THE PRINCIPLES OF GOOD COMPORATE GOVERANCE AND BEST PRACTICE RECOMMENDATIONS IN NIGERIAN LISTED COMPANIES: REGULATION, COMMITMENT COMPLIANCE: (A STUDY OF SELECTED LISTED COMPANIES NIGERIA) BY NWAMBA OBUMNEME CHIDOZIE PG/MBA/07/46574 DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU CAMPUS MARCH,2009.
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THE PRINCIPLES OF GOOD COMPORATE GOVERANCE AND
BEST PRACTICE RECOMMENDATIONS IN NIGERIAN LISTED
COMPANIES: REGULATION, COMMITMENT COMPLIANCE:
(A STUDY OF SELECTED LISTED COMPANIES NIGERIA)
BY
NWAMBA OBUMNEME CHIDOZIE
PG/MBA/07/46574
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
MARCH,2009.
THE PRINCIPLES OF GOOD COMPORATE GOVERANCE AND
BEST PRACTICE RECOMMENDATIONS IN NIGERIAN LISTED
COMPANIES: REGULATION, COMMITMENT COMPLIANCE:
(A STUDY OF SELECTED LISTED COMPANIES NIGERIA)
BY
NWAMBA OBUMNEME CHIDOZIE
PG/MBA/07/46574
A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR THE AWARD OF MASTERS IN BUSINESS
ADMINISTRATION
DEPARTMENT OF MANAGEMENT
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS
SUPERVISOR: DR UJF EWURUM
MARCH, 2009.
TITLE PAGE THE PRINCIPLES OF GOOD COMPORATE GOVERANCE AND
BEST PRACTICE RECOMMENDATIONS IN NIGERIAN LISTED
COMPANIES: REGULATION, COMMITMENT COMPLIANCE:
(A STUDY OF SELECTED LISTED COMPANIES NIGERIA)
CERTIFICATION
This is to certify that Nwamba Obumneme Chidozie with
Registration Number PG/MBA/07/46574 is a MBA student of Management;
University of Nigeria Enugu Campus has satisfactorily completed the
requirement for the project research in partial fulfillment for the award of
Masters in Business Administration (MBA) in Management.
The work embodied in the report is original and has not been
submitted in part or full for any other Diploma or degree of this or any other
It is pertinent to accord due respect and appreciate the efforts and kind
gesture of those who possibly enabled this work to come to its end.
In the first place, my unalloyed gratitude goes to my project
supervisor Dr. UJF Ewurum who despite his tight schedule took up a pain
staking task to direct and guide me throughout the time of this work.
I wish to acknowledge the family of Chief and Lolo Offor fro their
frantic support, encouragement both financially and morally.
I remain ever indebted to God Almighty for all His protection and
sustenance to make this programme a hitch free one.
NWAMBA OBUMNEME.C.
PG/MBA/07/46574
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.
TABLE OF CONTENT Title Page…………………………………………………………………… Certification………………………………………………………………… Dedication………………………………………………………………….. Acknowledgement…………………………………………………………. Abstract……………………………………………………………………... Table of Content……………………………………………………………. Chapter One: INTRODUCTION………………………………………. 1.1 Background of the Study………………………………………………..
1.2 Statement of Problem……………………………………………………
1.3 Objectives of the Study………………………………………………….
1.4 Research Question………………………………………………………
1.5 Significance of the Study……………………………………………….
1.6 Scope of the Study……………………………………………………..
1.7 Limitations of the Study………………………………………………..
1.8 Definition of Related Terms……………………………………………
References…………………………………………………………….. Chapter Two; REVIEW OF RELATED LITERATURE………… 2.1 Brief Thematic History of Corporate Governance………………… 2.2 Corporate Governance in the Public Sector: The Role of Risk
Management…………………………………………………………….. 2.3 Corporate Governance Standard and Control Mechanism in Compliance…………………………………………………………….. 2.4 Challenges and Codes of Best Practices Corporate on Corporate Governance……………………………………………………………. 2.4.1 Code of Best Practices on Corporate Governance……………… 2.5 Principles of Good Corporate Governance and Good Practice Recommendation…………………………………………………… 2.6 The Principles of Good Corporate Governance for Listed Companies…………………………………………………………… 2.7 Board and Management Training ………………………………… 2.8 Summary of Reviewed Literature…………………………………. Reference…………………………………………………………….. Chapter Three: RESEARCH METHODOLOGY………………… 3.1 Introduction………………………………………………………….. 3.2 Methods of Data Collection………………………………………….. 3.3 Sources of Data Collection…………………………………………… 3.4 Population and Sample of the Study…………………………………. 3.5 Sample Size Determination………………………………………….. 3.6 Method of Data Presentation and Analysis………………………….
Reference………………………………………………………………. Chapter Four: DATA PRESENTATION AND ANALYSIS……… 4.1 Introduction………………………………………………………… 4.2 Data Presentation…………………………………………………… 4.3 Data Analysis……………………………………………………….. 4.4 General Data Analysis………………………………………………. Reference……………………………………………………………….. Chapter Five: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS……………………………………………….. 5.1 Summary of Findings……………………………………………….. 5.2 Conclusion…………………………………………………………… 5.3 Recommendations…………………………………………………… 5.4 Area For Further Study……………………………………………… Bibliography……………………………………………………………
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
REFERENCES
Aniemena, u. (2005) Good corporate governance the Banking system,” A
paper delivered at the 3rd Pan African Forum Corporate Governance
on behalf of West African Bankers’ Association September 2005.
Al-Faki (2006) Trends in corporate Governance in Nigeria,. The TideNews
Jan. 12
Bankers Committee Report (2006) Code of Corporate Governance for Banks
And Other Financial Institutions in Nigeria.
CBN (2006) Code of corporate Governance for Banks in Nigeria post
Consolidation (Draft).
Dignam, A. and LOWVY, J. (2006) Company law, New York: Oxford
University press
King 11 Code of corporate Governance, South Africa.
Okagbue and Aliko, T. (2005) Banking sector Reforms in Nigeria,
international legal News.available at www.11n.com
O’ Donovan, G (2003) A Board culture of Corporate
Governance: Corporate governance International journal vol. 6 issue
3.
Peterside Report (2003) Code of corporate Governance in Nigeria
Soludo, C.C (2006) Liquidated Banks, Depositors, others will get their money,
An Interview of CBN Governor by South African Broadcasting
corporation (SAB)
Uche, U.C (2OO1B) Nigeria: Bank Fraud; Journal of Financial crime vol.8,
N0.3
Unegbu, O. (2005) Corporate Governance in post consolidation Banking
industry in Nigeria issue and challenges available: www. Vanguard.
Con/articles.
Udoma, U.U. (2008) Keynote Address presented at the 2008 Annual
conference of the institute of chartered secretaries and Administrators
of Nigeria (K.S AN) available at Wttp: //WWW. Sec-gov.ng/ theme /
default/ pdt/ publications).
Wttp: // searchdatamanagement. Techtarget. Com.
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 A BRIEF THEMATIC HISTORY OF CORPORATE GOVERNANCE
It is currently fashionable to talk about the history of corporate
governance in terms of path dependence and to assume that as in the natural
science complex systems can be reduced to a few simple rules. Corporate
structures, it is said depend in part on the structures a country had in earlier
tires in particular the structures with which the economy started. These
structures also bias the legal rules in terms of what is efficient in any given
country and the interest group politics, which determine which rules, are
chosen. The interplay of historical forces which head to any given state of
affairs are often many and complex. This is particularly true of economic
history and the relationship of law and economics.
Hurst (1970:1), tracing the history from the public law privilege
model stated that the earliest form of incorporation in the common law was
by papal bull or royal charter. Rights of association and corporate status
sprang from the church or the crown. And the abuse of defunct charters and
other excesses led to the UK Bubble Act 1720 which set back the
development of he modern corporation for sometime.
Formoy (1923:21), in his comment said that, the term “director” was
first used generally at the end of the seventeenth century. It was used by he
Bank of England and Bank of Scotland. Despite these restrictive trends
entrepreneurs and their lawyers managed to erode the Bubble Act by Deed
of settlement companies and many of our modern principles and problems in
the law spring from that source. The Deed of settlement was built on the
foundation of trust and partnership and was at best an inchoate corporation.
Van den Berghe and De Ridder (1999:4) trys to focus their own trace
as at issue of Banking capitalism, looking at the colonial and post-colonial
systems that suffers from a lack of capital. Where few immigrants bring
much capital. There is a need for investment capital. The state needs capital
to provide for infrastructure and atimes raises some from taxation but at a
small base, while the rest is raised through debt capital. This results in the
next phase of Banking capitalism which characterized the history of the
USA, Australia and New Zealand in the Nineteenth century and into the t
twentieth century at least until the 1930s. Bank finance of business was
usually debt finance although some investment or merchant bank took equity
interests as well. Intensive investment in equity has been restricted by
banking rules such as capital adequacy and other prudential regulation.
McQueen (1991:22), as one of the proponent of imperialism and the
imperial model”, concerns attention in imperial commerce that dominated
the economics and the local statutes that were based on the UK companies
legislation. The larger local banks were often owned or attiliated with UK
banks by the turn of the century. A legacy of this dependency survives in the
fact that a significant number of Australian and New Zealand listed
companies are owned by other companies and the ultimate ownership is
often in foreign hands.
Then the era of “managerial capitalism” in dictates a period as
companies adapted to the corporate form, some needed further equity capital
and went public. Disclosure regimes developed backed by a degree of self-
regulation by the securities industry. Many English companies in the late
Nineteenth century issued preference shares in order for the owner to retain
control (Farrar, and Hannigan, 1998:226). Later ordinary shares were floated
and there began the development of the separation of ownership and control
which had been foreshadowed by Marx and Leruin, and was documented by
Adolf Berle for of Colombia law school and Gardiner means of Harvard in
respect of the USA. This era marks the ascendancy of professional
management in the absence of ownership blocs large enough to represent a
countervailing power. It created the agency problem as Adam Smith had
anticipated. Management in the absence of a countervailing power have
attendance to pursue their own self interest at the expense of the corporation.
The periods from 1960 until the 1980s represented the supremacy of
management. The management of the larger corporations to some extent
were the masters and not the servants of finance. However, the stock market
crash 1987 precipitated the collapse of confidence and heralded a number of
changes (Ester brook and Fischel, 1991:4). To ward of the increasing
politicization of reform of corporate law, to combat increased shareholder
activism and simply out of self protection management of leading companies
through their interest groups and in cooperation with institutional investors
began to give serious attention to the development of self regulation of
“corporate governance” in the 1990s. This led to a number of reports and
codes or guidelines on corporate governance.
Farrar and Hannigan (1998:579), adding to this growth issue of
corporate governance ensue the stage called “institutional Investor
capitalism”, this is at the era of second world war characterized by increased
investment by institutional investors in public corporations. There has been
the use of superannuating and pension schemes, insurance and other forms
of indirect investment. Trustee investment rules have been relaxed enabling
trustees to invest in equities. In addition to this, the traditional domination by
institutions of the bond market and we have the beginning of the growth of a
significant countervailing power if the economic strength is harnessed to a
common cause. Listed corporations are at stage becoming the servants of
global financial activity rather than its masters. Institutions sometimes
encounter legal problems in increased shareholder activism. Another stage
that occurred is the reference shareholdings” which Van den Berghe and De
Ridder (1997:17), refer as the presence of a significant shareholder with a
long term relationship with the corporation and their closer involvement in
and contribution to the strategic development of the company. The
governance problems with such shareholding are excessive power positions
and potential conflict of interest in-group transactions. Hence, the impact of
globalized standards of corporate governance is to promote equal treatment
of shareholders and to dismantle elaborate crossholdings and interlocking
directorships.
Other trends that added impetus to the historic structuring and
development of corporate governance are “the evolution of multi-national
and transnational corporations, modernization and reforms and development
of a New model of democratic capitalism”. The notable Acts that gives
credence is the “companies Act 1993 that provides the objects of the
legislation are to reform the law and in particular:-
a) To reaffirm the value of the company as a means of achieving
economic and social benefits through the aggregation of capital for
productive purposes, the spreading of economic risk, and the taking of
business risk and;
b) To provide basic and adaptable requirement for the in corporation,
organization, and operation of companies and;
c) To define the relationships between companies and their directors,
shareholders, and creditors;
d) To encourage efficient and responsible management of companies by
allowing directors a wide discretion in matters of business judgement
while at the same time providing protection for shareholders and
creditors against the abuse of management power, and;
e) To provide straight forward and fair procedures for realizing and
distributing the assets of insolvent companies.
Meanwhile, the corporations Act 1989 which became known as the
corporation law. This has been subsequently amended. The legislation stands
as an obese monument to complexity and confused thinking. The complexity
was the subject of he simplification task force who succeeded in further
complicating the law, particularly the law of corporate governance. This was
followed by “CLERP” the Corporate Law Economic Reform Programme.
The reform was well intentioned and pursued the following economic
principles. These are:-
- Market freedom,
- Investor protection,
- Information transparency,
- Cost effectiveness,
- Well targeted regulatory framework,
- Regulatory neutrality and flexibility and
- Business ethics and compliance.
Finally Van den Berghe, concluding the history from his tune argue
for the evolution of a democratic model of corporate governance. This will
be characterized by:-
a. The knowledge worker empowered as a result of the
communications revolution.
b. A power shift from shareholder towards the knowledge worker.
c. A sense of shared values.
This is to say that the history of corporate governance shows a history of change
and adaptation to change but the contemporary triumph of democracy and