Every year, businesses unveil ambitious growth strategies. They expand into new markets, launch innovative products, raise fresh capital and hire top talent. Yet companies operating in the same country, and often within the same industry, with access to broadly similar opportunities, frequently experience markedly different outcomes. Some become industry leaders, while others struggle to survive.

The explanation is rarely as simple as a poor strategy. A company’s success or failure is shaped by forces operating at three distinct levels: the external environment, the industry in which it competes, and the way the company itself is governed and managed. The first two determine the conditions under which a business operates. The third determines how well it responds to those conditions.

The Business Environment

Every company is shaped by the economic, political, legal and social environment in which it operates.

Stable governments, effective legal systems, transparent regulation, reliable infrastructure, access to finance and low levels of corruption create conditions that encourage investment and growth. By contrast, policy uncertainty, weak institutions, inflation, currency instability, poor infrastructure and inconsistent regulation can make doing business significantly more difficult. The World Bank has similarly emphasised the importance of effective institutions, accountability, transparency and the broader investment environment to economic and private-sector development (World Bank, 2016).

These factors affect virtually every company within a jurisdiction. A manufacturer, a bank and a technology company operating in the same country are all subject to the same macroeconomic realities, even though they experience them differently. Companies cannot control these conditions, but they are not merely passive recipients of them. They choose how much exposure to carry, through decisions on leverage, currency matching, supply chains and the markets in which they operate, and the larger among them can influence policy itself. Those choices reflect the risk appetite set by the board, which is the first point at which the environment and governance meet.

The Industry

Even in a healthy economy, not every industry offers the same opportunities. Some sectors benefit from strong demand, high barriers to entry and attractive profit margins. Others are characterised by intense competition, limited differentiation, high capital requirements or rapid technological disruption.

Michael Porter’s Five Forces framework explains why profitability differs across industries. Competitive rivalry, the bargaining power of customers and suppliers, the threat of new entrants and the threat of substitute products or services together determine how much of the value created in an industry its participants are able to capture (Porter, 1979; Porter, 2008).

For this reason, an exceptional management team operating in an industry facing structural decline may still struggle to deliver long-term growth. Conversely, businesses operating in favourable industries may enjoy advantages unavailable elsewhere.

The Company

If the external environment creates the playing field and the industry defines the rules of competition, what then explains why one company consistently outperforms another facing the same conditions?

Companies make decisions every day. They decide whether to acquire competitors, enter new markets, invest in technology, raise debt, declare dividends, appoint executives, manage risks or respond to regulatory change. Over time, these decisions determine whether a business creates value or destroys it.

The more useful question is what enables some companies to make good decisions consistently, and to recognise and correct bad ones quickly.

Corporate governance is a significant part of the answer, although not the whole of it. Governance does not itself make most of a company’s decisions; management does. What governance determines is who decides, on what information, subject to what challenge, under what incentives, and with what consequences when a decision proves wrong.

Nokia provides a useful illustration. Once one of the world’s dominant mobile-phone companies, Nokia faced a rapidly changing industry as Apple and Google transformed the smartphone market. Its decline cannot, however, be explained simply by saying that competitors became better. Research into Nokia’s collapse found that a series of strategic, technological and organisational decisions worsened the company’s position and contributed to the sale of its mobile-phone business to Microsoft in 2014 (Lamberg et al., 2020).

The story becomes even more instructive when viewed through the lens of governance. Vuori and Huy’s study of the company, based on extensive interviews with its managers and engineers, found that a climate of fear between layers of management made it difficult for unwelcome information to travel upwards (Vuori & Huy, 2016), contributing to a gap between the reality facing the company and the perceptions of senior management. Yet Nokia’s story did not end with its collapse in mobile phones. Its board, chaired from 2012 by Risto Siilasmaa, subsequently played an important role in helping the company pursue a radical strategic shift towards telecommunications infrastructure, through the purchase of Siemens’ half of Nokia Siemens Networks in 2013, the sale of the handset business and, ultimately, the acquisition of Alcatel-Lucent, completed in 2016 (Huy & Vuori, 2018).

Nokia’s experience therefore demonstrates an important point: governance does not prevent every strategic mistake. Rather, it can determine whether an organisation is capable of recognising those mistakes, challenging existing assumptions and changing direction before it is too late.

Corporate Governance

Corporate governance is often misunderstood as little more than regulatory compliance or board meetings. In reality, it is considerably broader.

Corporate governance is, in the Cadbury Committee’s well-known formulation, the system by which companies are directed and controlled (Cadbury, 1992). It establishes how decisions are made, who has authority to make them, how risks are managed, how executives are supervised and whose interests the company ultimately serves. The OECD describes corporate governance in terms of the relationships among a company’s management, board, shareholders and stakeholders, and the structures through which objectives are set, decisions are made and performance is monitored (OECD, 2023).

It encompasses the composition and effectiveness of the board of directors, shareholder rights, voting mechanisms, executive appointments, board independence, executive remuneration, succession planning, risk oversight, internal controls, transparency, ethics and accountability.

The need for these arrangements arises from the separation of ownership and control first described by Berle and Means (1932) and later formalised as the agency problem by Jensen and Meckling (1976): those who manage a company are not those who bear the residual risk of its failure, and their interests will not always coincide. In many Nigerian companies, however, the more pressing problem is not the dispersed shareholder confronting powerful managers but the controlling shareholder, often a founder or founding family, whose interests may diverge from those of minority investors and creditors. Governance arrangements designed for the first problem do not necessarily solve the second, and much of the practical work of governance in Nigeria lies in managing related-party transactions, securing the genuine independence of directors from controlling shareholders, and handling the transition from founder leadership.

A mature understanding of corporate governance also requires recognising that companies do not operate solely for the interest of one constituency. Stakeholder theory, associated principally with Freeman (1984), holds that while shareholders provide risk capital and participate in the value created by a successful business, companies exist within a broader network of relationships involving employees, customers, suppliers, creditors, regulators and communities. Umeike (2026) has argued that the question acquires particular force when a company is in financial distress, because the residual economic interest in the company moves towards its creditors as insolvency approaches, and directors who continue to act solely for shareholders at that point are in effect risking other people’s money.

This becomes particularly evident when companies face difficulty. During periods of growth and profitability, the interests of shareholders and other stakeholders often appear aligned. However, when financial pressure emerges, competing interests become more visible. Decisions that preserve shareholder value in the short term may expose creditors, employees or other stakeholders to greater losses. The law has begun to recognise this shift. In BTI 2014 LLC v Sequana SA [2022] UKSC 25, the UK Supreme Court held that where directors know or ought to know that a company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable, their duty to act in the interests of the company requires them to consider the interests of creditors and to give those interests greater weight as the company’s position deteriorates. Nigerian authority on the point under CAMA 2020 remains undeveloped, but the decision is likely to be treated as highly persuasive.

Good governance therefore requires boards to understand not only who benefits when things go well, but also who bears the consequences when things go wrong.

Corporate Governance Shapes Decision Quality

In a sudden economic downturn, every company operating within the same economy experiences similar pressures. Demand falls, financing becomes more expensive, customers reduce spending and investors become cautious. Yet some businesses emerge stronger while others collapse.

The downturn does not by itself determine the outcome. The quality of the decisions the company makes, and of their execution, matters at least as much, and many of the most consequential decisions will have been taken before the downturn began.

Should the company reduce costs or continue investing? Should it preserve cash or pursue acquisitions? Should it restructure operations or diversify revenue streams? Should it replace underperforming leadership or stay the course?

These decisions are not made in a vacuum. They are influenced by the governance structures already in place.

A strong board challenges assumptions without undermining executive authority. Independent directors can provide objective oversight, provided they are independent in substance as well as in form and have sources of information that do not pass solely through management. Executive incentives can encourage long-term value creation rather than short-term gains. Robust risk management can identify threats before they become crises. Clear succession planning can ensure leadership continuity during periods of uncertainty. These functions are consistent with the OECD’s principles on board responsibility, strategic oversight, risk management, independent judgement and ethical leadership (OECD, 2023).

Poor corporate governance produces the opposite effect. Boards become passive, executives operate without meaningful oversight, incentives reward short-term performance at the expense of sustainable growth, and risks remain unaddressed until they threaten the survival of the business.

Wells Fargo offers a cautionary example of what happens when these mechanisms fail to work effectively.

An investigation commissioned by Wells Fargo’s independent directors into the bank’s retail sales-practices scandal found that the problem was not simply the misconduct of individual employees. The investigation identified a distorted sales culture and performance-management system, aggressive sales management and excessive autonomy within the Community Bank as central causes of the improper practices. It also found weaknesses in how information about the problem reached the board (Wells Fargo Independent Directors, 2017).

The lesson extends beyond banking. Incentives are part of governance because they shape behaviour. A company may have a board, policies, risk committees and compliance functions on paper, but if its incentives consistently reward the wrong behaviour, the formal structure of governance can become almost meaningless.

The consequences of such failures may not be immediate, but they can be severe. In Wells Fargo’s case, the Federal Reserve imposed in 2018 an unprecedented restriction on the growth of the bank’s total assets, which was not lifted until June 2025, and in 2020 the bank agreed to pay US$3 billion to resolve criminal and civil investigations by the United States Department of Justice and the Securities and Exchange Commission.

The Real Test of Governance Comes During Crisis

The quality of corporate governance is not truly revealed during periods of expansion. When revenue is growing, capital is available and markets are favourable, almost any organisation can appear well managed.

The real test comes during periods of uncertainty. When a company faces declining performance, regulatory pressure, financial distress or strategic failure, governance determines whether leadership can recognise reality early enough and respond effectively.

Financial distress places particular demands on a board. The decisions that matter most at that stage usually concern timing: whether to engage with creditors early, whether to seek fresh capital or a restructuring while there is still value to preserve, and whether to use the formal rescue procedures now available. The Companies and Allied Matters Act 2020 introduced company voluntary arrangements and an administration regime under which the company or its directors may appoint an administrator, whose task is to rescue the company as a going concern or, failing that, to achieve a better result for creditors as a whole than a winding up would. These procedures are only as useful as the willingness of directors to use them before the value of the business has been dissipated, and that willingness is itself a product of governance.

But crisis does not always mean governance has failed. Sometimes, the crisis itself is external. What matters then is the quality of the organisation’s response. The 1982 Tylenol crisis at Johnson & Johnson provides a useful illustration. Seven people died after taking cyanide-laced Tylenol capsules, even though the tampering occurred after the product had left the company’s manufacturing process. Johnson & Johnson nonetheless recalled approximately 31 million bottles of Tylenol at a cost of more than $100 million and subsequently reintroduced the product with tamper-resistant packaging (FDA; Washington Post, 1982).

The decision was commercially painful, but it demonstrated something important about leadership and governance: when faced with uncertainty, the organisation had the institutional capacity to prioritise consumer safety, act decisively and accept substantial short-term cost in order to protect long-term trust. The response has since become a widely studied example of corporate crisis management (Wharton, 2012).

The handling of the crisis is commonly attributed to the company’s chairman, James Burke, and to the Johnson & Johnson Credo, a statement of corporate responsibilities written in 1943 which placed the company’s obligations to those who use its products ahead of its obligations to shareholders. The Credo gave management a settled rule for deciding whose interests came first before the crisis arrived, which is precisely the kind of guidance governance is meant to provide.

Strong governance structures create the conditions for difficult conversations and decisive action.

In this sense, governance is not simply about preventing failure. It is about ensuring that when challenges emerge, the company is able to recognise them, respond to them and, where necessary, change course.

Corporate Governance Alone Does Not Guarantee Success

It would be inaccurate to suggest that good corporate governance guarantees business success. It does not. Well-governed companies can still be disrupted by technological change, geopolitical instability, natural disasters or structural changes in consumer behaviour. Similarly, poorly governed businesses can sometimes prosper for years because they benefit from monopoly power, favourable market conditions or exceptionally talented founders.

Over the long term, however, governance can significantly influence the probability of sustained success. The World Bank has identified good corporate governance as important to improving access to finance, reducing risk and strengthening capital markets, while the IFC similarly identifies governance as a factor in operational efficiency, risk mitigation and access to capital (World Bank, 2016; IFC, 2019).

The academic evidence is broadly consistent with this view, although it is more qualified than advocacy for good governance often suggests. Gompers, Ishii and Metrick (2003) found that firms with stronger shareholder rights had higher valuations and returns, and Klapper and Love (2004) found that firm-level governance matters more in countries where the legal protection of investors is weak, a finding of obvious relevance to Nigeria. It remains difficult, however, to establish that better governance causes better performance rather than accompanying it, since well-performing companies may simply be better placed to adopt good practice.

Businesses with sound governance structures are therefore better positioned to make strategic decisions, allocate capital effectively, attract strong leadership, manage risk proactively and earn the trust of investors, employees, regulators, customers and other stakeholders.

Governance as a Source of Advantage

Increasingly, investors are evaluating companies not only by financial performance but also by the quality of their governance. Strong governance can reduce uncertainty and improve investor confidence, thereby supporting access to capital. The OECD identifies transparency, accountability, investor protection and effective board oversight as important elements of well-functioning corporate governance systems (OECD, 2023).

It can also improve relationships with regulators because accountability is embedded in decision-making. It can attract high-quality executives because leadership roles are supported by clear responsibilities and effective oversight. It can strengthen resilience because organisations with disciplined governance are better equipped to identify and respond to risks.

Nigeria’s own regulatory framework reflects the importance placed on these principles. The Companies and Allied Matters Act 2020, in particular in sections 305 and 308, imposes duties on directors to act honestly, in good faith and in the best interests of the company, while exercising the care, diligence and skill expected of a reasonably prudent director. The Nigerian Code of Corporate Governance 2018, issued by the Financial Reporting Council of Nigeria and applied on an ‘apply and explain’ basis, similarly emphasises board responsibility, risk management, internal controls, ethics, accountability and long-term sustainability. Governance, therefore, should not be viewed merely as something companies do because regulators require it. Properly practised, it is an asset.

Nigeria also supplies its own evidence of what happens when these duties are neglected. In 2009 the Central Bank of Nigeria removed the chief executives and executive directors of eight banks after special examinations found weak risk management, excessive insider lending and inadequate board oversight, and the Asset Management Corporation of Nigeria was established the following year to absorb the resulting non-performing loans. That episode remains the clearest domestic illustration of governance failure becoming systemic, and it explains why Nigerian banking regulation now contains some of the most prescriptive governance requirements in the economy.

Conclusion

Business success is rarely determined by a single factor. The external environment creates opportunities and constraints. Industries define the competitive landscape. Companies then decide how to respond. That response is shaped, to a significant degree, by corporate governance.

Nokia shows what can happen when an organisation struggles to recognise and respond to fundamental changes in its environment. Wells Fargo demonstrates how distorted incentives, organisational culture and inadequate oversight can allow problems to become systemic. Johnson & Johnson illustrates the other side: when an unexpected crisis arrives, strong leadership and an organisation’s underlying principles can determine whether the crisis becomes a permanent loss of trust or an opportunity to demonstrate institutional resilience.

At its best, governance creates a framework for disciplined decision-making, effective oversight, responsible leadership and long-term value creation. It cannot eliminate uncertainty or guarantee success, but it can significantly improve an organisation’s ability to navigate complexity and adapt to change.

The ultimate test of governance is not how a company behaves when everything is going well. It is how the organisation responds when circumstances become difficult.

Financial distress, strategic failure, regulatory challenges and market disruption reveal whether governance structures are merely formal arrangements or whether they genuinely provide the discipline, accountability and leadership necessary for survival. That may ultimately be what distinguishes companies that prosper only while conditions are favourable from those that endure when conditions change.

Chioma Hildamara Nwaugo is a business development professional at Stren & Blan Partners, with experience spanning business strategy, strategic partnerships, client relationship management, market research, and brand positioning. Her work involves supporting business growth initiatives, conducting legal market research, developing proposals and pitches, and strengthening relationships with clients and strategic partners. Email: [email protected] | [email protected]

 

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