CORPORATE GOVERNANCE -THE PANACEA TO BUSINESS SUSTAINABILITY?
Corporate governance and sustainability are fundamental to the continued survival of any corporation.1 Corporate governance is a key success factor for businesses, as it has been associated with improving sustainability performance and gaining the trust of investors.2 The effect of good governance in businesses cannot be over emphasised as history has shown how important it is to the sustainability of businesses.
A cursory look into the history of Corporate Governance would show that the main impetus for better practices in corporate governance began in the United Kingdom in the late 1980s and early 1990s. The Report of the Committee on the Financial Aspects of Corporate Governance (the ‘Cadbury Report’) was published in 1992 and was later described as a landmark in thinking on corporate governance. Other committees were also set up over the years to look at the various aspects of Corporate Governance. The reports of the different committees were used to form the Combined Code which has been updated multiple times.3 In the United States, following the collapse of entities like Enron and WorldCom, the Sarbanes-Oxley Act, also know colloquially as (SOX) was signed into law in 2002, with far-reaching impact for accounting and legal practices within corporations.
In Nigeria, the principal statute regulating companies is the Companies and Allied Matters Act Cap. C20, 2004. Regulatory changes came through the issuance of different Codes of corporate governance by major regulators. The codes that were heralded include:
- Code of Corporate Governance for Banks Post Consolidation, 2006 issued by Central Bank of Nigeria (CBN).
- Code of Good Corporate Governance for Insurance Industry, 2009 issued by (National Insurance Commission) NAICOM .
- Code of Corporate Governance for Public Companies 2011 issued by Securities and Exchange Commission (SEC).
- Code of Corporate Governance for Banks and Discounts Houses in Nigeria and Guidelines for Whistle Blowing in the Nigerian Banking Industry 2014 and
- The Nigerian Code of Corporate Governance 2018 (NCCG 2018) released by the Financial Reporting Council of Nigeria (FRCN), which applies to regulate corporate governance for private and public companies, not for profit organisations and public interest entities in Nigeria.4
It is important to note that the main aim of these regulations is to ensure transparency, accountability and disclosure in the running of affairs of companies’ which will in turn guarantee investors’ confidence, protection of shareholders’ investment and flow of both local and foreign capital.
Corporate Governance is not just about how a company is directed and controlled to maximise performance and ensure accountability to stakeholders but rather how effective the governance is. Public, private and non-profit organisations all need to be governed effectively.
Corporate governance is the responsibility of the governing body, or the board of directors in the case of corporations. In achieving good corporate governance, it is required that all participants ensure they are accountable for their actions and fulfil their responsibilities.5
It is important to state here that the core principles of corporate governance are based on transparency, accountability, responsibility and fairness6 and the responsibility for ensuring the achievement of these principles are vested in the management team of corporations or businesses, as roles flow from top to bottom.
The principle of fairness connotes impartiality or lack of bias and also refers to the way companies and their officers treat stakeholders with some disadvantage such as minority shareholders, employees, foreign investors, as against the dominant players such as majority shareholders as well as providing effective redress for violations.
The principle of transparency ensures that there’s timely and accurate disclosure of all material matters, including the financial situation, performance, ownership and even corporate governance is made. It also ensures that financial statements are prepared in accordance with international financial reporting standards (IFRS), that the company’s registry filings are up to date, high quality annual reports are published among others 7 and lastly, the principle of Independence ensures that: procedures and structures are in place to minimize or avoid conflicts of interest and that the Board has independent non-executive Board members and advisors, i.e. those who are free … in both reality and appearance from a material relationship, which materially affects or interferes with one’s capacity to act independently.
In spite of the existence of these principles however, trends have shown that in the grand scheme of things, Nigerian corporations and businesses have not measured up favourably as many businesses have in the past, turned a blind eye to its importance and have as such caused irreparable damage to the prospect of the continued existence of the such businesses.
Factors attributable to poor governance practices include weak corporate culture, poor risk management strategies, lack of ethics, abuse of power, flagrant disregard for rules, regulations and processes and weakness of the board. It is an incontrovertible fact that many companies have folded up in Nigeria due to poor management, lack of control and respect for the separation of powers. This has thankfully, began to change with the increased understanding of the import of good corporate governance practices on business survival and longevity.
A business intending to be transgenerational must embrace the practice of good corporate governance as a long- term. Effective risk management strategies also should be embraced and not overlooked as have been done in the past. Good governance preserves the reputation, life and character of business-es and must as such be strictly adhered to achieve business sustainability.
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