corporate governance, especially when taken from the boardroom to actual practice? There is an overwhelming opinion among financial market experts, that a prospering company is one that abides by core principles of corporate governance. Most experts believe that, corporate governance reflects the value of a company. They believe just as well, that it legitimises a company’s identity and authenticates its decisions and reporting. If this is true, then it is fitting that a comprehensive corporate governance framework should be adopted. This will certainly address the conflicts of relationships that thrive in a company.

Corporate governance will do so in the following key areas: one: it will aid the oversight of a company’s performance, and add to the corporate success of directors. Two: it will create cordial relationships between directors and shareholders. Three: it will set the terms for appointment and performance of directors. Four: it will regulate the conduct and roles of directors. Five: it will regulate the ethics of a company and make its conducts transparent. And six, it will guarantee corporate compliance and provide the framework for internal control. Among many others, these are the benefits of adopting a corporate governance framework.

A Call for Practical Corporate Governance

My duty here is to encourage active corporate governance, so as to create an effective Company Board that can balance experience and professionalism. Although, a board occasionally may manifest imperfections, it should strive to perform its oversight role. It should, at all times, sustain a company’s vision and mission, direct strategy and policy, and perform duties that may increase capital growth.

In like manner, the roles of shareholders need to be strengthened, with the creation of more media that will encourage their participation. Here, an active governance system, is needed in trying to create the atmosphere for identifying competitive advantage. This system will strengthen a company’s compliance with the laid down ‘rules of the land’. One dependable way of pushing for compliance is to review extant policies, systems and practices that conflict with the vision of a company. The involvement of all company stakeholders is required for this, and will also bring about a whole range of benefits. Among many others, there are the benefits of adopting a corporate governance framework. Few of such benefits, are the strengthening of profits, increase in market shares, and the boosting of shareholder’s value. Well, of course, the most interesting benefit for shareholders, is in terms of maximising capital.

In order to firm this up, there is need to adopt a more practical approach to corporate governance. Doing this, requires a proper mapping out of any corporate governance system. It, in turn, requires that the mechanism for risk management and crisis control must be executed, whenever necessary. There must also be the need to activate the framework for communication between a company’s board and its shareholders. Important as well, it is necessary to seriously implement the corporate social responsibility of shareholders. Equally fitting is a system for evaluating board performance. In one clear sentence: the true face of corporate governance will come to light, when it is taken beyond boardroom to practice.