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Corporate governance will take centre-stage in 2019

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“A leader’s job is to look into the future and see the organization not as it is but as it should be”  –  Jack Welch

There is an overwhelming consensus that 2019 promises to be an eventful year for Nigeria. Being an election year, the horse trading, forging of alliances and switching of political affiliation that characterize the onslaught of election season commenced early this year and now appears to have gained considerable momentum with the political gladiators scheming and positioning themselves for 2019. As can be expected, all other sectors of the Nigerian macro-economic spectrum are not left out, with businesses carefully analyzing the environment, engaging in extensive permutations and fine-tuning their positioning strategies for maximum effect to exploit the opportunities that will inevitably emerge from the outcome of the elections, irrespective of the direction that the tide turns.

Beyond a general acknowledgment that 2019 promises to be a year when politics will bear significant impact on both the economy and the economics of the Nigerian business environment, there are no clear certainties about the other ways in which the regulatory direction of government will have wide-spread, direct impact on the local business environment as there are precious few reliable projections on this vital subject. With businesses currently busy with finalizing budgets and financial projections for 2019, the latent impact of the activities of key industry regulators and how new regulations will influence outcomes as well as the general climate of business in Nigeria next year, is a subject that will burden the minds of many business leaders as they prepare to steer their businesses for survival through an unpredictable, nay potentially stormy season.

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An easy prediction that should help shed clarity to purpose regarding planning against the possible direction of regulatory activity in 2019, is the pending issuance of the eagerly anticipated Nigerian Code of Corporate Governance, 2018 by the Financial Reporting Council of Nigeria in the coming days. Albeit the clearly stated intent for the Code to assume reporting consequence effective from the 1st January 2020 when it is expected to reflect in the annual reports and accounts of companies, the new “National Code” is nonetheless expected to bear significant impact on the governance of public and private companies in Nigeria. To prepare all stakeholders for the code, the council had undertaken extensive engagement with other key regulators, shareholder associations, and the general public with elaborate and well-attended public hearings organized across the six geo-political zones of the country and at the FCT. The comments and feedback generated from the exercise had been collated, painstakingly deliberated upon and vigorously milled through the internal machinery of the council to ensure that all salient areas were covered to enable the code achieve its set objective, key of which is the institutionalizing of the highest standards of corporate governance best practices in Nigerian companies, with emphasis on those not already covered by sectoral regulations.

Given the code’s ‘apply (first) and explain (afterwards)’-based principle of application, many companies that have all the while assumed an ambivalent culture towards corporate governance tenets and matters of values and ethical practices, may find themselves struggling to adapt the minimum standards set forth by the code in 2019 and worse still may, without the requisite level of foresight and preparation, wilt under the potential costs and pressures associated with the necessary changes in regulation expected to herald the issuance of the new code. The lot shall fall upon unprepared entities to hastily re-align their governance precepts and practices to measure up to the novel standards established by the code and institutionalize appropriate structures and practices to avert the negative fall-out that will accompany the anticipated regime of regulatory scrutiny.

A cursory analysis of some of the ways in which the code will impact hitherto unregulated business segments of the Nigerian economy shall be undertaken below;

 

The ‘apply and explain’ philosophy: Obviously intended to allow the enlarged category of companies that will find themselves ensconced within the compliance ambit of the code, a staggered adoption of code provisions, the philosophy of the code expects a scalable adoption of the provisions such as is tailored to meet the peculiarities of its users to suit the type, size and growth phase of each company with the ultimate goal of achieving substantial compliance with governance best practice principles set forth therein. It emphasizes flexibility and attempts to create some distance from the mechanical approach to code compliance. It will be quite interesting to watch this philosophy evolve in practice given the maturation stage of our society where voluntary or flexible compliance (or ‘appliance’) with simple, logical, sustainability enhancing practices had previously failed to gain acceptance amongst corporates and where as individuals, the citizens still struggle to obey traffic signs and lights, absent enforcement or the threat of sanction.

 

The application (or scope) of the code: The new code shall be applicable to a wide range of companies, with greater emphasis placed on its adherence by public companies (all PLCs whether or not they are listed), private companies that are holding companies of public companies and regulated entities; concessioned and/or privatized (formerly public or government-held) companies and companies operating in the regulated industries sector. In practice, one can reasonably anticipate that ultimately, all companies liable to submit their financials will be held up to similar standards of governance compliance as those entities mentioned above. Such companies would be encouraged to undertake a corporate governance compliance review to ascertain the extent of their compliance framework with the provisions of the new code. Also, despite its seeming flexibility, the code empowers its monitoring elements like the council itself, the Nigerian Stock Exchange, sectoral regulators and other trade associations to impose appropriate sanctions for instances of deviation and on a case by case basis given due consideration to the company in default and its surrounding circumstances.

The new code also re-emphasizes the importance of a number of extant governance structures including documented processes and procedures that underlie the framework for the implementation of sound governance principles (like charters, policies and terms of reference), the establishment of virile and active boards of directors who shall be expected to attend meetings and be compensated for their time, effort and stewardship, the implementation of various structures like board committees and the attendant involvement of external expertise with its associated costs and the introduction of supportive concepts like director-induction, periodic training and annual board evaluation to ensure that the Board is able to perform its role optimally. All of these activities warrant clarity of thought, strategic planning and preparation to ensure a perfect sync with the organization’s current business practices and growth phase, irrespective of size, scale or complexity of such company’s undertaking and a pro-active entrepreneur would be well-advised to make adequate preparation for the emergence of this interesting new and more widely-applicable governance code.

For more information about our services, please visit www.dcsl.com.ng

 

TADE OWODUNNI

 

Owodunni is the Head, Governance Services Unit at DCSL Corporate Services Limited. Kindly forward comments and reactions to [email protected].