Issues in Corporate Governance in Nigeria

Table of Content

PART 1 GENERAL PRINCIPLE
1.1. Introduction

PART 2 AN OVERVIEW OF THEORETICAL PRINCIPLE
2.1 General concept of corporate governance
2.1.1 Why do corporations exist?
2.1.2 Corporate Governance Defined
2.2 Importance of Corporate Governance
2.3 Corporate Governance in Africa

PART 3 ISSUES OF CORPORATE GOVERNANCE IN NIGERIA
3.1 Background
3.2 State of Corporate Governance in Nigeria
3.3 Implications of the Introduction of the 2003 Code of Corporate Governance.

PART 4 CASE STUDY: MISSTATEMENT IN THE PUBLISHED ACCOUNTS OF CADBURY NIGERIA PLC.
4.1 Brief Background
4.2 Genesis of the problem of misstatement in the published Accounts OF Cadbury Nigeria PLC (2002-2005)
4.3 Role of parties to the Corporate Scandal at Cadbury Nigeria Plc

PART 5 DISCUSSION
5.1 Introduction
5.2 Rebuilding Reputation and Restoring Trust

PART 6 CONCLUSION

References

Appendix

Dedication

This work is dedicated to the Holy Spirit my great partner and to the memory of my late father Christopher Okwuchukwu Uyanwune

(a.k.a. Okwuchineke)

Acknowledgement

I wish to express my profound gratitude to God for his mercy, kindness, guidance and protection throughout my stay in the UK. I am greatly indebted to the following for their immense contribution and support toward the actualisation of the dream. The Executive Management of Securities and Exchange Commission, My supervisor Professor Laixiang Sun for his patience and understanding, a most valuable friend Dr. Emilia Onyema. My Special Thanks goes to my family; as always you are the best. Finally, I would like to pay special tribute to mentor Mr. Daisy Ekineh; it is only God that can reward you for your labour of love.

PART 1 GENERAL PRINCIPLE

1.1. Introduction

Corporate governance refers to the system through which organization are directed and controlled. Following the experiences of failed companies in America and Europe in recent times and the resultant consequence on unemployment, wealth creation and shareholder value, corporate governance has taken a centre stage worldwide especially in emerging economies such as Nigeria that can ill-afford system failure.

Typically, in public corporations directors are elected by shareholders to manage the affairs of the corporate on their behalf; which by implications imposes on the directors fiduciary responsibilities. A person with fiduciary duty is a person entrusted with the power or property with the understanding that the person is working for the benefit of the individual(s) who may have entrusted them with such responsibilities – therefore directors have fiduciary responsibilities to work in the best interest of shareholders and for the benefit of shareholders not in the interest of some other people or their individual interest.

From all indications, the current global financial crises have revealed severe shortcoming in corporate governance across the global, there seems to be a common factor, an apparent lack of checks and balances needed by companies in order to cultivate sound business ethics bringing about the concern for improved corporate governance across all continents, this provides the needed motivation for this study. In Nigeria; for instance several public companies including local subsidiaries of western multinational companies have been criticized for various degrees of unethical practices. The case of Cadbury Nigeria PLC referred to as ‘Deliberate breaches of accounting system and controls’, are only a tip of the ice berg in Nigeria, a country that has for many years been sapped by widespread corruption.

The choice of Cadbury Nigeria Plc for this study is because of their strategic importance as industrial giant in Nigeria that are presumed to be well established and respected for decades. It is expected that this study will contribute to knowledge on corporate governance as well as proffer some solution to the shortcomings and challenges of corporate governance issues with reference to Nigeria.

PART 2 AN OVERVIEW OF THEORETICAL PRINCIPLE

2.1 General concept of corporate governance

Before delving into the issue of corporate governance, it would be worthwhile to look at the meaning of Corporate; this is because without a corporation there is absolutely nothing to govern. In the words of justice John Marshal in the 1819 Dartmouth case; corporation is an artificial being, invisible, and existing only in the contemplation of law. Being the mere creation of law, it possesses only those properties which the charter confers on it either expressly or as incidental to its very existence. These are such as are supposed best calculated to affect the object for which it was created. Among the most important are the immortality, and if the expression be allowed, individuality; properties by which a perpetual succession of many persons are considered the same and may act as a single individual’ (the history of corporation by Brown Bruce 2009 BF communications USA).

The black’s LAW Dictionary (1990) defines a corporation as ‘‘an artificial person or legal entity created by, or under the authority of the laws of a state, the corporation is distinct from the individual who comprise it’’

Eisenberg (1993) saw the business corporation as “an instrument through which capital is assembled for the activities of producing and distributing goods and services and making investments – Accordingly a basic premise of corporation law is that a business corporate should have as its objective, the conduct of such activities with a view to enhancing the corporation’s profit and the gains of the corporation’s owners, that is the shareholder’’

Monks and Minow (2004) are of the view that “a corporation is a mechanism established to allow different parties to contribute to capital, expertise and labour for the maximum benefit of all of them – the investor gets the chance to participate in the profits of the enterprise without taking responsibility for the operation ----the management gets the chance to run the company without taking responsibility of personally providing the fund’’

2.1.1 Why do corporations exist?

From the definitions; particularly the one by Monk and Minow, it is clear that corporation exist to meet the varying needs of the various constituents that make it up. These constituents include the directors, customers, creditors and suppliers; as well as the members of the community and the government. Consequently it would be right to say that there is constant interplay of the interest of the various groups that is constant interplay of needs and interest gave birth to the subject of corporate governance.

Fundamentally; corporations provide human beings with an outlet to satisfy essential human drivers-like quest for self-fulfilment, success, for creative expression, and for competitive spirit as well as security. This is to say that business corporations make it possible for skills and experiences to be competitively marketed and rewarded according to their contribution to value; thereby a providing a platform for the ambitious to achieve, the enterprise to prosper and the ingenious to be enriched beyond their fondest expectations.

Also corporations offer lasting and resilient social structures which were for centuries devoted to goals that were not necessarily financial – but power in the form of ability to create wealth through goods and services desired by a population willing to pay.

Furthermore corporations aid the translation of ideas into products thereby creating efficiency; in order words. Corporations makes it possible for people to get things done; such that the words ‘’businesslike’’ ‘’professional’’ or enterprise’’ becomes synonymous with beneficial efficiency and efficacy.

Finally, corporation have no boundaries in time and space- therefore continues even with the retirement or death of the highest officers leading to a greater and more lasting sphere of action for the individuals. It is in the light of the above reasons of why corporations exist that the definition given by Macy (2008) that corporate Governance is about promises is very relevant to why corporations exist - according to that definition by Macy, the purpose of corporate governance is to persuade, induce, compel and otherwise motivate corporate managers to keep to the promises they made to the investors; this is to say that. Corporate governance is about reducing deviance by corporations where deviance is defined as any action by management or directors that are at odds with the legitimate investment – backed expectations of investors. Good corporate governance therefore is simply about keeping promises- while bad governance (corporate deviance) is seen as promise- breaking behaviour.

The topic “corporate governance” has evolved to become a global phenomenon, particularly with the high profile financial scandals and collapses involving corporations which have hit almost every country without exception. This has made countries around the world to either engage in developing corporate governance codes or guidelines or to revamp and update those they already have in existence.

Corporate governance reforms became a worldwide issue in reaction to the many corporate scandals of the late 1990s and early 2000s.

In the US for example, the Sarbanes-Oxley Act of 2002 came in the wake of the collapse of Enron, WorldCom, Tyco and Global crossing.

The EU countries also took steps to stem the tide of corporate failures through the Bouton Report in France, the Higgs Review in the UK and the Cromme code in Germany.

In addition, international Standard setting Organizations like International Organization of Securities Commission (IOSCO), the Federation International de Bourse de Valores (FIBV), the World Bank and the OECD have equally been in the forefront for setting good corporate governance standard globally.

2.1.2 Corporate Governance Defined

The OECD provided a functional definition of corporate governance to mean “the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this it also provides the structure through which the company objectives are set the means of attaining those objectives and monitoring them.

But it is important to note that corporate governance has wider implications and is critical to economic and social well-being. First and for most, corporate governance provides the incentives and performance measures to achieve business success, in addition to providing the accountability and transparency needed to achieve business success, in addition to of the resulting profit or wealth. Thus the significance of corporate governance for the ability and equity of society is captured in the broader definition as offered by Adrian Cadbury (2004): ‘’corporate governance is, concerned with holding the balance between economic and social goals and between individuals and communal goals. The governance framework is there to encourage the efficient use of resources and to require accountability for the stewardship of those resources. The aim being to as nearly as possible meet the interest of individuals, corporations and society’’

However to align different interest into forms of productive collaboration is not an easy task, and company directors are ‘’charged with balancing the sometimes competing interests of a variety of groups that participate in public corporations’’ (Blair and Stout, 2001: 409) the Commission on Global governance viewed corporate governance as an on go-going process through which conflicting or diverse interest may be accommodated and co-operative action may be taken.

While the world Bank refers to ‘’corporate governance as that blend of law, regulation and appropriate voluntary private sector practices which enable the corporation to attract financial and human capital, perform efficiently, and thereby perpetuate itself by generating long-term economic value for the shareholders, while respecting the interest of Stakeholders and the society as a whole. The principal characteristics of effective corporate governance are:

i. Disclosure of relevant financial information and internal processes of management oversight and control.
ii. Protection and enforceability of the rights and prerogative of all shareholders.
iii. Directors capable of independently approving the corporation’s strategy and major business plan and decisions and of indecisions and of independently hiring management, monitoring management’s performance and integrity, and replacing management when necessary’’ (www.worldbank.org. Jan 1999).

In the words of Sheridan and Kendall (1992) ‘’different counties have different ideas as to what constitute good corporate governance’’ nowhere does any one appear to have given a universal that corporate governance is as diverse as the perspective from which the author views it. This can be exemplified by the definition by Tricker (1993:20) ‘’Corporate governance can mean many things to those concerned-institutional investors have a different perspective from regulators, board member from researchers. Insight can be drawn from professional and theoretical worlds or organizational behaviour, jurisprudence, financial economies, accounting and auditing, as well as from the experiential worlds of director’s behaviour and board practices.

Professor Kenneth Scoth of Stanford said that ‘’corporate governance in its most comprehensive sense includes every force that bears on the decision making of the firm. That would encompass not only the control of rights of shareholders, but also the contractual covenants and insolvency powers of debt holders, the commitments entered into with employees and customers and suppliers, the regulations issued by governmental agencies and the status enacted by parliamentary bodies. In addition the firm’s decision is powerfully affected by competitive conditions in the various markets in which it operates. One could still go further to bring in the social and cultural norms of the society. All are relevant, but the analysis would become so diffuse that it risks becoming unhelpful as well as unbounded.

2.2 Importance of Corporate Governance

Corporate governance is important because of its contribution to business prosperity and to accountability. Policy-makers around the world have a good enough reason to be concerned with corporate governance. It has been found that low corporate governance breads corruption. And corruption. An defined by (Rose-Ackerman, 1978) is the abuse of public office for private gain, in so far as the global anti-corruption campaign has been directed towards the demand side of corruption, that is the corruption government officials, the supply side is equally as important-therefore, the impact of the governance of corporation which are the main contributors of bribe payment should not be underestimated. To this end, it becomes imperative that rules of corporate governance such as for misses have profound impacts on the motives, constraints for both the corrupted and the corruptors involved in corrupt practices.

It would be relevant to note that corporate structures and governance arrangements differ from country to country. Hence one could reasonably say that structure and governance is a product of the local and social environment. This notwithstanding, a general theme of good governance is that it ensures that the constituent’s i.e the stakeholders with relevant interest in the company’s business are fully taken into account, in additions to making a contribution towards the prevention of malpractices and fraud, through it cannot completely eradicate them.

Good corporate governance should not just be about prescribing particular structures and complying with a number of hard and fast rules – there is need for broad principles which all concerned should apply with flexibility and common sense to their varying circumstances.

The confederation of Asia-Pacific chamber of commerce and industry (CACCI) identified some key elements of Good Corporate Governance to include:

i. That good corporate governance policies, practices and processes as being essential to ensure efficient and well-functioning markets. They help to enhance essential to promote interest of shareholders, employees, customers, suppliers and the community in which the company operates, within the framework of law.

ii. Deficient of corporate governance policies and practices compromise the capacities of capital market, diminish the confidence of severs and investors and provide comfort for those advocating greater government regulatory interventions in the conduct of commerce and industry.

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