THE PRINCIPLES OF GOOD COMPORATE GOVERANCE AND BEST PRACTICE RECOMMENDATIONS IN NIGERIAN LISTED COMPANIES: REGULATION COMMITMENT COMPLIANCE (A STUDY OF SELECTED LISTED COMPANIES NIGERIA)

ABSTRACT

The necessitated or prompted for the researcher to embark on this study was a result of an increasing profile of corporate failure, reduce public or stakeholders confidence, as a result imbalance of interest and other malfeasance act that are purported in share return, annual statement and/or unfair dealing that resulted to increase risk to companies. As the topic goes, ‘ the principles of good corporate governance and best practice recommendations in Nigerian listed companies’ regulation, commitment and compliance.

However, the objectives of this study revolves round: the corporate governance practice in term of balancing stakeholder interest, to ascertain the fairness, transparency and accountability of returns given to shareholders of the firms. While the methodology adopted was secondary approach where value added statement are tested in terms of “ annual industrial average, periodic industrial average” to draw a comparism and the use of percentage table to test the research questions.

Then, the major finding includes: that among the sectors chosen banking sector paid least dividend values to its shareholders, that values not distributed to shareholders were retained for the business development and the retentions form part of wealth to shareholders or for expansion. Equally, that the good corporate governance practice practicalized balancing of the shareholders interest through adequate auditing, proper risk management, information transparency, proper sense of shared values and accountability, and well targeted regulated framework by the firms etc.

Again, some of the suggested recommendations surround the regulatory and supervisory reinforcement of action, increase effort to recognize the importance of reflecting the specific cultural values and need for an inclusive approach in order to ensure that companies succeeded in balancing economic and society’s broader objectives.

Therefore, the incorporation of good corporate governance practice and best practice recommendations is lever to both corporate and economic sustainability.

CHAPTER ONE

1:0   INTRODUCTION

In the  recent time there have been an increasing number of  high profile corporate failures around the world, has sparked off a lot of enquiry as to the reasons why well-established and respected organization failed. Actually,  corporate  failure  today  is  a  global  issue,  on  the  international science   the global economic crisis   had   resulted to the collapse of large companies like Euron, world com, Rank Xeror, paronglat, Bank of credit and commerce internation (BCCI) and  large-scale  crisis that rocked almost every financial institution, capital market and public organization etc.

In  Nigeria,  corporate  failure  is  very  rampant  in  the  oil  market, financial services   sector   some years back and even at present. A lot   of banks and listed companies shut down be cause of one problem or another is nebulous. Soludo (2006) Limited that by   1998 a total   of 26 banks have been liquidated   and at the time of consolidation in 2005. 11 banks were already dead literally. He further said that, outside  the banking institution, creative accounts of African petroleum where it concealed debts in execss of N20 billion, over valuation of shares of involving Bankolans  securities and others are signals of impending doom for these companies. What there is the cause of corporate failure  in both local and international listed and unlist, quoted and unquoted, police and  private companies?

John clutter buck in Al-Faki (2006:5) high righted that companies that failed shared some common characteristics and they includes

a)  Leadership of the company is  vested in an individual who combines the office of chairman and Chief Executive with domineering tendency.

b)   President violation and non—compliance with internal control of the company by the company b y the chief Executive.

c) Optimistic {or even distorted} rather than prudential financing reporting

d) Irregular board meetings, often without adequate information given in advance.

e)  Mineral disclosure in the accounts of the company.

Thus it is the combination of these factors that undermine the ability of companies to withstand economic down turn thus leading to a collapse. In Nigerian listed companies scenario issues such as lack of probity, transparency, integrity and accountability, inflation of balance sheet with unearned income, weak capital base, unskilled and inefficient management, window dressing of account and poor environmental as well as incentive almost contributed to dissolution or winding- up of many companies.Uche

{2001b}  identified certain reasons that  results to  early  indigenous bank

failures  in  Nigeria  as,  “mismanagement,  and  accounting  incompetence. What then is the   adequacy of bank and listed companies legislations in controlling and regulating the practices in these industries. The question is pertinent, because in spite of the existing legislation, a number of failures and winding- up have been recorded in the industry.

In an attempt to design codes that will be appropriate to quell these irregularities, global phenomenon termed “corporate Governance” came into being. Today it has become a contemporary issue  which has dominated the interest of all business, legal and government circles worldwide.so,corporate governance is the set of processes, custorms,policies, laws and institution affecting the  way  a  corporation  is  directed,  administered or  controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the “shareholders, management, and the board of directors. Often stakeholders include labors {employees} . customers, creditors {eg,banks bondholders},suppliers, regulators and their community at large. Therefore, corporate governance is a multiceted subject. An important theme of corporate governance is to ensure the  accountability of certain individuals in an organization through mechanisms that  try to reduce or eliminate  the principal-agent problem. There has been received  interest

in the  corporate goanance practices of modern corporations since 2001, particularity due to the high-profile collapses of a number of large United States firms such as “Enron corporation and MCI Inc. (Dignam and  Lowry,

2006:15).

1.1  BACKGROUND OF THE STUDY

The issue of good corporate governance is therefore an imperative for ensuring successful corporate performance. Building good corporate governance as a shared responsibility among all stakeholders, each of whom may exert pressure to move an institution in a by slightly different direction. In this regard, although the mistivations of the various players are different, they can and should be mutually supportive.

In  a  global context,  corporate  Governance is  a  topical  issue  that gained prominence or momentum in United Kingdom towards the end of the last century. Many reports have been issued on this subject matter in UK and   around the globe. Some of these reports include Cadbury committee report, Greenbury report, the Hampel report, the  Tumbell committee report the King’s report ( so with Africa) Sarbane- Oxley Act  (USA)  and OECD Then in Nigeria we have Peterside  report, Bankers committee report, and CBN  report. Each of these reports camp up with different  suggestions on

the subject matter but  shared   almost similar definitions. (Okagbue and

Aliko, 2005).

Udoma (2008:1) in an annual conference reiterates that     a lot of emphasis in now being placed on corporate governance as a result of high profile   corporate   scandals locally and nationally. In Nigeria, corporate governance. Related case involving Cadbury Nigeria PLC represents a good example. The  response of the  securities  and Exchange commission was therefore aimed at enforcing best corporate governance   practices   in line with the    provisions of the Investments and  securities Act 2007, the SEC rules and regulations, the code of corporate governance  and international best practices.

The issue of corporate governance is also presently receiving priority attention from the securities  and Exchange commission which has set up a committee to review the code of corporate Governance. The  terms of reference of the committee include:

–   To  review    the  Nigerian corporate Governance code  for    public companies and to examine, in the light if recent experience   how effective   it   has   been   in   improving  the   quality   of   corporate governance.

–   To  identify  weakness  in,  and  constraints  to  good     corporate governance in public   companies in Nigeria and recommend appropriate measures to address such weaknesses and constraints

–   To  examine and recommend ways of effecting  greater compliance by public companies with the code, and

–    To examine and advise on any other issue relevant to promoting good corporate governance practices by public companies.

Subsequent to the above background, the international organization of securities commissions (10SCO), the standard setter for securities commission worldwide of which the Securities and Exchange Commission is a member, requires that all members foster good corporate governance the rough legislation, regulations and code of good corporate governance. The

10SCO position is among other things, intended to review the components of financial systems and ensure transparency and good governance. Essentially, its principles on market legislation are based on the three objectives which  are “investors  protection, ensuring  that markets are fair, efficient and transparent and the reduction of risks. (Udoma, 2008).

Okagbue  and  Aliko  (2005)  noted  that  Cadbury  report  defined corporate governance as the system by which companies are directed and controlled. While in 1995, Greenbury code went beyond Cadbury report to

stipulate, that directors remuneration and detailed disclosures are to be given in the annual report. In 1998, Hampel report made little modifications in the areas of duties of executive and non executive director’s shareholders and AGM, accountability, audit and reporting.

In another similar vein, corporate governance is describe as all the influence affecting the institutional processes including those for appointing the controlled and or regulations involved in organizing the production and sale  of  goods  and services. Describe  in  this  way,  corporate governance includes all types of firms whether or not they are incorporated under civil law.

Bob ticker in Al-faki (2006) defined it as essentially the exercise of power over the modern corporation (large and small) holding company and subsidiary listed and private. Wofensohin (the former World Bank president) defined corporate governance in terms of what have come to be generally considered as  the  principles of corporate governance. To  him corporate governance is all about promoting corporate fairness transparency and accountability.

Peterside committee (2003)  accepted the  definition of  the  subject matter as  “the  way and  manner  in  which the  affairs  of  companies are conducted by those charged with the responsibility, which has a positive link

to national growth an development; giving to the peculiarity and fragility in the banking business a special code of corporate governance for banks and other financial institutions in Nigeria was drafted by the bankers committee in 2003. The bankers committee defined it as being about “building credibility, ensuring transparency and accountability as well as maintaining an effective chain of information disclosure that would foster good corporate performance.

Unegbu  (2005)  mentioned  as  modern  corporate  governance,  he defined it as laws and regulation that affect the private ordering to corporate activities necessary for efficient competitive performance and far treatment of those who depend on the corporation an dare impacted by it’s action. Another school of thought defined corporate governance as being concerned with low company is structured and controlled internally to ensure that the business is run lawfully and ethically with due regard to all stakeholder (Alfaki, 2006).

Ariemena (2005) sees corporate governance as being a concept which ensures that organizations is ran in a responsible manner for the long run survival within the environment it operates and for the overall well being of the economic system. According to him, the effect of this concept expounds into the wider economic system.

In a board culture of corporate governance business author Gabrielle O’Donovan defines corporate governance as “ an internal system encompassing policies processes and other stakeholders by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external market  place  commitment and  legislature plus  a  healthy board culture which safeguards policies and processes.

O’Donovan goes on to say that the perceived quality of a company’s corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets legislation and other   external   market   forces   plus   how   policies   and   processes   are implemented and how people are led. External forces are, to a large extent outside the circle of control of any board. The internal environment is quite a different matter and offers companies the opportunity to differentiate from competitors through their board culture (O’Donovan, 2003:2)

Report of SEBI committee (India) on corporate governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to

values, about ethical business conduct and about making a distinction between personal and corporate funds in the management of a company.

In a general note corporate government in its reunification is used as a system of structuring operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders creditors employees customers and suppliers and complying with the legal and regulatory community needs. A times it looks into the ethics and a moral duty. A critical analysis of the definitions reveals that corporate governance is all about the way and manner the corporate organization is to be performed principally by the board and other stakeholders. It seeks to establish and moderate relationship between boards and their shareholders company regulation and other stakeholders. It also ensures a proper and efficient system of regulating directors so as to restrain them from abusing their powers.

Therefore, as this study designed to investigates critically the principles of good corporate governance and best practice recommendation in Nigeria listed companies; regulation, commitment and compliance. A side look on this  construct  is  targeted  to  underscore  the  characteristics, operability’s activities and convergences in mutual respect that undermine the establishment in execution and culture of interaction within their business

objectives. In  every establishment the  first  major step  in  creating good governance is for all players to mutually agree on the common corporate goals which must be specific, explicit and consistent. In the process there will be trade off and delicate balancing of various interest groups. But once the goals are determine and the respective roles of the various players are explicably defined there should be an incentives structure and sanctions which must be effectively monitored and enforced.

1.2  STATEMENT OF PROBLEM

The recent wide spread of corporate scandals and failures had their root in dishonest management decisions and in some cases outright cover- ups of illicit activities and has brought to the fore the role which the pursuit of narrow group interests played in wrecking these corporations and consequently the lives of millions of innocent citizens who has stake in them. It is also against this back up of that there is now need for a global commitment to pursue and promote good corporate governance practices in corporations  all  over  the  world  and  with  it  came  the  establishment of standards which corporations and countries are encourage to adopt. It needs to be emphasized here that balancing stakeholders interests goes beyond protecting the interest of shareholders in an individual organization.

Indeed, it revolves around embracing good corporate governance that sets the rules and practices that govern the relationship between managers and shareholders of corporations as well as stakeholders like the public employees  pensioners  and  local  communities  while  at  the  same  time ensuring transparency fairness and accountability. In Nigerian scene the corporate governance is challenged with issues like, weak capital base, gross insider abuses resulting in huge non-performing loans and credits, late or non-publication of annual accounts that obviates the impact of market discipline in ensuring baking soundness, weak corporate governance, inaccurate  reporting  and  non-compliance  with  regulatory  requirements falling ethics and de-marketing of other banks in the industry, erosion of the confidence of the public and very poor global rating.

Uche (2001b) summarily insinuated that incidence of fraud and unethical practices were behind the debacle of these banks and other institution. Persistent fraud and unethical issues are then the indices of weak corporate governance. Thus, weak corporate governance has been a hydra- headed problem to the industry over since the emergence of indigenous bank. Many recipes have also failed to strengthen the integrity and enthrone ethical practices. Weak corporate governance is the most disturbing issue in the industries today. Especially in banking industry now that mega banks

have emerged from the consolidation more challenges are posed to corporate governance because failure of a large bank could cause systemic problems.

The pressure is high now because failure of the industry is tantamount to  the  collapse  of  the  entire  economy.  This  is  so  because  the  listed companies (blue chip) are the driver of the economy. Failure of them could mar the perception of the whole public and international investors.

1.3  OBJECTIVES OF THE STUDY

The key objectives of this study were as follows:

1.  To investigate whether the corporate governance practice is in any form balancing stakeholder interest.

2.  to ascertain the fairness, transparency and accountability of returns given to shareholders of the Nigerian listed companies.

3.  to  determine  the  extent  of  compliance  and  commitment of  listed companies to the codes

4.  to perform a comparative study of how value added is distributed to the various stakeholders as regards the regulation of the governance.

5.  to establish how equitable is the returns of the shareholders among the listed companies in Nigeria

1.4     RESEARCH QUESTION

The research questions for the study are as follows

1.  How is the good corporate governance practice be practilized by your firms in balancing of stakeholders interest

2. to  what  extent  is  fairness,  transparency  and  accountability operationlized in returns given to shareholders as recommended by the principles?

3. how adequate is the compliance and commitment of the listed companies to the codes?

4.  how is the relativity of value added of listed companies distributed among the stakeholders as regards the reputation of the governance?

5.  how realistic is the equitability of the returns shareholders of Nigerian listed companies over the years?

1.5    SIGNIFICANCE OF THE STUDY

Corporate governance in Nigerian listed companies is a pertinent issue especially in the post consolidation period and quest for organization to expand or diversity and equally where mega banks have emerged and suit compliance to the code is mandatory to shield against persistent systemic distress. Good corporate governance and best practice recommendation is not  an end  in  itself but  a  means. It  is  not  about  strict  policing of  the managers who are company agents, the bottom line  matter is  about the

superior corporate performance based on a reasonable cost and mutual supportive.

However, this study attempt striking an appropriate balance between various stakeholders interests as prerequisite for the integrity and credibility of market institutions. To facilitates the building of confidence and trust that allow corporation access to external finance and to make reliable commitment to creditors, employees and shareholders.

It is notably imperative to restore and rebuilt the public trust and confidence through the outcome of this study it will also serve as reference point to the scholars students and the like at all time.

Finally, its recommendations and suggestions may act as terms of reference to any further review of this codes.

1.6 SCOPE OF THE STUDY

The subject matter is a broad and complicated type. The complication lies in the secrecy of the real account of what actually happen at the board and management levels. The insiders and the insiders alone knows the depth. The cases abound of creative account bodies and to the public. This level of window dressing or inflated reporting conceals the extent of bank mismanagement which may not be apparent to the whistle blower and to the

regulator. Fact finding and investigation in this study will not go beyond the published reports of bank.

This study will x-ray the good corporate governance of the Nigerian listed companies. The study will draw its conclusion based on 2000-2005 years  comparative  analysis  of  samples  drawn  from  Nigerian  and  non- Nigeria banks insurances conglomerate breweries food and beverages and petroleum companies. The criteria for the selection will be discussed in chapter three of this study.

1.7 LIMITATIONS OF THE STUDY

The corporate governance in the Nigeria situation is a contemporary issue in the industry and as such not much has been written about the topic in   the   Nigerian   perspective.   So,   sourcing   of   materials      (relevant information) was an onerous job (that is paucity of information).

In addition, more thorough analysis of the subject matter will require the availability   of undiluted financial and non-financial details about the industry. In Nigeria, it is a well known fact that   companies misrepresent facts  and  figures  so  as  to  conceal  abuses  and  unprofessional practices interest in the industries.          Therefore,  total  reliance  on  the  published facts may limit the chances of optimum result in the research.

Again, the researcher is limited by the time constraints  and financial in capacitating were important limiting factors to this research.

1:8   DEFINITION OF RELATED TERMS Corporate Governance:

O’ Donovan in Aboard culture of corporate Governance defines corporate governance as an internal system encompassing policies, processes and people, which serves the needs of shareholders and  other stakeholders by  directing  and  controlling  management  activities  with  good  business savvy, objectivity, accountability and integrity.

Executive Director:

King 11 defines a director    as a person who involved in the day-to-day management and/or in the full time employee of the company, and /or any of its subsidiaries.

Non- Executive Director:

Primarily  is  a director that is not involved in the day to day management of the company and  not a full time salaries employee of the company or any of its subsidiaries.

Non- Executive Independent Directors:

CBN (2006) defines  directors as those who do not represent any particular shareholder interest and hold no special business interest with the bank and are appointed by the bank on merit.

Banker is committee defines it as such directors who has other relationship with management  which could materially interfere with the exercise of no significant   financial or personal   ties   to management   is free from any business or his/her independent judgment, and  receives  no compensation from institution other than directors    remuneration or shareholders dividends.

King  11,  defines  a  non-executive  director  as  director  who  is  not  a representative of a shareholder and who has  not  been employed by the company in any executive capacity for the preceding three financial years. Compliance

Compliance   is describes as either a state of being in accordance with established guidelines, specifications or legislation or the process of becoming so (http: //searchdatamanagement. Techtarget.Co

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