In the last few years Nigeria’s economy has been on the upward trend with the banking sector leading the way. Political stability, a growing middle class and foreign investment in the country are part of the many reasons why Nigeria’s banks have done so well. Ask anyone in the banking industry where the next emerging markets is, I believe Nigeria would be within the top ten countries to be mentioned. This is an interesting time for those living in the country, Nigerians living abroad and international observers who see Nigeria as an important player in the growth of the Africa economy. However, a cautious approach is needed to avoid the repeat of the Asian Financial Crisis in 1998.
Nigeria must improve its standard of corporate governance to woo investors’ confidence both in the country and internationally. The Central Bank of Nigeria (CBN) has identified weaknesses in Corporate Governance of Banks in the country and as a result developed a Code of Corporate Governance for Banks in April 2006. Prior to this, the Securities Exchange Commission in Nigeria (SEC), the regulatory authority of the Capital Market and Corporate Affairs Commission established the Code of Best Practices on Corporate Governance. However, the current codes either fall far short of international standard or fail to address the key principles which underpin International Corporate Governance ethos.
The International Corporate Governance Network (ICGN) who represents institutional and private investors, companies, financial intermediaries, academics and other parties interested in the development of global corporate governance practices, offer criteria in setting up good corporate governance (www.icgn.org). The ICGN approach aligns with Organization for Economic Cooperation and Development (OECD) Principles as a declaration of minimum acceptable standards for companies and investors around the world. Good corporate governance covers the following: Corporate Objectives, Communications and Reporting, Voting Rights, Corporate Boards, Board Remuneration Policies, Strategic Focus, Operating Performance, Shareholder Returns, Corporate Citizenship, and Corporate Governance Implementation.
According to estimates, as many as 8.6 million people in the country hold some bank equity. On current trend this is likely to rise as there are no alternative investments available. The main concern is that there is little or no investor’s protection. The focus of this report is on Corporate Citizenship and Corporate Governance Implementation. These two aspects of ICGN codes have not been taken seriously in the country. Banks in Nigeria are reporting impressive results but without appropriate corporate governance that addresses the adherence to all applicable laws of the jurisdictions in which they operate; the management that strive for active co-operation between companies and stakeholders and disclosure of policies on issues involving stakeholders, workplace and environmental matters, the ability to continue to create wealth, employment and to sustain a growing economy in the long run is at threat. Banks and other companies can improve the real economy by showing commitment to Corporate Social Responsibility (CSR) initiatives.
With more and more national firms going global, the importance of sound corporate governance is critical. Nigeria is not isolated on lack of sound corporate governance; this is a common occurrence in emerging markets. As you we recall, the 1998 Asian financial crisis demonstrated that the vital institutional architecture that underpins investor confidence simply did not exist in emerging markets as these markets offered little or no investor protection. Even in the developed economy, we have seen cases such Enron, WorldCom, Global Crossing and Long-Term Capital Management (LTCM). Adequate corporate governance policy will reduce the chances of such debacle to occur.
Operating locally or cross national requires corporate discipline. Concerns exist when companies are expanding into other territory, as without a sound ethics, social and moral responsibility, there is a risk of economy instability that may have long-term effect investor’s confidence. In the 1990’s the flow of equity into emerging markets which averaged $40 billion a year according to OECD, dived to zero in 1998. The capital flight carried enormous costs, not just for the investors who suffered substantial losses, but to the emerging markets themselves. This was a hard lesson to learn and it should be prevented from happening in Nigeria.
There are immense benefits for adopting and implementing CSR. Though from neo-classical economics paradigm, one could argue that organization main obligations is to optimize shareholders value by focusing on profit maximization. Also from accounting perspective, CSR may be considered as unnecessary costs that will reduce the bottom line profits as it can not be directly link to company’s performance. However, there are many benefits that can be reaped. These include but not limited to:
• Improved culture – increases motivation, loyalty and commitment of staff and reduces employee absenteeism for stress and illness. A motivated and committed workforce will have less appetite for fraudulent behavior.
• Reputation – CSR enhances the business image locally and builds a stronger brand image.
• Improved productivity – this comes from improved performance, innovation and creativity.
• Corporate responsibility – personal satisfaction from contributing to society.
• Customers/clients/investors – increases customer satisfaction and so they are more likely to repeat business.
• Personal development opportunities – leading to new skills and competencies being developed resulting in more staff being promoted from within and a reduction in recruitment costs.
James Wolfensohn the president of World Bank said that “Strong corporate governance produces good social progress,” he asserted. “Good corporate governance can make a difference by broadening ownership and reducing concentration of power within societies. It bolsters capital markets and stimulates innovation. It fosters longer-term foreign direct investment, reduces volatility and deters capital flight.”
Companies in Nigeria have proven ability to provide return on investment but at whose expense (employees, consumers and the environment). These are the question that needs to be answered and dealt with before expanding internationally. There is say that charity begins at home. To address this issue, public needs to be educated and be made aware of their rights. A focus group needs to be enacted to monitor non-compliance of code of best practices, and punish (financially) those firms that do not comply. Organizations that act on behalf of consumers, investors and employees rights would be a start to adopting adequate governance in the country.
There is no one perfect corporate governance codes, just there is no one perfect financial structure. The ultimate aim of a corporate governance structure is to be continually re-evaluated to adapt to changing times and needs. Foreign investors, Nigerian living abroad and international organizations are watching the development in Nigeria with interest. Nigerian government is working hard to eradicate corruption from the system at the macro level. This attitude and approach must be replicated and implemented at the micro level. The economic reform should not be left to the government alone. The banking industry as well as other corporate institutions needs to take initiative to promote corporate governance culture and focus on some of the issues addressed in this article in order to continue the growth in the country.
Nigeria must improve its standard of corporate governance to woo investors’ confidence both in the country and internationally. The Central Bank of Nigeria (CBN) has identified weaknesses in Corporate Governance of Banks in the country and as a result developed a Code of Corporate Governance for Banks in April 2006. Prior to this, the Securities Exchange Commission in Nigeria (SEC), the regulatory authority of the Capital Market and Corporate Affairs Commission established the Code of Best Practices on Corporate Governance. However, the current codes either fall far short of international standard or fail to address the key principles which underpin International Corporate Governance ethos.
The International Corporate Governance Network (ICGN) who represents institutional and private investors, companies, financial intermediaries, academics and other parties interested in the development of global corporate governance practices, offer criteria in setting up good corporate governance (www.icgn.org). The ICGN approach aligns with Organization for Economic Cooperation and Development (OECD) Principles as a declaration of minimum acceptable standards for companies and investors around the world. Good corporate governance covers the following: Corporate Objectives, Communications and Reporting, Voting Rights, Corporate Boards, Board Remuneration Policies, Strategic Focus, Operating Performance, Shareholder Returns, Corporate Citizenship, and Corporate Governance Implementation.
According to estimates, as many as 8.6 million people in the country hold some bank equity. On current trend this is likely to rise as there are no alternative investments available. The main concern is that there is little or no investor’s protection. The focus of this report is on Corporate Citizenship and Corporate Governance Implementation. These two aspects of ICGN codes have not been taken seriously in the country. Banks in Nigeria are reporting impressive results but without appropriate corporate governance that addresses the adherence to all applicable laws of the jurisdictions in which they operate; the management that strive for active co-operation between companies and stakeholders and disclosure of policies on issues involving stakeholders, workplace and environmental matters, the ability to continue to create wealth, employment and to sustain a growing economy in the long run is at threat. Banks and other companies can improve the real economy by showing commitment to Corporate Social Responsibility (CSR) initiatives.
With more and more national firms going global, the importance of sound corporate governance is critical. Nigeria is not isolated on lack of sound corporate governance; this is a common occurrence in emerging markets. As you we recall, the 1998 Asian financial crisis demonstrated that the vital institutional architecture that underpins investor confidence simply did not exist in emerging markets as these markets offered little or no investor protection. Even in the developed economy, we have seen cases such Enron, WorldCom, Global Crossing and Long-Term Capital Management (LTCM). Adequate corporate governance policy will reduce the chances of such debacle to occur.
Operating locally or cross national requires corporate discipline. Concerns exist when companies are expanding into other territory, as without a sound ethics, social and moral responsibility, there is a risk of economy instability that may have long-term effect investor’s confidence. In the 1990’s the flow of equity into emerging markets which averaged $40 billion a year according to OECD, dived to zero in 1998. The capital flight carried enormous costs, not just for the investors who suffered substantial losses, but to the emerging markets themselves. This was a hard lesson to learn and it should be prevented from happening in Nigeria.
There are immense benefits for adopting and implementing CSR. Though from neo-classical economics paradigm, one could argue that organization main obligations is to optimize shareholders value by focusing on profit maximization. Also from accounting perspective, CSR may be considered as unnecessary costs that will reduce the bottom line profits as it can not be directly link to company’s performance. However, there are many benefits that can be reaped. These include but not limited to:
• Improved culture – increases motivation, loyalty and commitment of staff and reduces employee absenteeism for stress and illness. A motivated and committed workforce will have less appetite for fraudulent behavior.
• Reputation – CSR enhances the business image locally and builds a stronger brand image.
• Improved productivity – this comes from improved performance, innovation and creativity.
• Corporate responsibility – personal satisfaction from contributing to society.
• Customers/clients/investors – increases customer satisfaction and so they are more likely to repeat business.
• Personal development opportunities – leading to new skills and competencies being developed resulting in more staff being promoted from within and a reduction in recruitment costs.
James Wolfensohn the president of World Bank said that “Strong corporate governance produces good social progress,” he asserted. “Good corporate governance can make a difference by broadening ownership and reducing concentration of power within societies. It bolsters capital markets and stimulates innovation. It fosters longer-term foreign direct investment, reduces volatility and deters capital flight.”
Companies in Nigeria have proven ability to provide return on investment but at whose expense (employees, consumers and the environment). These are the question that needs to be answered and dealt with before expanding internationally. There is say that charity begins at home. To address this issue, public needs to be educated and be made aware of their rights. A focus group needs to be enacted to monitor non-compliance of code of best practices, and punish (financially) those firms that do not comply. Organizations that act on behalf of consumers, investors and employees rights would be a start to adopting adequate governance in the country.
There is no one perfect corporate governance codes, just there is no one perfect financial structure. The ultimate aim of a corporate governance structure is to be continually re-evaluated to adapt to changing times and needs. Foreign investors, Nigerian living abroad and international organizations are watching the development in Nigeria with interest. Nigerian government is working hard to eradicate corruption from the system at the macro level. This attitude and approach must be replicated and implemented at the micro level. The economic reform should not be left to the government alone. The banking industry as well as other corporate institutions needs to take initiative to promote corporate governance culture and focus on some of the issues addressed in this article in order to continue the growth in the country.
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