Professional Governance Can Influence the Change Nigerians Desire

How Nigerians Can Influence the Change We Desire
Introduction
There is a general belief that poor corporate governance has been the vulnerable point of numerous companies in both developing and developed countries. This is especially the case with Nigeria, where in spite of being vastly blessed with resources such as oil and a huge labor force, continued to be adversely impacted by corruption. Good governance is a significant step in facilitating market confidence and boosting stable, long-standing global investment flows into the nation. Bearing in mind the business companies are progressively more significant drivers of creating wealth and development, not just in the local economy but also internationally, it is key for Nigerian companies to function within the benchmarks that keep them concentrated on their objectives and make them culpable to stakeholders for the actions and decisions they make.
Definition of Corporate Governance and its Role
The significant necessity for corporate governance emanates owing to the separation of ownership and management in the contemporary corporation. When it comes down to it, the interest of the individuals with efficacious control over a corporation can vary from the interests of the stakeholders who externally finance the firm. This brings about the principle-agent issue, which is mirrored by management undertaking activities that may be damaging to the corporation’s stakeholders (Oman, 2001; Okeahalam and Akinboade, 2003).
Imperatively, the agency issue can solely be alleviated through the safety’s resultant from good corporate governance. Up until now, there is not a collectively acknowledged definition of corporate governance. In a wide-ranging delineation, corporate governance alludes to the public and private establishments, including legislations, regulations and accepted business processes, which within the economy, oversee the correlation between firm managers and those investing resources in corporations (Oman, 2001; Okeahalam and Akinboade, 2003). Corporate governance as a conception is perceived simply as being concerned with the structures within which a business entity or firm obtains its placement and direction (Ejuvbekpokpo and Esuike, 2013).
Corporate Governance is known as an arrangement of law and sound methodologies by which companies are coordinated and controlled concentrating on the inward and outer corporate structures with the goal of checking the activities of administration and executives and in this way, alleviating office dangers which may come from the wrongdoings of corporate officers. Conflicts of interest between the controlling shareholders and the minority shareholders may come about owing to the reason that the controlling shareholders, akin to controlling managers, can sidetrack some of the corporation’s resources for their own individual benefit to the detriment of non-controlling shareholders (Islam, 2010).
With regard to the corporation’s managers, these individual benefits may come about as extreme and unwarranted perquisites, for instance, corporate jets and extravagant headquarter structures, as well as postponing essential restructuring decisions to evade hostile opposition with employees, labor unions, political figures and media (Islam, 2010).
Corporate governance is the manner in which firms are controlled and in which those accountable for the direction of the corporation are accountable to the firm’s stakeholders. It is correlated to the formation of long-term relationships with both external and internal stakeholders. It is a system that is utilized to facilitate the direction and control of a corporation. It encompasses relationships between, and accountability of, the corporation’s stakeholders, as well as the regulations, course of action, procedures, practices, criteria, and principles which might influence the direction and control of the organization (Conyon, 1997).
Effective corporate governance lessens the control that is given to management by shareholders and creditors and as a result increasing the likelihood that managers make an investment in positive net present value activities and projects (Morck et al., 1998). Efficacious corporate governance practices are essential to achieving and maintaining public trust and confidence amongst corporation in addition to being pivotal to corporate performance. It ought to facilitate successful, effective and profitable management that can provide stakeholder value in the long-standing period.
Mudashiru et al. (2014) point out that a huge size of the company board of directors, board skill, management skill, extensively serving Chief Executive Officers (CEOs), size of the audit committee, independence of the audit committee, annual general meetings (AGMs), and dividend policy have a positive correlation with the performance of organizations.
Based on these results, it is recommended that corporations ought to espouse good corporate governance practices in order to enhance their performance and also safeguard the interests of their various stakeholders. More imperatively, the regulatory authorizes have to make certain that there is compliance with good governance and guarantee the application of suitable sanctions for non-compliance to facilitate the growth and development of the different industries within a nation (Mudashiru et al., 2014).
Corporate governance can be examined by laying specific emphasis on stakeholder theory. This is linked to existence of several parties vested in the welfare of the firm and these parties more often than not have rivaling interests. On the one hand, there are shareholders who may embrace investments with high yields but that are risky projects. On the other hand, this may not be welcomed by credit providers particularly when the firm is almost becoming bankrupt (Deegan, 2015).
It is imperative for firms to undertake stakeholder management in order to survive and attain success in the long-term owing to the reason that every stakeholder group supplies the organization with important resources or makes some sort of contribution to the organization (Deegan, 2015). In return, every group has the expectation that its interests will be satisfied through incentives. For instance, investors give the organization financial capital and in return they have the expectation that the organization will make the most of the risk-adjusted return on their investment. In the same manner, creditors provide the organization with finance and in return expect their loans to be reimbursed in a timely manner (Fama and Jensen, 1983).
Employees and management provide the organization with their time, set of skills and human capital devotions and in return they expected to be given equitable compensation and adequate working environments. Consumers supply the organization with revenues and in return have the expectation of value for money. Similarly, the organization’s suppliers provide inputs and pursue fair prices and reliant buyers in return (Fama and Jensen, 1983).
Most of all, local communities provide the organization with sites, local infrastructures and possibly favorable tax treatment. In return, they expect to interact with corporate citizens who improve or do not harm their quality of life. Taking into consideration that the end goal of the decisions undertaken by the company is to attain success in the market, proper stakeholder-firm relationship management is pivotal to guarantee revenues, profits and in the end returns to the investors (Fama and Jensen, 1983).
Merits and Demerits of Corporate Governance
Corporate governance is of great significance. When conducting business operations, the violation of rules and regulations can be easily done. Establishing and carrying out corporate governance policies and procedures can help in compliance of these legislations and therefore the emphasis can be in the success of the firm. Imperatively, corporate governance provides a sequence of rules and regulations that can be adhered to in order to attain better management of the company, while avoiding ethical violations (Fernando, 2010).
Corporate governance takes account of introducing policies that necessitate the company to take detailed steps to stay obedient with local, state and federal rules, regulations and laws. Corporate governance also boosts positive reputation. With a strong reputation, it becomes simpler to attract investors and develop strong affiliations with other stakeholders. It also facilitates amenability with the law and therefore there is a decline in transgressions and probability of costly fines or litigations (Fernando, 2010).
In spite of the several advantages of corporate governance, there are demerits. To begin with, companies are obliged to both state and federal legislations. The fundamental incentive for creating a corporation is safeguarding shareholders from the firm’s liabilities. Notably, a corporation confines the liability of a shareholder to the amount of funds or assets capitalized in the corporation (Fernando, 2010).
Furthermore, corporations are characteristically created in order for the entity to sell shares so as to generate capital. The downside, nonetheless, is that if a listed firm purposes to sell stock and safeguard its owners from any kind of liability, it is mandatory to adhere to a variety of requirements. A fitting example is that the board of directors and officials of the corporation are obliged to act and operate in the best financial interests of the corporation (Fernando, 2010).
In the event that the corporate directors and officials are unwilling to live up to this fiduciary duty, it might result in personal liability (Fernando, 2010). Imperatively, this is why several corporations offer coverage to their top executives. Whereas this typically does not encompass circumstances of fraud, it can safeguard the corporation from the penalties of poor financial decisions. An additional demerit of corporate government is that being compliant with regulations can be very costly. Owing to the obligation of compliance with rules and regulations of corporate governance, the administrative expenses of corporations are usually substantially greater as compared to other entities. For instance, limited liability companies are not obligated to adhere to such requirement, which implies that their outlays on administration are significantly less (Rossouw, 2005).
Global and Regional Corporate Governance Practices
In the United States, investors of the different corporate institutions have played a key role in emboldening good corporate governance. The American approach towards corporate governance is to diminish conflicts of interests that exist between the owner and the management. This is endeavored by handing out management profit-oriented enticements such as shares as well as stock options. Nonetheless, associating the performance of managers to the stock market has instigated apprehensions that it is a transitory corporate behavior (Mohamad and Mohamad Sori, 2011).
An addition long-term apprehension in America takes into account asymmetry of information and knowledge that exists between management and the owners. There is also the worry whether directors are partaking in irrational increases in remuneration and privileges for themselves even as corporate reorganization and downscaling have an impact on personnel and the communities. Imperatively, corporate governance in the United States has been dependent upon disclosure rather than procedures and structures (Mohamad and Mohamad Sori, 2011).
The necessary level of disclosure of the compensation, paybacks and inducements of the top five termed executives is largely wide-ranging. Compensation committees composed completely of independent directors have solely come to be the norm in the preceding few years, and despite the fact that contemporary New York Stock Exchange and NASDAQ verdicts are augmenting the independence of boards, there continues to be a typical practice in America for the role of chairman and chief executive officer to be pooled. This focus of power in one area, as compared to the model employed in the European region where the CEO is liable for the running of the firm and administers operational management and the chairman is liable for running and administration of the board, is deemed to be a critical insufficiency in the United States corporate governance model (Mohamad and Mohamad Sori, 2011).
The complete representation presently comprises of statutory requirements, which necessitates all quoted corporations on an annual basis to publish a report on the remuneration of the directors with their yearly accounts. It is mandatory that this report must include a statement of the corporation’s guidelines on director’s remuneration in addition to individual disclosure of payments, bonuses, shares and stocks plans, benefits as well as other longstanding incentives (Mohamad and Mohamad Sori, 2011).
Secondly there are also stock exchange regulations, which necessitates that all listed corporations ought to establish remuneration committees that comprises of independent directors in addition to the separation of the roles of the CEO and the chairman. It also includes guidelines for institutional investors whose members are in possession of 30 percent of equity shares quoted on the London Stock Exchange, which participate in specific with bonuses, share incentives, performance conditions, remuneration policy, benchmarking, service contracts and terminations (Mohamad and Mohamad Sori, 2011).
Corporate Governance in Africa
African countries started to lay emphasis on corporate governance practices at the outset of the 1980s. Nonetheless, opinions vary on the content, borders and pertinence of the theory of corporate governance in the developing nations owing the unfledged, unstructured and informal nature of the economies. In agreement with the recent inclination where several African nations have made the decision to reinforce their economies, the call and demand for good corporate governance has become mounting. In recent times, corporate governance systems have advanced in in a number of developing African nations. Nevertheless, professionals continue to argue whether good corporate governance is the answer to the problems being faced. Research conducted by Ayandele and Isichei (2013) makes the argument that African nations experience several challenges that comprise of political instability, low per capita incomes and epidemics. These sorts of challenges necessitate more intricate solutions than merely adopting corporate governance practices in developing nations, particularly nations in Africa.
Fitting examples of corporate governance practices can be associated to Kenya and Ghana. For instance, a pivotal aspect of the corporate governance framework in Ghana takes into account the feasibility of legal remedy against a director or an insider. Notably, any shareholder is permitted to apply to the court of law to revoke an Annual General Meeting resolution for discriminating actions or decisions that are in contradiction to the firm’s by-law. In addition, any of the stakeholder of the company has the right to sue the directors in regard to the duty of care and diligence. Furthermore, shareholders have oppression rights in the event of partiality or prejudice whereby the court of law might order the corporation or any other shareholders to buy out the aggrieved shareholder. In contrast, in a country such as Kenya, the decision to take legal action rests with the board of directors as solely the board has the right to bring proceedings in the firm’s name. No lawyer in the name of or acting on behalf of a stakeholder can bring proceedings against a corporation devoid of the authority and approval of the board (Rambo, 2012).
Documentations that comprise of regulatory framework for efficacious corporate governance practices in Kenya and Ghana are established with minimal emphasis and focus on the actual agency issues in the nations. Imperatively, the provisions on independent directors of the company and separation of the duties together with the roles and responsibilities of the chief executive officer and the chairman of the board cannot efficaciously promote good corporate governance. This is largely for the reason that controlling shareholders to a significant magnitude impact the employing and demoting of directors (Goweh, 2014).
In the case of both Ghana and Kenya, these nations on the whole practice the insider model of corporate governance, but take on the corporate governance code implemented by the British, which lays emphasis on safeguarding corporate owners against the manager whereas the prevailing corporate governance issue in these nations lies between majority shareholders and minority shareholders. This is a significant incongruence between what corporate legislations seek to take into consideration and what is existent in actuality. It is imperative for other emerging countries in Africa to take into account the practices implemented by Kenya and Ghana with regard to the adoption of corporate governance codes that ideally address the corporate governance issues (Goweh, 2014).
Corporate Governance in Nigeria
In spite of the fact that the notion of corporate governance is not fresh in Nigeria, there have been reported cases of poor corporate governance in the nation. Examples of these instances include the case of Cadbury Nigeria Plc. And Lever Brothers Plc. Despite the fact that the accusation of neglected of corporate governance principles placed against the management of Lever Brothers at the outset of the 90s were extensively broadcasted, the consequence of the inquiries and approvals, if any, were not publicized to the masses (Ejuvbekpokpo and Esuike, 2013).
In contrast, subsequent to the inquiry and probing in the circumstance of Cadbury Nigeria Plc., the Securities and Exchange Commission (SEC) was stated to have decided amongst other actions that the corporation be obligated to pay charges for numerous unethical practices and breaches of corporate governance principles proven against it (Ejuvbekpokpo and Esuike, 2013). The prevalence of corporate scandals and catastrophes that were perceived on the outset of the century had their foundation in fraudulent management decisions and in a number of instances, downright covering up of illegitimate activities (Ejuvbekpokpo and Esuike, 2013).
Other instances of poor corporate governance in Nigeria comprise of the current financial transgression undertaken by the preceding managing directors of various corporations such as Union Bank of Nigeria Plc., Oceanic Bank of Nigeria Plc., and the Intercontinental Bank of Nigeria Plc. Furthermore, the Directors General of the Nigerian Stock Exchange (NSE) and the Nigerian Securities and Exchange Commission (SEC) were established to have partaken in illegal and unethical practices (Ejuvbekpokpo and Esuike, 2013). This is a depiction of the endemic corruption and illegal practices within the Nigerian business setting.
Challenges Faced
The challenges experienced and failures perceived of corporate governance in the African region emanates from a culture of corruption and the absence of effective institutional capacity to carry out the codes of conduct administering corporate governance. A great deal of corporate executives revel in a setting that lacks proper checks and balances in the system to partake in gross transgressions taking into consideration that investors are not incorporated into the governing structure (Rhodgers and Edmond, 2011).
Guidelines and procedures necessitated to guarantee efficacious internal controls are overlooked with latitude and a complete lack of comprehensive selection process of the chief executive officer and board members of corporations. The commercial cum stakeholders; interests is inferior to the self-centeredness of corporate board of directors and management (Okeahalam, 2004).
Restricted prospects for firm investors and just about nil interest in corporate social investments to display the corporation’s sense of belongingness are proper signs of failure of corporate governance. Furthermore, there is also the lack of proper proficiency training and development of corporate managers amidst African managers in regard to the management of business risks. Consequently, this has given rise to substantial agency costs and stakeholders of firms have been forced to bear numerous preventable and unnecessary agency costs simply because the board members fail to effectively do their monitoring job (Ayandele and Isichei, 2013).
The rights and freedoms of the shareholders are encompasses in the corporations’ legislations and stock market guidelines and regulations. These rights play an important role for the safeguarding of investors against ineffective and poor management. Safeguarding of shareholders’ rights, as well as the rights of minority shareholders has come to be a problem for the development and execution of efficacious corporate governance systems in developing nations including Nigeria. For example, one of the fundamental problems of corporate governance in Nigeria takes into account the absence of the protection of the rights of minority shareholders (Okpara, 2010).
In spite of the fact that there are established legislations in the nation that were designed to safeguard their right, these legislations are not stringently executed. In as much as the nation has sufficient and satisfactory laws that are intended to offer such protection and guarantee good corporate governance, these legislations are more often than not overlooked simply because the shareholders are largely uninformed and oblivious of the rights and privileges they have as a corporate stakeholder (Okpara, 2010).
It is imperative to note that the more the level of shareholding that an individual has, the more the rights that the person holds and thereby the greater the level of power that the person holds within the firm. This is factual not only for the reason that the greater the shareholding the greater the likelihood of representing a controlling interest. It is thereby reasonable to anticipate that minority shareholders would be anticipated to play a lesser role on how the corporation is governed. It is also sensible to anticipate that minority shareholders’ interests will every so often be sullied for the reason that they hold a minority position in the corporation (Okpara, 2011).
The Way Forward for Nigeria
Corporate governance issues are on the whole getting greater consideration on account of the increasing acknowledgment that a firm’s corporate governance has an impact on both its economic performance and its capacity to gain accessibility to longstanding, low investment capital. Corporate governance ranges all the way through nations and firms as aforementioned. A higher quality of corporate governance allows firms to gain access to capital markets more easily, which is greatly significant for firms, which mean to boost their funds. Nigeria continues to face significant challenges in relation to poor and abused corporate governance. Nonetheless, there are different measures that can be undertaken by governance professionals to influence the change that is desired and chart out a proper path for the future.
In reaction to the present day corporate governance scandals, various governments have espoused some regulatory changes. One of the key elements of these changes takes into account augmented disclosure requirements. For instance, subsequent to renowned scandals such as those of WorldCom and also Enron, the Sarbanes-Oxley Act (SOX) was established and sanctioned. In addition, the major problem concerning business transparency and disclosure was also pointed out by the Cadbury Report, which made the argument that a substantial obstacle to the flow of pertinent information is the risk of deviousness intrinsic to the influence of management to the firm.
This alludes to inadequate or misleading disclosure of information and premeditated efforts to misinform, misrepresent, obscure or otherwise puzzle the public and shareholders. In the case of Nigeria, one of the solutions to going forward is the inclusion and implementation of a credible disclosure that is imperative for the allocation of resources. This will augment corporate governance structure in Nigeria and in general give rise to good governance.
According to reports from the World Bank concerning corporate governance, several developing nations have failed to incessantly and uniformly carry out laws, legislations and regulations on corporate governance. Numerous illegal and unethical practices such as insider trading as well as self-dealing are extensive and prevalent. These sorts of transgression more often than not failed to be punished and even worse get overlooked, even in the event that severe penalties are applicable from a theoretical perspective.
Implementation of corporate government is also weakened in Nigeria owing to ineffective auditing. The nation delegates the setting of accounting and auditing benchmarks to the accounting bodies. Imperatively, in the Nigerian setting, the capacity to provide backing to the enforcement of decent corporate governance is demoralized by the presence of weak monitoring and implementation. Application of rules is by and large weak and subject to external impact by politicians, and this continues to damagingly impact good corporate governance in Nigeria. Bearing this in mind, it is necessary to introduce a strong willed legal and judicial system that can fight corruption and properly execute the laws in place devoid of being swayed by the politicians.
In order to make certain that an efficacious corporate governance structure is in operation, it is imperative for Nigeria to institute and implement a suitable and efficacious legal, regulatory and institutional basis where all of the participants in the market economy can depend on. In Nigeria, these legal and regulatory systems are existent and have been positioned to safeguard the rights and obligations of stakeholders, legislation and regulations for undertaking businesses and fines that are levied for violating such regulations. Nonetheless, there continues to exist an issue of monitoring and implementing such legislations and processes and hamper efficacious execution of corporate governance.
Governance professionals needs to partake in the revamping of the implementation mechanism and composition of audit committees, whose members and participants need to be more cognizant and perceptive of their responsibilities. It is imperative for auditors to make certain that there is stringent compliance with codes of conduct, dedication and vigilance of board of directors, take care of the need for high levels of transparency and disclosure, enhance regulatory frameworks by making the legislations accessible to all stakeholders and the general public. The recommendation also takes into account inventing active mechanisms for the implementation of legislations, reinforcing mechanisms by providing training and equipment, and espousing alternative mechanisms for resolution. Most of all, it is necessary to form an empowering setting by sustaining the political willpower to carry out policies and generate an independent, daring and spirited judiciary (Okpara, 2010).
Conclusion
Governance in any nation across the globe necessitates transparency in order for individuals to efficaciously ascertain whether their interests are being served. More importantly, good corporate governance must act in a transparent way in order for the owners of the corporations and investors can make insightful decisions regarding their investments. In the case of Nigeria, for good corporate governance to have a meaningful effect, the essential political willpower and institutional framework, as well as a resolute legal system to implement compliance must be instituted.
Some of the challenges precluding good corporate governance in Nigeria originate from the nation’s culture of longstanding and entrenched corruption together with political support, which is signified by exceedingly weak regulatory frameworks and repudiation of government agencies to carry out and monitor compliance. The intricacy of these challenges are augmented by the prevalent poverty in the nation together with high levels of unemployment, which dissuades a philosophy of whistle blowing when unethical and illegal activities are discovered. However, it does not imply that all hope is lost. In order to move forward, governance professionals need to separate business aspects from political aspects completely. Secondly, the judiciary needs to be restructured and reinforced.
In regard to corporate governance, it is suggested to form a special corporate affairs tribunals and panels within the Nigerian judiciary to try those in violation of rules and regulations. Third, governance officials and professionals need to encourage the culture of whistle blowing, augmenting business by means of moral education and encouraging resource based development through fiscal federalism. For instance, to bring about professionals who are strong willed and ethical, an institute of corporate governance can be set up to teach and train professionals and promote good corporate governance.

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