There was a time in the corporate world globally and in Nigeria when corporate governance took on a lifelike character; every discourse in the business world seemed to either start or end with corporate governance. The collapse of corporate giants like Enron, Lehman Brothers, and Compaq brought about intense focus. While the talk about corporate governance may not be as intense today as it was 10-15 years ago, it is nonetheless as critical to a company’s success today as it was then. “A company that is regarded as having good corporate governance typically has access to a variety of financing options,” says Oscar Onyema, former Group Chief Executive Officer of Nigerian Exchange Limited (NGX).
Many seem to believe corporate governance is all about filing a company’s financial or tax returns. Companies like Enron, Lehman Brothers, Volkswagen, Xerox, Compaq, and Northern Rock, and in Nigeria, Diamond Bank, Oceanic Bank, NITEL, and Nigeria Airways may not have failed if that were the case because they diligently filed their returns and taxes.
Corporate governance is crucial for organisations, particularly in the financial services industry, where integrity and transparency are essential for success. It involves rules, adherence to regulations, ethics, and strong leadership. The financial services sector has consistently been at the forefront of corporate governance codes, even before the Financial Reporting Council of Nigeria (FRCN) developed a consolidated document.
The planned recapitalization of banks by the CBN may have thrown the corporate governance issue back into everyday discussions among shareholders and capital market investors. Experienced investors know that corporate governance is pivotal to any decision on equity investment because, no matter how supposedly sound a company is, poor management will eventually undo the business.
The CBN had announced plans to recapitalize the banks late last year. And after months of waiting for the recapitalization guideline, the apex bank finally released it on Thursday. CBN announced, through its Acting Director, Corporate Communications, Sidi Ali, that “commercial banks with international authorization” will have to shop for N500 billion to shore up their capital, while national banks will require N200 billion and regional banks N50 billion. National non-interest banks will need N20 billion, while their regional peers will require N10 billion to stay in business.
The implication of the recapitalization exercise is that in the next few weeks, banks will approach the market to convince investors to pick up their stocks. And this is when the corporate governance conversion will come to the table. “The level of a company’s compliance with the tenets of corporate governance will determine the attractiveness of such a company to international investors,” Onyema says.
Indeed, many banking industry players fancied themselves as corporate governance champions. But the true test of corporate governance includes consistent solid performances, ethical business practices, a well-established succession plan, and a transparent and inclusive governance framework that has employers as a key plank. “Indeed, good corporate governance should result in improved profitability,” according to Onyema.
The NGX underscored the importance of corporate governance when, in 2014, it established what it called the Corporate Governance Rating System (CGRS) certification. The CGRS, the NGX said, is “aimed at promoting ethical business practices, transparency, and fair competition in listed corporations.” The Exchange followed this up with a Corporate Governance (CG) Index, with only companies certified as having a robust corporate governance practice admitted to the index.
Corporate governance is crucial for organisational success, focusing on board independence, diversity, and competence. Independent directors challenge management, evaluate performance, and uphold governance standards. Regular board evaluations and training programmes enhance board effectiveness by aligning with strategic objectives and values and ensuring alignment with the bank’s values.
Transparency is a fundamental aspect of a company’s corporate governance philosophy. Brands must adhere to strict disclosure requirements, providing accurate information about financial performance, risk management, and governance structure. This open dialogue fosters trust and confidence in operations.
Banks are preparing for recapitalization and must demonstrate their corporate governance credentials to investors. Financial performance results can provide insight into a company’s corporate culture. While banks haven’t submitted their full-year 2023 audited results to the NGX, many reported credible results showcasing a strong corporate governance culture.
Fidelity, a bank with strong corporate governance practices, has seen a significant increase in its gross earnings and profit in 2023 compared to 2022. Gross earnings increased by 64.31 percent from N337.05 billion to N553.90 billion, while profit grew by 116.92 percent. This growth was largely driven by net interest income and foreign exchange gains, resulting in an earnings yield of 24.72 percent. Despite the growth in its loan book, Fidelity’s relatively low non-performing loan ratio of 3.8 percent reflects improvements in asset quality and risk management.
Fidelity Bank Plc, a Nigerian bank, has seen significant growth in recent years due to its innovative board and management. The bank’s board chairman and CEO have been working together to achieve great results, resulting in consistent historical performance. Financial analyst Ambrose Omordion suggests that these efforts may have transformed the bank into the fastest-growing bank in Nigeria.
Fidelity Bank Plc, a Nigerian bank, has seen significant growth in recent years due to its innovative board and management. The bank’s board chairman and CEO have been working together to achieve great results, resulting in consistent historical performance. Financial analyst Ambrose Omordion suggests that these efforts may have transformed the bank into the fastest-growing bank in Nigeria.
Fidelity Bank effectively manages various risks, including credit, market, operational, and compliance, to safeguard stakeholders’ interests. By adhering to regulatory requirements and industry best practices, the bank minimises liabilities and protects its reputation, ensuring compliance with laws and ethical standards.
Despite the noticeable strides in corporate governance, the country’s banking sector will be tested in the coming weeks when recapitalization commences. Banks like Fidelity and others face various challenges in sustaining and enhancing their governance practices. These include evolving regulatory requirements, emerging risks, technological disruptions, and changing stakeholder expectations. However, they need to remain proactive in addressing these challenges, leveraging innovation, collaboration, and continuous improvement.
Adebayo, a Financial analyst, writes from Ikeja, Lagos.
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