Tracing the Evolution of Corporate Governance in Nigeria

INTRODUCTION

Corporate Governance is seen as the combination of Rules, Laws, Practices, Processes, Policies, Resolutions, for the effective and prudent Management of an Establishment, Firm, Company, Organization, which would in turn produce long term and effective results. It reflects the principle of transparency, accountability, and security, it also reflects the check and balance system strictly guarding the Board of Directors and the Managers of the Company, thereby providing the framework to attain the company’s objectives, which encompasses every managerial function.

Every Company ought to establish a set of rules governing them as this is important to potential investors, it acts as a pointer to the company’s direction and business integrity, thereby building trust, promoting financial viability and investment opportunities. Corporate Governance is conducted by the Board of Directors and other concerned Committees for the Company’s Stakeholder’s benefit.

THE HISTORY OF CORPORATE GOVERNANCE IN NIGERIA

Nigeria has had its fair share of Corporate Collapse, which caused them to embrace and develop its Corporate Governance Regime.

Corporate Practice in the early 18^th century was not a noble practice, it consisted more of speculative and fraudulent schemes calculated for cheating rather than trading. After Nigeria gained her independence in 1960, the Companies Ordinance of 1922 was repealed and replaced by the Companies Act of 1968, which was then modelled after the English Companies Act of 1948. The 1968 Act became the Principal Legislation regulating Companies in Nigeria, it also contained provisions for the running of affairs of companies with relation to the roles of the Board of Directors and that of the Members in General meeting.

The 1968 Act inadvertently failed to appreciate the economic realities and settings of Nigeria, causing it to be repealed and replaced by the Companies and Allied Matters Act of 1990, which became the Primary Legislation regulating Companies in Nigeria. As at the time, Corporate Governance was not recognized as a distinct concept. CAMA made provisions which were fundamental to Corporate Governance including but not limited to Accounting and Auditing standards, Minority Shareholders rights and Equality of Members, Equity ownership and so much more.

CAMA was not a stand-alone legislation which Companies had to comply with, other of such Legislations were; The Central Bank of Nigeria (CBN) Act, Banks and other Financial Institutions Act (BOFIA), Financial Reporting Council (FRC) Act, Nigerian Deposit Insurance Corporation (NDIC) Act, National Insurance Commission (NAICOM) Act, Pension Commission (PENCOM) Act, Nigerian Communications (NCC) Act and the Investment and Securities Act (ISA).

The distinct concept of Corporate Governance gained worldwide consideration after the collapse of some major Corporations in the United States and the United Kingdom in the early 2000s (Enron, Arthur Anderson).

Prior to the enactment of the Companies and Allied Matters Act, the Nigerian Government had not indicated much interest in Corporate Governance. However, with the collapse of major corporations, a more committed reaction was made in this direction with the Atedo Peterside led committee set up by the Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (CAC) in June 2000 to investigate the issues of Corporate Governance in Public Companies. This action led to the issuance of the Code of Corporate Governance for Public Companies.

The Code of Corporate Governance for Banks and other Financial Institutions was then issued by the Bankers Committee in August 2003, it was deliberated and compiled by the Banker’s Committee’s Subcommittee on Corporate Governance. This Code was to be applicable to all Banks and every other Financial Institution operating in Nigeria at the time of the issue. Though the Code was comprehensive, the Code of Best Practices on Corporate Governance in Nigeria was issued in October 2003 by the Securities and Exchange Commission (SEC).

The SEC Code of 2003 made an impact in the corporate scene in Nigeria as it was the first Corporate Governance Code issued by a regulator in Nigeria. It was in existence for about seven years before it was replaced by the Code of Corporate Governance in Nigeria 2011 by SEC.

The Central Bank of Nigeria came up with a mandatory Code of Corporate Governance in 2006 (Code of Corporate Governance for Banks in Nigeria Post-consolidation) which was made applicable to all Banks licensed in Nigeria. Subsequently, the National Pension Commission (PENCOM) issued its code in 2008, the 2008 PENCOM Code, and in the next year the National Insurance Commission (NAICOM) issued its Code of Corporate Governance for the insurance industry. These specific codes were meant to address the issues that were not addressed in the SEC Legislation. In 2011, SEC released the Code of Corporate Governance for Public Companies in Nigeria, which served as a replacement for the legislation earlier released in 2003.

The 2011 SEC Code has the most comprehensive cover on Corporate Governance in Nigeria as it includes the principle of Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders.

Furthermore, the Code of Corporate Governance for Banks and Discount Houses in Nigeria and guidelines for whistle blowing in the Nigerian Banking industry was issued in 2004 and the Code of Corporate Governance for Telecommunication industry was also issued by NCC in the same year, this Code was promulgated to foster good Corporate Governance Practices in the Nigerian Telecommunications industry.

The Financial Reporting Council of Nigeria (FRCN) issued the Nigerian code of Corporate Governance which came into existence on the 15^th of January 2019, though cited the 2018 Code. The Code was the first National Code of Corporate Governance to cut across all sectors in the corporate world in Nigeria.

It is worthy to note that Corporate Governance in Nigeria is governed by the twin theories of Stewardship and Agency. While the theory of Stewardship suggests that Directors are trustworthy and as such capable of acting in the interest of the public and the shareholders, the agency theory presumes that Directors cannot really be trusted to act in the public good and general interest of the shareholders.

The Corporate Governance Codes in Nigeria have evolved over time to cover most essential areas such as the Board composition of Directors and the specific requirements for the board structure (appropriate balance of knowledge, skills, experience, diversity and independence.)

With the promulgation of the Codes, provisions were made for auditors both internal and external auditors to balance out the structure of companies. The codes also provide for whistle blowing which advocates the establishment of a whistle blowing framework to encourage stakeholders to bring unethical conduct and violations of laws and regulations. It provides further on issues of fair hearing and transparent remuneration, full and comprehensive disclosure of matters material to investors and stakeholders.

Corporate Governance Codes should enforce accountability, transparency and fairness for corporate entities in order to attain the aim of Corporate Governance. The 2018 code has proved to be a flexible guidance which has allowed each corporate entity to apply its provision in accordance with its own business structure.

As with many most Organizational structure, Corporate Governance has faced some challenges, which range from Institutional challenges, Corrupt practices, Multiplicity of codes of Corporate Governance and other factors. However, despite these challenges, Nigeria still ranks among the top five countries in Africa for compliance with the Organisation for Economic Co-operation and Development principles of Corporate Governance (OECD). (This ranking was derived from a study jointly published by the Association of Chartered Certified Accountants (ACCA) and KPMG which is titled ‘Balancing Rules and Flexibility for Growth’.)

Principles of Corporate Governance

Corporate Governance structure may vary; however, some key elements must be incorporated into the organization.

In all organizations, Shareholders should be treated fairly and equally, this includes ensuring that they are aware of their rights and how to exercise them, these can be achieved by encouraging shareholders to participate in general meetings.

The Legal, contractual, and social obligations to non-shareholding stakeholders must be upheld (this includes communicating relevant information to employees, investors, creditors, suppliers, customers, policy makers, and members of the community).

On the other hand, the Board of Directors must maintain a commitment to ensure fairness, diversity and transparency within Corporate Governance and the Board members must possess the adequate skills necessary to review management practices.

Companies or Organizations should define a Code of conduct which would be binding for Board members and executives and all Corporate Governance policies should be transparent and disclosed to relevant stakeholders.

CONCLUSION

Good Corporate Governance ensures corporate success and economic growth, it further maintains investors’ confidence and as a result raises capital efficiently and effectively, lowering the capital cost and providing proper inducement to the owners as well as the managers to achieve objectives that are in the interest of the shareholders and the organization. Good Corporate Governance also minimizes wastages, corruption, risks and mismanagement, thereby helping in brand formation and development. It further ensures proper management of organizations that fits the best interests of all. With the promulgation of codes to ensure due compliance with Corporate Governance, the practice in Nigeria has substantially gotten better over the years thereby making corporate practise a respectable area in Nigeria.

REFERENCES

1. Bhadmus ‘Corporate law practice’ (4^th Edition, Chenglo Limited, Moneke Crescent layout, off Maryland Estate, Enugu)

2. https://searchcompliance.techtarget.com/definition/corporate-governance retrieved on the 20th of April 2022.

3. https://en.wikipedia.org/wiki/Corporate_governance

4. https://www.managementstudyguide.com/corporate-governance.htm

5. https://deliverypdf.ssrn.com/delivery.php?ID=987090099095088086031070079105092010005037036006012036006091071066073116000010066087032117025055047016034004093066098014078066054019030026019006088010016006091075127070049034099127011066101004080103089067093007114064125085007073067023003095122004126031&EXT=pdf&INDEX=TRUE

6. https://djetlawyer.com/an-analysis-of-corporate-governance-in-nigeria/

7. KPMG, ACCA report ranks Nigeria fourth in OECD compliance’ available at https://www.google.com/amp/s/brandspurng.com/2017/09/25/kpmg-acca-report-ranks-nigeria-fourth-in-oecd-complaince/%3famp

REFERENCES