Corporate Governance

Nigerian Code of Corporate Governance 2018: necessity or superfluity? | Teingo Inko – Tariah

by Legalnaija | Jan 25, 2019 | Uncategorized

Preamble

Plans to harmonize the
corporate governance legal framework in Nigeria began in January, 2013 when a
Steering Committee on National Code of Corporate Governance was commissioned to
harmonize and unify all existing sectoral codes in Nigeria. Consequently, in
2016, the Financial Reporting Council of Nigeria (FRCN) published a draft
3-part National Code of Corporate Governance for the private, public and the
non-profit sectors in line with sections 11(c), 50 & 51 of the Financial
Reporting Council of Nigeria Act, 2011. The code for private sector was
mandatory but did not specify any commencement or effective date. The non-profit
sector code was stated to commence on October 17, 2016 on a “comply or justify
non-compliance” basis while that of the public sector was to take effect upon
the receipt of an executive directive from the Federal Government without a
specified approach in terms of operation and application. Related blog posts on
the 2015 code can be found here and here.

Following controversies
that trailed the provisions of the 3-part 2015 code including conflict with
existing law, the code was suspended by the Ministry of Industry, Trade &
Investment, the supervising Ministry for the Financial Reporting Council of
Nigeria pending a “detailed, review, extensive consultation with stakeholders
and reconstruction of the Board of the Financial Reporting Council”.
Consequently, the Nigerian Stock Exchange issued a circular on suspension of the frc code of corporate
governance.

On Tuesday January 15,
2019, the Vice-President of Nigeria, Prof. Yemi Osinbajo and the Minister for
Industry, Trade & Investment, Dr. Okechukwu Enelamah unveiled the Nigerian
Code of Corporate Governance 2018. Below are some highlights of the content of
the new code.

Overview of the 2018 Code

Purpose

The purpose of the 2018
code is to institutionalize corporate governance best practices in Nigerian
companies and to promote public awareness of essential corporate values and
ethical practices that will enhance the integrity of the business environment.
It is expected that by adhering to the principles articulated in the Code,
companies will demonstrate a commitment to good governance practices thereby
increase transparency, trust and integrity, and create an environment for
sustainable business operations. Consequently, this will rebuild public trust
and confidence in the Nigerian economy, thus facilitating increased trade and
investment.

Applicability/scope

The Code is applicable to companies of varying sizes and complexities
across industries/sectors. This will include public and private companies. The
Code recognizes existing sectoral codes viz:

1.
Code of Corporate Governance for the
Telecommunication Industry 2016, issued by the Nigerian Communications
Commission (replaced 2014 NCC Code);

2.
Code of Corporate Governance for Banks and
Discount Houses in Nigeria 2014 issued by the Central Bank of Nigeria (replaced
2006 CBN Code);

3.
Code of Corporate Governance for Public
Companies in Nigeria 2011 issued by the Securities and Exchange Commission
(replaced 2003 SEC Code);

4.
Code of Good Corporate Governance for
Insurance Industry in Nigeria 2009 issued by the National Insurance Commission;
and

5.
Code of Corporate Governance for Licensed
Pension Fund Operators 2008 issued by the National Pension Commission.

However, the Code does
not specify whether or not these codes would be subject to its provisions or
would be applied side-by-side with them. Worthy of note also are the recently
released codes of Corporate Governance by the Central Bank of Nigeria in 2018 for
Bureau De Change operators, Primary Mortgage Banks, Finance Companies,
Micro-Finance Banks, Development Finance Banks and Mortgage Re-finance
companies. These codes have been tailored to suit the various types of
financial institutions mentioned but there is no mention of these new set of
codes released by the Central Bank of Nigeria.

Approach/Model

The 2018 code adopts a
principles based ‘Apply and Explain’ approach which requires companies to show
how the specific activities undertaken by them best achieve the outcomes
intended by the principles of the Code. Thus, companies are expected to adapt
the principles to suit their type, size and growth phase.

Structure of the Code

The Code comprises of 6
parts: A – F, 28 principles and over 200 recommended practices. Each Part deals
with a broad aspect of corporate governance which is broken into principles and
recommended practices as follows:

Part A: Board of
Directors and officers of the Board

Part B: Assurance – risk
management, internal & external audit, whistle-blowing

Part C: Relationship with
shareholders – General meetings, continuous dialogue, equitable treatment and
shareholder protection.

Part D: Business conduct
with Ethics – values, conflict of interest, etc.

Part E: Sustainability –
attention to sustainability issues including environmental, social,
occupational, community health and safety.

Part F: Transparency –
disclosure.

Monitoring &
Implementation

The FRCN is saddled with
the responsibility of monitoring implementation of the Code. This will be done
through sectoral regulators and registered exchanges who are empowered to
impose appropriate sanctions based on specific deviation noted and the affected
company. In addition, the FRCN may conduct reviews on implementation of the
code where deviations recur and adopt other monitoring mechanisms as a result
of such reviews. Where necessary, the FRCN in consonance with relevant
regulatory agencies may issue corporate governance guidelines to aid
implementation of the Code in line with sectoral peculiarities.

Comment/Conclusion

The 2018 Code of
Corporate Governance appears to have deviated from the original goal of
harmonizing and unifying all existing sectoral codes in Nigeria. Rather, the
2018 code adds to the number of existing codes of corporate governance in
operation as listed above. However, since the 2018 code will operate more of a
principles than rules based approach, unlike the 2015 code, companies may not
face an additional burden of penalties and sanctions for deviation from the
code.

Unlike the 2015 code, the
2018 code has adopted a different approach from the rules based model as there
are no express sanctions for non-compliance. There seems to be some uncertainty
as to the model of corporate governance to be adopted. Most of the sectoral codes
are rules based with sanctions for non-compliance. It is believed that this
will impact on implementation and assessment.

One wonders how the
implementation of the 2018 code will fare especially as the FRCN hopes to work
through other regulators and exchanges in this regard. The Securities &
Exchange Commission has an existing code and currently, this forms the basis
for assessment of the corporate governance parameter of the index created by
the Nigerian Stock Exchange in conjunction with the Convention on Business
Integrity (CBi). The telecoms, financial and insurance sectors, among others,
also have codes of corporate governance.

Although the Executive
Director of the FRCN reportedly stated that
the codes of Corporate Governance by the Central Bank of Nigeria and Securities
and Exchange Commission will serve as guidelines when the 2018 code takes
effect in January 2020, there is no clear expression in the code of how it will
stand with the existing sectoral codes in terms of which will supercede where
there is a conflict. Moreover, there are other sectoral codes not mentioned.
Will the regulatory bodies or exchange implement this new code of corporate
governance along with their respective codes? How feasible is it to implement
and monitor compliance with two parallel codes?

Overall, the multiplicity
of codes may end up becoming a burden for companies on one hand and for
investors who wish to gauge their integrity and accountability on the other
hand. It may be necessary to have some form of harmonized system to standardize
corporate governance best practices in Nigeria. In the alternative, the new
code could be made applicable to companies other than those with sector
specific codes.

You can download a copy
of the 2018 Nigerian Corporate Governance Code here nccg 2018

Source: Legally Yours

How corporate governance can affect Nigeria’s development | Olajide Olutuyi

by Legalnaija | Jul 31, 2017 | Uncategorized

Corporate
Governance is not just about how a company is directed and controlled to
maximize performance and ensure accountability to stakeholders. Better
governance practices and processes have become imperatives for both national
and global economies. A company that is run very efficiently and responsibly
will perform very well and ultimately contribute to strengthening the economy.

Public,
private and non-profit organisations all need to be governed – apart from
day-to-day management of the entities by their executive teams. Corporate
governance is the responsibility of the governing body, or board of directors
in the case of companies.

The
first corporate governance codes were introduced in December 1992 in response
to corporate failures in the United Kingdom. A report, known as the Financial
Aspects of Corporate Governance, was produced by a committee headed by Sir
Adrian Cadbury. Now referred to as the Cadbury Report, the report significantly
influenced corporate governance thinking around the world. Other countries
followed suit, France (Vienot Report, 1995); South Africa (King Report, 1994);
Canada (Toronto Stock Exchange recommendations on Canadian board practices,
1995); The Netherlands Report (1995); and Hong Kong (a report on corporate
governance from the Hong Kong Society of Accountants, 1996). These reports
tried to forestall the abuse of power by corporate entities.

But
at the turn of the 21st century, the world began to experience some corporate
challenges, which led to the review of corporate governance practices. One of
the widely-recognised outcomes of these efforts was the United States’
Sarbanes-Oxley Act of 2002, also known colloquially as SOX. The Act requires
certification of internal auditing, increased financial disclosure, and it also
imposes criminal penalties on directors for non-compliance. SOX is considered
one of the most influential pieces of corporate legislation in the world. It
was built on the idea that corporate governance should not be left to the
discretion of directors of companies and their chief executives.

Nigeria
also has its fair share of corporate governance history. Before the 1990s, the
principal company law in Nigeria was the Companies Act 1968, which was modelled
after the Companies Act 1948 of the United Kingdom. The law was repealed and
replaced by the then Companies and Allied Matters Decree No. 1 of 1990. There
were several modifications over the years but the principal statute regulating
companies in Nigeria today is the Companies and Allied Matters Act Cap. C20,
2004. The current statute was the product of a rigorous process led by the
Nigerian Law Reform Commission.

The
first corporate governance code in Nigeria was the Code of Corporate Governance
for Banks and Other Financial Institutions in Nigeria. It was issued by the
Bankers Committee in August 2003. The regulation was introduced in response to
the financial crisis of the 1990s. The 11 principles of the regulation focus on
appointments, board proceedings, board responsibilities, assessment and audit
committees. Unfortunately, this code did not have much impact.

Analysts
have attributed the lack of impact to the issuance of another legislation by
the Securities and Exchange Commission (SEC) two months after the Bankers
Committee had issued its corporate governance code. In October 2003, SEC’s
17-member committee, headed by Atedo Peterside, issued the Code of Best
Practices on Corporate Governance in Nigeria. The SEC code emphasised the role
of the board of directors and management; shareholder rights and privileges;
and the audit committee. Not only was the code influential, it was also the
first to be issued by any regulator in the country.

Although
the SEC code presented some sweeping reforms, it was soon found to be
inadequate in addressing new challenges. Therefore, in 2006, the Central Bank
of Nigeria (CBN) issued its Code of Corporate Governance for Banks in Nigeria
Post Consolidation. This code was introduced to ensure accountability on the
part of bank CEOs. It specifies fines and penalties, including jail terms for
erring CEOs. It prescribes risk management measures within the organisation,
particularly emphasising the role and qualification of a company’s internal
auditor.

The
National Pension Commission (PENCOM) issued its own code in 2008, known as the
2008 PENCOM Code. Subsequently, the National Insurance Commission (NAICOM)
issued its Code of Corporate Governance for the Insurance Industry in 2009.
These three industry-specific codes were meant to address the issues that were
not addressed in the SEC legislation.

However,
in 2011, SEC released the Code of Corporate Governance for Public Companies in
Nigeria, which effectively replaced its 2003 legislation. This latest law was
adjudged at the time as the most comprehensive corporate governance code in
Nigeria. The code is anchored on five main principles, which include:
leadership, effectiveness, accountability, remuneration and relations with
shareholders.

A
new study jointly published by the Association of Chartered Certified
Accountants (ACCA) and KPMG places Nigeria among the top five countries in
Africa for compliance with the Organisation for Economic Co-operation and
Development (OECD) Principles of Corporate Governance. The report examines the
corporate governance requirements for listed companies in 15 African countries
against the four tenets of corporate governance as underpinned by the OECD
Principles. The countries were ranked based on the principles, which include
leadership and culture; strategy and performance; compliance and oversight; and
stakeholder engagement. Nigeria came behind South Africa, Kenya and Mauritius –
but ahead of Uganda in the top five bracket.

Despite
these developments, Nigeria lags behind countries like the United Kingdom in
terms of corporate governance codes, policies and enabling laws. The UK,
through the Financial Reporting Council, regularly reviews and updates the
country’s corporate governance codes, principles and best practices. The
regulator promotes high standards of corporate governance to foster investment.

The
establishment of the Financial Reporting Council of Nigeria (FRCN), through the
Financial Reporting Council Act 2011, was widely praised. The Directorate of
Corporate Governance of the FRCN has the responsibility to develop principles
and practices of corporate governance. The directorate can act as the
coordinating body responsible for all matters pertaining to corporate
governance in Nigeria. Unfortunately, the council’s attempt to overhaul the
country’s corporate governance framework to encourage more disclosure and
better governance practices was scuttled last year.

One
issue bedevilling Nigeria’s corporate governance landscape is the multiplicity
of overlapping legislations. The council tried to address this issue and unify
the sectoral corporate governance codes with the National Code of Corporate
Governance 2016 (NCCG), released in October 2016. The NCCG – which provides
corporate governance legislation for private and public sectors as well as
not-for-profit organizations – was suspended by the federal government in
November following stiff opposition from various stakeholders. In suspending
the code, the Minister of Industry, Trade and Investment, Okechukwu Enelamah,
also issued a query to the FRCN for overreaching itself and to essentially explain
the rationale for the legislation.

While
the political leverage of religious organisations was apparent in the
suspension of FRCN code, it is important to state that the corporate governance
of charitable organisations, especially religious bodies, needs urgent
attention. At the very least, if implemented, the code would foster
transparency in the management of these organisations that are becoming
behemoths in the country. Effective and frequently updated corporate governance
codes are required for a developing country like Nigeria to overcome its
development challenges.

Data
indicates that Nigeria has lost 75 banks since the advent of banking since
1914. There is evidence suggesting that these bank failures were largely due to
weaknesses in corporate governance. A CBN and Nigeria Deposit Insurance
Corporation (NDIC) study of distress in the Nigerian financial services sector
(October 1995) provides the following data, showing the factors that cause
distresses in the banking industry: Economic depression (25%); political crises
(17.9%); bad credit policy (25%); undue interference by board members
(corporate governance) (32.1%).

In
a report presented to the Global Corporate Governance Forum in 2003, Stijn
Claessens, Professor of International Finance at the University of Amsterdam,
identified several channels through which corporate governance affects the
growth and development of a nation. According to him, “The ﬁrst is the
increased access to external ﬁnancing by ﬁrms. This in turn can lead to larger investment,
higher growth, and greater employment creation. The second channel is a
lowering of the cost of capital and associated higher ﬁrm valuation. This makes
more investments attractive to investors, also leading to growth and more
employment. The third channel is better operational performance through better
allocation of resources and better management. This creates wealth more
generally.

“Fourth,
good corporate governance can be associated with a reduced risk of ﬁnancial
crises. This is particularly important, as ﬁnancial crises can have large
economic and social costs. Fifth, good corporate governance can mean generally
better relationships with all stakeholders. This helps improve social and
labour relationships and aspects such as environmental protection. All these
channels matter for growth, employment, poverty, and well-being more generally.
Empirical evidence using various techniques has documented these relationships
at the level of the country, the sector, and the individual ﬁrm and from the investor
perspectives.”

Despite
the flaws of the NCCG, the unintended consequence of its suspension is the
potentially negative impact on investment in the country. The effect of
corporate governance on the overall development of an economy cannot be overemphasised.
In his foreword to the Claessens’ report, Sir Adrian Cadbury said of the
significance of corporate governance for the stability and equity of society:
“The aim is to align as nearly as possible the interests of individuals, of
corporations, and of society. The incentive to corporations and to those who
own and manage them to adopt internationally accepted governance standards is
that these standards will assist them to achieve their aims and to attract
investment. The incentive for their adoption by states is that these standards
will strengthen their economies and encourage business probity.”

It
is for the sake of bolstering investor confidence and attracting foreign
investments in Africa’s largest economy that the International Finance
Corporation (IFC) and SEC jointly developed and launched a Corporate Governance
Scorecard for publicly-listed companies in the country.

Efforts
should be made to quickly resolve the issues with the FRCN harmonised corporate
governance code for Nigeria. Moreover, the council should be provided the
independence it needs to function effectively and promote higher standards of
corporate governance and reporting in the public, private and non-profit
sectors.

@jideolutuyi

Olajide
Olutuyi

Senior Financial Analyst at Scouts Canada

This
article was first published here

New CBN Guidelines For Banks On The Treatment Of Dishonoured Or Dud Cheques – Bolanle Oduntan, Esq.

by Legalnaija | Sep 1, 2016 | Uncategorized

The Central Bank of
Nigeria has issued new guidelines to all banks on dishonoured or dud cheques.
It is instructive for individuals and businesses to understand these guidelines
which take effect from 28th June, 2016 and the consequence of issuing dud
cheques.

As reported in the media,
the CBN has installed additional regulatory measures against the issuance of
dud cheques by individuals and corporate customers in other to strengthen the
confidence and integrity of negotiable instruments issued within the country.
The key points to note in the new CBN Guidelines are that all banks are
mandated to;

1.
Perform status check on all potential
customers to ensure they are not dud cheques issuers before granting credit
facilities to them or opening an account for them,

2.
Forward the details of cheques issued by a
customers and returned “insufficient funds” whether presented over the
counter or through a licensed Credit Bureaux and the Credit Risk Management
System (CRMS) on monthly basis,

3.
Cancel all unissued cheque books of
customers who have issued dud cheques three (3) consecutive times or more
across banks, and

4.
Prevent all inter-bank cheques issued by such
customer for a period of five (5) years.

The guidelines also
provides that the details of offending customers will be listed in the database
for a period of five (5) years from the date of submissions after which the
name will be eligible for removal. Also subsequent default following a removal
of an offenders name from the list will attract a permanent listing of such
defaulter in the Credit Bureaux database and such defaulter can only be removed
from the listing with the approval of the Central Bank.

It is also worth noting
that, the principal legislation criminalising the issuance of dud cheques
is the 1977 Dishonoured Cheques (Offences) Act. The rather
brief law makes it an offence for any person anywhere in Nigeria to induce
the delivery of any property or to purport to settle lawful obligations by
means of a cheque which when presented within a reasonable time is dishonoured
on the grounds that no funds or insufficient funds were standing to the credit
of the drawer of the cheque. This law has however been sparsely tested with the
sad consequence that there are professional debtors who obtain services under
the pretense that the cheques they issue will consequently be honoured by the
banks.

The crux and key
provisions of the Dishonoured Cheques (Offences) Act are as follows:

1.
Section 1
of the Act makes it an offence to obtain delivery of goods or credit by means
of a cheque that, when presented for payment not later than three months
after the date of the cheque, is dishonoured on the ground that no funds or
insufficient funds were standing to the credit of the drawer of the cheque in
the bank on which the cheque was drawn;

2.
An individual found guilty of this crime is
liable to imprisonment for two years, without the option of a fine;

3.
A body corporate found guilty of this crime
is liable to be sentenced to a fine of not less than N5,000. Note that a
minimum fine is prescribed by the law; a judge may apply discretion to increase
the fine applicable on a case by case approach; and

4.
The Act in Section 2 however
provides for the lifting of the corporate veil where the offence involves a
body corporate. It provides that “where the offence is committed by a body
corporate is proved to have been committed with the consent of or connivance
of, or to be attributable to any neglect on the part of any director, manager,
secretary or other similar officer, servant or agent of the body corporate (or
any person purporting to act in any such capacity), he, as well as the body
corporate, shall be deemed to be guilty of the offence and may be proceeded
against and punished in the same manner as an individual.”

For businesses in general,
one of the factors considered when investors seek out promising ventures to
invest in, is the creditworthiness of the business (and in some cases that of
it key principal actors such as directors and principal members). What
creditworthiness says about a company is a company’s ability to meet its
financial obligations and pay its debts and the main way to improve on
creditworthiness is to pay bills and meet financial obligations on time.
Issuing a dud cheque is certainly not a way to achieving this.

At a time when direct and
foreign portfolio investment has plunged, importation of foreign capital
declined to a low of $647.1 Million in the 2nd Quarter of 2016 (according to Financial Times) and with the country officially in a
recession, it is important to note that future investments in Nigeria (when we
are able to come out of this recession) will come with even tougher scrutiny
and due diligence by investors, commercial banks and prospective business
partners.

The truth is that being a
serial debtor with an open display of opulence, is fast becoming an acceptable
trend. Start-ups looking to raise capital investment will among other
considerations undergo even greater scrutiny; not just the business
operations and financials but also its principal members to determine the
viability of prospective investments.

Five years is a long time
to have an individual or a corporate entity listed as an issuer of dude
cheques, in other words, as a person or organisation that chronically does not
honour its financial and business obligations. A lot of business goodwill and
credibility can be lost within this period with deep financial consequences.

Large businesses already
have internal credit rating systems, this move will go further by providing an
even larger pool of data to work with. Finally, this move by the CBN, coupled
with existing BVN infrastructure will ultimately help with a better enforcement
of existing laws as the appropriate prosecuting agencies will have a credible
list of offenders for prosecution.

***
‘Bolanle Oduntan is a corporate lawyer, litigator and ADR
practitioner. He advises start-ups, SMEs, multinational companies and
provides legal support and expertise. He practices in Lagos the commercial
capital and business nerve center of Nigeria and indeed West Africa.

**
If you have any question about this post, please contact ‘Bolanle,
your solicitors or financial advisers.

*
This article does not constitute legal or financial advice nor does it create a
contract between the reader and the writer.

Ed’s Note – This article
was originally published here.

Photo Credit – here

Regulatory Compliance: A panacea to dysfunctional Corporate Governance by Opeyemi Adagbada

by Legalnaija | Apr 2, 2016 | Uncategorized

Often times, ‘Governance’
refers to the action and manner of governing. Corporate governance is the
mechanism and process which companies and corporations are governed. It is
primarily concerned with balancing the interest of stakeholders- which includes
government, financiers, shareholders, management and the community at
large.

Corporate Governance can
also be said to be the examination of the control of a company as exercised by
its directors. The directors of companies are accountable for their actions to
the company’s shareholders and other members of the company. However, in
practice, the power of the shareholders to affect the behaviour of the
directors is limited and rarely exercised.

The issues of corporate
governance have continually attracted considerable national and international
attention. The current global financial meltdowns have necessitated the need
for a critical focus on corporate governance.

On the other hand,
Regulatory Compliance is an organization’s adherence to laws, guidelines
and regulation and specifications relevant to its business. However, violations
of regulatory compliance regulations often result in sanctions which may also
include fines. These sanctions are always imposed by regulatory bodies in
accordance to statutes.

Corporate Governance is an
increasingly significant aspect of business and organizational management,
extending to international politics and trade laws; and to globalized
economics, corporations and organizations, and markets. In Nigeria, the laws
that saddle each organization with the responsibility of corporate governance
are the Companies and Allied Matters Act 2004, Investment and
Securities Act 2007, Securities and Exchange Commission 2011.

The major elements of
corporate governance are good board practices, control environment, transparent
disclosure, well defined shareholder rights and board commitment. The four
pillars of corporate governance are accountability, fairness, transparency and
independency (Omeiza Michael, 2009). Where any of these four pillars are
lagging, there is every tend to a fall in the organization which often results
to corporate scandals and failures.

According to Sanusi
(Sanusi JO (2003), “Embracing Good Corporate Governance Practices in
Nigeria ”, A keynote address at the 19th Annual Bank Directors seminar
organized by the Financial Institute Training Centre, June 19, Abuja); the
widespread of corporate Scandals and failures that were witnessed in the Late
1990s and the early 2000s had their root in dishonest management decisions and
in some cases, outright cover-ups of illicit activities. These, he said, had
wrecked many companies and consequently, the lives of millions of innocent
citizens who had a stake in them. A typical example of this is
the gross financial misconduct committed by the former managing
directors of commercial banks. Regulatory bodies such as the Nigerian Stock
Exchange (NSE) and the Nigerian Securities and Exchange Commission (SEC) were
found to have committed serious breach of corporate governance codes.

The development of codes for
best practice and stricter regulatory regimes which corporations are subjected
to adhere was resulted to the largest extent from scandals and setbacks, where
evidence of bad corporate governance has emerged which resulted in negative
consequences in company’s share prices and the stock market generally.

The benefits of being
statutory and legally compliant include adequate disclosures and effective
decision making to achieve corporate objectives; Transparency in business
transactions; Protection of shareholders’ interests; Commitment to values and
ethical conduct of business and long-term survival of the companies.

Part of the key elements
of corporate governance also tolls down to financial reporting and auditing,
directors’ remuneration, the balance of power on the board of
directors, risk management and communications between company and shareholders.

Often times, investors
have been concerned with governing policies of a corporation. The concerns of
investors most times are about misleading financial statements and this has
been a major factor in the development of corporate governance in recent years.
Financial statements can be misleading, due to the selection of inappropriate
accounting regulatory policies. Many companies choose not to allow their
accounts department give a transparent report on the company’s performance and
financial situation. Contrary to general opinion, directors are responsible for
the accuracy of the financial statements, not the external auditors. The
external auditors provide an opinion on whether the financial accounts appear
to provide a true and fair view of the company’s performance and financial
position (Brain Coyle (2009) Sixth Edition Institute of Chartered Secretaries
and Administrators UK Study Text in Corporate Governance).

The annual report and
accounts of a company (and the interim financial statements of a listed
company) is the principal way in which the directors make themselves
accountable to the shareholders. The financial statement shows a report on the
financial performance of the company over the previous year and the financial
position of the company as at the end of that year. The directors’ report and
other statements published in the same document provide supporting information,
much of it in a narrative than numerical form. For larger companies, the annual
financial statements and elements of annual report are audited by a firm of
independent external auditors. Shareholders and other investors use the
information in the annual report and accounts to assess the stewardship of the
directors and the financial health of the company.

Compliance with relevant
accounting policies eliminates the risk of misleading or false financial
reporting, enhances the integrity of the external audit process, places emphasis
on effective communication and disclosure , facilitates accountability and
transparency which have a direct impact on the company’s performance and the
calibre of investors attracted to an organization. Good corporate governance is
very important because of its role in attracting foreigners and investors to a
company.

Succession Planning,
Induction and Training of Directors Policy;

The board is required
to put plans in place for orderly succession for appointment to the
board and to senior management, so as to maintain an appropriate balance of
skills and experience within the company and on the board, and to ensure its
effectiveness The board is required to establish a formal orientation program
to familiarize new directors with the company’s operations, strategic plan,
senior management and its business environment, and to induct them in their
fiduciary duties and responsibilities which is beneficial to the Company’s
Operations and performance and enhances the efficiency of the Board of
Directors (Rules 18 & 19 of the Securities and Exchange Commission ‘s Code
of Corporate Governance for Public Companies 2013.)

The board of directors
have a responsibility to govern the company in the interest of the shareholders
and other stakeholders. A part of this responsibility is to decide the
objectives and strategic direction for the company, to approve detailed
strategic plans put forward by management, to monitor and review the
implementation of those plans. An important objective of a commercial company
is to make profit, and the company’s strategies should be directed toward this.
However, any business strategy involves taking risks and actual profit may be
higher or lower than expected. When very big risks are taken, a company might
even become insolvent and go out of business if actual event turn out much
worse than anticipated.

Bad corporate governance
can result in the insolvency and collapse of a company, and excessive
risk-taking is an aspect of poor governance. The board of directors should take
business risk into consideration when making its strategic business decisions.
The board of Directors are given the responsibility to choose policies that are
expected to be profitable, but should limit the risks to a level that is
considers acceptable. For example, when the board takes major investment
decisions itself or decides on corporate strategy, risks as well as expected
returns are properly assessed and thus are exposed to less reputational risk. A
company that is complaint with laws, rules and best practices have a higher
likelihood of achieving financial success.

“If a country does not
have a reputation for strong corporate governance practice, capital will flow
elsewhere. If investors are not confident with the level of disclosure, capital
will flow elsewhere. If a country opts for lax accounting and reporting
standards, capital will flow elsewhere. All enterprises in that country,
regardless of how steadfast a particular company’s practices, may suffer the
consequences. Markets exist by the grace of investors. And it is today’s more
empowered investors who will determine which companies and which markets stand
the test of time”Arthur Levitt, a former chairman of the
Securities and Exchange Commission commenting on the numerous corporate
scandals in the US in 2001, 2002).

Until recently, Corporate
Scandals were unheard of in Nigeria and even where they were reported, no known
deterrent sanctions have been meted out on the culprits. This is because
Nigeria lacks the necessary political and institutional framework to enforce
good corporate governance. Corporate governance is no longer a new concept
worldwide but a norm of corporate behavior and performance expectations.
Nigeria cannot differ in ensuring compliance.

Regulatory Compliance
enhances the stability and soundness of a company through improved corporate
performances, the effectiveness of boards and has an impact on the company’s
performance. Corporate governance is not just about playing “watchdog” over
management, it is more about enhancing corporate strategic choices,
acknowledging and responding to the interests and concerns of stakeholders,
developing and bolstering managerial competencies and skills and ultimately
protecting and maximizing shareholder wealth. In order for investors and
shareholders to be rest assured of protection against the malfeasance of
corporate managers in the companies and public institutions, governance must be
compulsory and compliance must be enforced.

Opeyemi Adagbada is a
lawyer with keen interest in Corporate law and Regulatory
compliance.

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