Corporate governance as panacea to organisational failure
While no one establishes a business to fail, many reasons have been adduced for why business ventures crash. One practice that has proven to bring businesses down quickly is hiring family members. It is believed that such a family member would rely on sentiments while taking sensitive decisions. Experts have argued that lack of good corporate governance in an organisation is akin to hiring family members. They argued that good corporate governance has one intention – the wellbeing of the business.
They insisted that the existence of excellent business ecosystem would boost good corporate governance in Nigeria. According to them, high profile corporate scandals and failures, especially the 2008 financial institution meltdown, since the notion of good corporate governance now dominates much of the world’s professional and academic literature.
The Financial Reporting Council of Nigeria (FRCN), in 2018, produced the code of corporate governance for Nigeria’s private sector. The code was however approved by the Federal Government after various stakeholder engagements, and to a great extent has the support and buy-in of all relevant stakeholders in the country.
In a newsletter released by KPMG Nigeria, titled, ‘The Nigerian Code of Corporate Governance 2018, highlights and implications’, KPMG recognises that good corporate governance is a key driver in the establishment of sustainable enterprise.
The Nigerian Code advocates for stronger governance practices within companies and accountability to shareholders. The practices recommended in the Code will require companies – particularly those who have not previously been regulated by a governance Code – to conduct a preliminary assessment of their existing practices in line with the principles articulated in the code and put in place appropriate processes and practices to address any observed gaps.
Furthermore, the Code was also silent on the following areas that will enable the ease of implementation of the Code: Applicability and commencement period; Transition arrangement; Treatment of current sectorial codes in existence that may have more stringent rules; and guidance for the frameworks to be utilised in developing and reporting on internal control and sustainability frameworks.
Consequently the FRC will need to issue directive on the areas noted above to properly guide companies in the implementation of the Code.Partner, Board Advisory Services, KPMG Nigeria, Tomi Adepoju, said alignment with leading corporate governance practices will guide companies in establishing a framework of processes and attitudes that increases their value, builds their reputation and ensures their long term prosperity.
She submitted that considering the developing awareness and relatively low institutionalisation of leading governance practices in Nigeria, the implementation of the Code may be challenging for those who have not previously had to comply with any corporate governance codes. Whereas, implementation of the principles should be relatively easier for companies that have previously been subject to the provisions of sectorial codes.
She added: “It is our hope in KPMG Nigeria that companies in various sectors of the Nigerian economy, find this publication useful for their corporate governance journey.”Speaking at the stakeholders’ forum on Nigerian Code of Corporate Governance 2018, organised by Institute of Director Nigeria (IoD) Nigeria, Executive Secretary/Chief Executive Officer, Financial Reporting Council of Nigeria (FRCN), Daniel Asapokhai, said the code for good corporate governance is not an end in itself.
Asapokhai in his keynote address said as more companies achieve good corporate governance by implementing policies and practices to meet its requirements, support economic efficiency, sustainable growth and financial stability.He opined that adherence to the code will help companies obtain capital for long-term investment and help to ensure that shareholders and other stakeholders who contribute to the success of companies are treated fairly.
“Nigeria Code for Corporate Governance (NCCG) 2018 is a tool to democratize and propagate good corporate governance to all important sectors of the economy, and to high growth businesses of all sizes in all our major commercial centres. Importantly, it provides us all with, a common language to understand, recognise and drive implementation of good corporate governance,” he added.
Asapokhai said the aviation industry has recently come into the spotlight due to the unfortunate accident experienced by one of the leading airlines on the continent, saying, “Nigeria’s aviation industry has a chequered history and is presently not a sector you look to for best practices in corporate governance.”
He further explained that the code espouses good principles and practices that are designed to increase trade and investment and promote sustainable development by the strengthening of the governance arrangements of the country’s commercial institutions and businesses.His words: “Over time, we also envisage that application of the code will be attached to an even wider range of corporate entities by similar government instruments or even commercial contracts and financing agreements.
“Given that the code has been in the public domain for several weeks now and the robust engagement that preceded its issuance, I guess it is safe to assume a high degree of familiarity with the document by stakeholders. “We must all be well familiar with the 28 principles set out in the code and relating to the six governance pillars of (1) the Board and its officers. (2) Assurance. (3) Relationship with stakeholders. (4) Ethical business conduct. (5) Sustainability and (6) Transparency.
“For the FRC, we believe in the efficacy of a multi-stakeholder approach to discharge our responsibilities of monitoring and enforcement of compliance. And we see a well-informed public as being very critical to achieving success in the area of corporate governance.
“We have a unique opportunity to leverage NCCG 2018 to drive sustainable development in Nigeria. The code provides a new yard stick for benchmarking of public interest entities and will help all stakeholders to insist on high-quality governance arrangements.”
On his part, Chief Executive Officer, Global Governance Services Limited, UK¸ Dr. Chris Pierce, described corporate governance as establishing an organisational framework of processes and attitudes that focuses on long-term continuity and success to add value to the business and build its reputation.Pierce said the principles of good corporate governance are based on responsibility, accountability, fairness and transparency.
While the drivers of corporate governance are internal awareness of business case, that is, creating long-term growth and shareholder value, Pierce said the code principles need to be applied passionately and faithfully across the Nigerian business community.Earlier in his remarks, President and Chairman, Governing Council, IoD Nigeria, Ahmed Rufai Mohammed, said good governance is indispensable in the quest to strengthen national economy, which can only be achieved through transparent and efficient management of all resources.
Mohammed said most of the attention has focused on cases in developed nations saying the developing countries are not however immune from the challenges posed by poor corporate governance. In Nigeria, the cases of bank failures experienced in 1993 due to poor governance in the conduct of corporate boards are reference points. “We have experienced poor governance in the conduct of our corporate boards as has been evident in the case of bank failures as far back as 1993 and even most recently. Outside the banking industry, similar evidences also exist but we prefer to live in denial.
“The institute believes in the principle that organisations are set up as enduring entities or going-concerns. IoD believes that effective governance makes every organisation more focused and competitive. It is therefore important that a company’s governance processes must meet global standards of best practice in order for it to secure and retain capital investment, which will lead to its financial sustainability.“Financial sustainability and prosperity ride on the back of good corporate governance which passes effective risk management and efficient utilisation of critical resources such as finance, human capital and technology,” Mohammed stated.
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