Nigeria has been celebrating the centennial anniversary of its foundation as a united Nation and much of the focus has been on the political and cultural ramifications of the amalgamation. I believe that there is a need to shift focus to the Enterprise and Corporate sector. In this realm corporate governance as an aspect of Enterprise development is gaining a lot of attention globally. And justifiably so. National Economic performance is impacted critically by the Gross Domestic Product (GDP) and GDP is driven largely by Enterprise output. Enterprises create jobs and wealth. Today, enterprise performance, growth and sustainability are moderated by the level of good Corporate Governance within the enterprise and how the enterprise manages relationship between all the stakeholders. There is ample and indisputable evidence that good corporate governance is a key success factor for many enterprises and organizations.
Corporate governance deals with laws, procedures, practices and implicit rules that determine a company’s ability to make managerial decisions vis-a-vis its claimants-in particular its shareholders, creditors, state and employees. Its objectives are to achieve a responsible value- oriented management and control of companies. According to Mueller (1981)” Corporate governance is concerned with the intrinsic nature, purpose, integrity and identity of the institutions, with a primary focus on the entity, relevance, continuity and fiduciary aspects”. More concretely, it can be described as the processes and structures by which businesses and affairs of an institution are directed and managed in order to improve long term shareholders values and respect of the legal rights of all shareholders in the context of its corporate mission. Sulaiman (2003) describes corporate governance as involving the balance of power with which an organisation is directed, managed, supervised and held accountable and Dayton (1984) says “it is the process, structures and relationships through which the Board of Directors oversees what the executives do”
However what constitutes Good Corporate Governance practices vary from one country, sector and organization to the other and these variations are determined by different national legal codes, sectoral and corporate cultures. But the universal commonality is that corporate failures have often been connected with the failure of corporate governance especially in contemporary global corporate history. Thus, corporate governance is basically concerned with doing the right things and doing them right in an organization through willing and able personnel to drive the organization to SUCCESS on a continuing basis.
In the corporate setting, the implementation of good corporate governance is driven by the Board of Directors of the company or organization. Whereas the Executives of the company or the management are charged with Corporate Management of the Company, the Board of Directors is charged with Corporate Governance. It therefore follows that any company or organization (Public or Private) that does not have a functional Board will have problem with Corporate Governance. Experience has shown that Management cannot be trusted to protect the interest of all stakeholders; neither can it be trusted to maintain a healthy balance between the short term financial goals and long term viability of the enterprise. That is why, the Board of Directors became a real necessity. The Board of Directors will be said to be practicing good corporate governance, if it gives priority consideration to five main issues ( kolade 1998):
1. Making sure that the company offers a fair return for each stakeholder’s input.
2. Making the company (i.e. Management) perform to high Business and Ethical standards
3. Ensuring the proper balance in the management of different interests.
4. Keeping the Directors conscientious in their fiduciary responsibilities
5. Ensuring Accountability
Though the concept of corporate governance as a management science seems to be fairly new in Nigeria, the concept has long been practiced. Before 2003 when the Securities and Exchange Commission (SEC) issued its Code of Corporate Governance for Public Enterprises in Nigeria, the only formal guidance for corporate governance was from the Corporate and Allied Matters Act (CAMA) 1990, or it’s precursors, the Companies decree (1968) and the United Companies Act (1948) which made reference to some of the duties of the Directors of a Company.
At the amalgamation of the Southern and Northern Protectorates in 1914, there were few companies operating in formal ways in the Country. The Royal Niger Company which was the precursor of the United African Company ( UAC) was one of the significant companies operating in the country with tentacles in several areas principally Agriculture and trading. Subsequently such other multinational companies like John Holt, Patterson and Zochonis (PZ), Leventis and J.L. Chellarams came in the second wave of enterprise development in Nigeria in the 40’s and 50’s. Whereas in the first wave were essentially British owned and managed companies, the second wave admitted other foreign Nationals including the Greek, Italians, Lebanese and Indians. These companies at first had exclusively foreign directors and most of the management was also foreign. Additionally, they were also subsidiaries of their parent companies and so many of their corporate decisions were taken at’ home’ and executed here. Though they had some local boards, but these were essentially ‘token’. They exercised minimum impact on management actions. From all accounts, since ownership was essentially monolithic and many of them private companies, they were not accountable to Nigerians, except to pay taxes to the colonial government.
The earliest best known Nigerian corporates at this pre independence era included Odutola tyres in Ijebu ode, Odumegwu Ojukwu & Sons Transport Company in Lagos and the Dantata trading company in Kano. Again most of these were all family owned businesses which practiced minimum corporate governance. Most of them are dead today whereas in other climes, companies that were started over 200 years ago are still thriving. The major reason for the high mortality of the first generation indigenous businesses was the lack of any meaningful corporate governance. In the mid fifties, early sixties, Nigeria began to have major waves of enterprise development. It was at this time that oil was discovered in Nigeria and that attracted for the first time American firms into the country in partnership with the Anglo-Dutch and the French. The Swiss and some other Europeans followed suit in the Chemicals and pharmaceuticals area. Immediately Nigeria obtained Independence in 1960,the desire of the New government to develop the Country created the ambience for major Entrepreneurial establishments opening the door for The Germans and other European countries to come with heavy and Engineering firms, followed closely by the Chinese and Indians with consumer products of all kinds.
Most of these foreign companies sought Nigerian Partners and began to create hybrid boards and it was at this time that the challenges of corporate governance became visible as the number of stakeholders in each enterprise increased and the possibility for conflicts escalated. On the heels of these came a young Nigerian Stock Exchange at independence which was populated by a small number of companies, some foreign owned, but most Nigerian. The Nigerian civil war (1967-1970) caused a slowing down of the growth of the Enterprise sector, but no sooner had the war ended than another wave of enterprise development was unleashed, driven by the oil boom and an unprecedented rise in consumerism in Nigeria in the 1970-80 time frame. Unfortunately, the growth in enterprises was not matched by any growth in regulatory oversight and Nigeria became a dumping ground for all sorts of goods and a haven for all sorts of corporate misgovernance.
Seized by a Patriotic fervour, seeing that most of the commanding heights of the blossoming Nigerian Economy were in the hands of the Foreigners, the Military government led by then General Olusegun Obasanjo introduced the indigenization decree of 1978 which forced the foreign companies to sell at least 40 percent of their company shares to Nigerians. This move caused so much change in our economy. Many Nigerian entrepreneurs and investors were born, and the Nigerian Stock Market bloomed. It also came with a real challenge in corporate governance. The new boards of those companies that had become predominantly Nigerian or those with diluted foreign ownership went through tremendous learning and stresses in an effort to adjust to the dynamics of Public ownership of shares. Now we had to worry about Minority shareholders. The Nigerian Shareholders solidarity association led by the late Akintunde Asalu was born. Soon similar shareholder associations followed in tow. This development actually helped to improve corporate governance practices in Nigeria as for the first time; the boards of directors of publicly quoted companies began to reckon with the interest of Minority shareholders and in some circumstances were compelled to become more accountable.
Soon after, Nigeria went through an economic down turn caused largely by the sharp drop in oil prices and after some effort to manage the decreased income through austerity measures, Gen Babangida decided to liberalise the economy under the Structural Adjustment Programme (SAP). With that, a new set of Nigerian Entrepreneurs came on the scene with fully indigenized ownership of businesses as the government began to commercialise, divest and privatize. The most significant development in this area was the liberalization of the financial sector with an unprecedented birth of new banks and finance houses. Due to poor regulatory oversight, the blooming financial sector broke all the rules of corporate governance: concentration of power on one man, conflicts of interest, insider dealings and pervasive corruption. The result was a season of unprecedented corporate failures that dragged many of the practitioners to jail and some of the bank depositors to early grave. Coincidentally this period also had a spate of global corporate failures that started with the Enron Corporation and stretched to MCI Inc and consumed Arthur Anderson.
At this time the SEC empanelled the Atedo Peterside committee that recommended the first set of code of corporate governance in 2003.One major recommendation was the separation of the positions of the Managing Director and the Chairman of the Board of Directors. About the same time in 2002, the United States Congress passed the Surbanes-Oxley Act in a major attempt to raise the level of corporate governance and stem corporate failures and its detrimental effect on the global economy. Soon after, the Central Bank under the watch of Professor Chukwuma Soludo introduced some far reaching reforms that brought down the number of Banks from about 56? to 25 through a process of consolidation and liquidation. Unfortunately, continued poor corporate governance led to another round of corporate failures of a few major banks in the 2008-2010 time frame. This moved the SEC to empanel another committee under M.B, Mahmoud to further revise and tighten the Code of Corporate Governance for Public companies. This phase of bank failures was accompanied by a precipitous decline in the Nigerian Stock Market, ignited by the Global Economic crisis wiping out substantial values as the market capitalization declined from about 13 trillion naira to less than 4 trillion naira. The incestal relationship between stock brokers and some bank CEOs that created stock bubbles which eventually burst dragging down the economy was reminiscent of a corporate governance regime that was still not up to the standard. Governor Sanusi Lamido Sanusi pushed to raise the corporate governance standards in the bank and the financial system and issued specific code of corporate governance for the Banks. The current CBN Governor, Godwin Emefiele has the challenge to ensure that we do not go through another cycle of Bank failures by keeping keen eyes on the corporate governance of the Banks and ensuring we sustain and improve on the current level.
As at 2014, it can be seen that we have traversed cycles of corporate governance regimes. Have we attained the optimum? Certainly not, but it is certain that we are miles away from where we were in 1914. On this critical entrepreneurial component of corporate governance, Nigeria has made significant strides in the last one hundred years. But we are not quite there. It is quite clear that we need to raise our game in corporate governance in both publicly quoted and private companies. The cost of corporate failures is getting too high and everything must be done to prevent another cycle.
Finally, we must encourage private companies and unquoted companies to focus on improving their corporate governance practices. Whereas the focus has been on the publicly quoted companies, the nation is losing a lot from poor or sometimes nonexistent corporate governance practices in the private companies, more so in the small and medium scale enterprises. The Corporate Affairs Commission (CAC) is encouraged to take up the initiative to enforce good corporate governance practices in non quoted companies. Similar attention must also be paid to organizational and institutional governance. They all will add up to make Nigeria a preferred destination for investment and improve our global competitiveness as we journey through the second century. See you in 2114!
Mazi Sam Ohuabunwa
