Corporate Governance: Good Tool for Accountability

Corporate Governance is an embodiment of policies, guidelines, and systems of practices by an entity in a bid to conform to global best standards. It permits a system of direction and control that dictates how a company’s board of directors governs and oversees its affairs aside from the daily operational management activities in use by its executives.

Corporate governance abides by the principles of transparency, accountability, and security and enhances a company’s wellbeing, just as it degenerates, and debars a company from achieving its stated goals when poorly applied, and causes it to collapse, and inflict significant financial losses on shareholders.

Bad governance occurs in several ways, resulting in poor monitoring and oversight, lackadaisical corporate culture, widespread unethical business practices, and lack of leadership integrity, among others, ending disastrously for businesses irrespective of how long or well established they were to disprove the term, ‘too big to fail’. 

Principles of Corporate Governance

The central focus of corporate governance in Nigeria is making those in the management position of companies more accountable, responsible, and sensitive to the interest of shareholders, creditors, and members of the public, having as its fulcrum the following laws: The Companies and Allied Matters Act, establishing the Corporate Affairs Commission (CAC) and charged with the responsibility of supervising, forming and winding up companies, the Investment and Securities Act that is responsible for the establishment of the Securities and Exchange Commission to regulate the capital market, security investment and merger and acquisitions, Banks and other Financial Institutions Act 2020, governing financial institutions in the country, the Insurance Act; and the Financial Reporting Council of Nigeria Act.

Established that the board of directors, management and shareholders, creditors, customers, and regulators or government agencies are parties that are particularly involved in corporate governance in Nigeria with the Companies and Allied Matters Act Cap c20, remaining a major law regulating it, the Act provides mechanisms for corporate governance, including the modus operandi for appointing directors of a company, removal of directors, provision of auditors and audit committee members and mandatory involvement of shareholders in the making of corporate decisions.

The Securities and Exchange Commission (SEC), on its part, regulates and constantly enacts codes or rules for corporate governance in the public sector, including the Central Bank of Nigeria (CBN), which as well does the same, making unquantifiable rules for corporate governance in various sectors of the economy.

On the list of the various codes, regulating corporate governance in the country is the code of corporate governance for public companies, 2011 (Sec code), which applies to all public companies and quoted private companies in the capital market in Nigeria, code corporate governance for banks and discount houses in Nigeria and guidelines of whistleblowing on the Nigerian banking industry, code of corporate governance for other financial institutions in Nigeria, 2019, applicable to microfinance banks, finance companies, and bureau the change, securities, and exchange commission rule 2013, listing the rules of the Nigerian Stock Exchange, code of business ethics and principles on corporate governance for the insurance industry, and the Financial Reporting Council (FRC) code of corporate governance.

Corporations adhere to the codes of corporate governance in the quest to reflect the company’s economic strength and assure existing shareholders.

The Nigerian code of corporate governance 2018, now the most recent, was released on January 15, 2019, by the Financial Reporting Council (FRC), and its implementation is based on the “Apply and Explain” principle, compelling the application of all principles and requiring corporate entities to explain how the principles were applied to suit their unique organizational context as they achieve the intended outcome of the principles.

Corporate governance is generally a key driver to the establishment of any sustainable company, hinging its principles on the following:

Shareholder Interest

Board of directors, management and shareholders, creditors, customers, and regulators or government agencies remain the main parties involved in corporate governance in the country with the Companies and Allied Matters Act Cap c20, being a major law regulating it.

But the most significant principle of it all remains the recognition of shareholders – their importance to a company, and then the recognition that those who buy a company’s stock fund its operations, and equity, is a major source of funding for businesses. Secondly, the basic recognition of shareholders’ importance accords them to the principle of responsibility.

The policy of allowing shareholders to elect a board of directors is critical, a board’s “main directive,” being to always seek the best interests of shareholders. 

Added to that, with the board of directors being in charge of hiring the executives, comprising the team that manages the day-to-day operations of a company, it implies that shareholders effectively have a direct say in how a company is run.

Transparency

Recognized as a major part of corporate governance, shareholders stand the chance of reaching out to community members with little or no interest in the company but could benefit from its goods or services, to encourage communication lines that promote company transparency. 

Community members that way, directly or indirectly affected by a company, including members of the press, are able to get a clear sense of a company’s goals, tactics, and how it does generally.

Transparency makes it possible for anyone, whether inside or outside the company, to review and verify the company’s actions, an initiative that fosters trust, encourages more patronage and fetches more shareholders.

Security

Obviously also an important aspect of corporate governance, as it gives shareholders and customers (clients) confidence in the security of their personal information, and it further makes the company’s proprietary processes and trade secrets secure.

A data breach weakens public trust in a company, negatively affect its stock price, and loses access to necessary capital for corporate growth as investors’ trust wanes.  

Poor Corporate Governance

With corporate governance, a system of rules, policies, and practices set up for a company to foster accountability, every major piece of the “government” – shareholders, board of directors, the executive management team, and the company’s employees – become responsible to each other, and accountable, and you have the board regularly reporting financial information to shareholders to reflect the corporate governance principle of transparency.

A company runs the risk of collapse and makes shareholders suffer substantially when good corporate governance is jettisoned.

 Wholly Keeping to Good Corporate Governance

You are surely into good governance practice if you systematically manage and supervise your organization properly as it stands to positively impact its sustainability and profitability. 

A practical example of good governance involves conducting regular board meetings, and audits, among others, but a holistic approach to governance remains the most effective way to achieve good corporate governance and avoid it becoming a tick box exercise.

Keeping wholly to good governance involves implementing robust policies and procedures, hiring the right people with relevant skills and competencies, and implementing the right systems, for example, regulatory technology to enhance reporting and supervision, among others more effectively. 

The 4 P’s (People, Purpose, Process, and Performance) of corporate governance, when combined, facilitate a conducive working culture and environment in which organizations and companies can thrive from day one. It’s never even too soon to begin to implement good governance by early-stage companies and startups. 

Corporate failings arise and go unnoticed if a board fails to meet regularly, and inadequate supervision of the operations of the organization creeps in. It could also occur if there are absences of policies and procedures to catch and report operational breaches or bad conduct, including whistleblowing and escalation, among others.

Implementation of good governance invariably rests with the Executive Management, and with smaller companies, the business owner or founder, giving a clue to where the ‘tone from the top’ expression emanates from. 

Good governance becomes part of an organizational culture if championed by topline management. 

On the other hand, however, an organization gradually becomes poorly governed and nosedive into problems if the Executive Management, Board, and Chairman or founder, as the case may be, fails to pursue and establish good governance.

 Benefits

It’s common knowledge now that organizations that invest more resources in good corporate governance practices, systems, and policies ‘produce substantially better market results, and weather the storm of economic downturn’ with less difficulty, just as it improves the top-level decision-making process, create better control environments and reduce wastage. 

 The implementation and practice of good governance also enhance the value proposition of organizations as companies, which take governance and due process more seriously and rarely run into trouble. 

Good corporate governance aids greater financial management and supervision and checks incidents of internal corruption, financial leakages, and ‘cooking the books, among others. 

It as well increases stakeholder confidence in the process, reflects positively on the balance sheet in the long term, and collectively has a positive knock-on effect on the market to aid market confidence and stable, long-term international investment flows into a country.  

Companies should never take corporate governance for granted, no matter their size, good corporate governance enhances profitability and sustainability.

The Consultants’ Stimuli

Corporate governance has become remarkable sustenance of company survival and growth. Given then the number and types of firms now offering the service, investors have begun calling on boards to have independent third-party experts, conducting their board evaluations from time to time and consistently strengthening their corporate governance.

SSAC Advisory and Professionals (SSAC) are consultants in corporate governance. They help firms to work out suitable corporate governance structures and policies that will guarantee effective leadership, responsible stewardship, effective management, and the highest level of corporate excellence.

From Board Governance, Ownership Governance, Family Business Governance, Risk Governance, Merger and Acquisition Governance, and Stakeholder Governance to Corporate Governance Evaluation, SSAC conducts independent board evaluations, skill assessments, and governance reviews, consulting with boards and senior management on practical corporate governance to set them on achieving their long-term objectives and improving business performance, and utilizing fully a strategic, engaged and forward-focused boards.

Added to that, it ensures that you have a perfect governance structure in place to clearly clarify and differentiate the decision-making responsibilities of business owners, boards of directors, and management, reworking key governing documents to support internal ownership transfer objectives.

Additionally, SSAC assists you in creating a strategic board that is effective for its intended purpose, assessing its effectiveness, and identifying areas for improvement. It trains directors and boards in best-of-class governance practices and coaches them on how to run an effective board meeting.

It provides corporate governance consulting services, using a holistic approach to foster the relationship between a company and its independent advisor, using a team of experts, who develop strategies that are aligned with shareholder/stakeholder interests and organizational goals and objectives.

Its team works closely with the board and management of public, private, and not-for-profit organizations on strategic and governance issues.

SSAC’s expertise in corporate governance is awesome and incorporates as well Compensation Risk Assessment. It assesses all incentive programs and structures and ensures that they do not promote undue risk-taking.

SSAC, on the whole, shifts your thinking from merely meeting legal requirements to improving the strategic decision-making process, building for you robust tools and expanded resources to fuel business growth and sustenance through enhanced governance.