Effectual corporate governance is momentous for organization in growing countries as such this can help in judgment making fineness and help firms with a feeble corporate governance structure to raise capital and catch the attention of (FDI) The rationale of this research is to look into the issues and challenges holding back efficient growth and execution of corporate governance in Nigeria.
Comparative corporate governance scholarship has continued to pay attention to the convergence of national systems of corporate governance (for example see: O'Sullivan 2003; Dnes 2005; Liu 2005; Kuljak 2007; Aguilera, Filatotchev, Gospel and Jackson 2008; Zhang 2009). Despite the conflicting pieces of evidence, which appear to dominate the literature, the debate seems tilted in favor of an emerging convergence on the Anglo-Saxon shareholder model of corporate governance (Shleifer and Vishny 1997; Rubach and Sebora 1998; Lane 2003; Goergen, Martynova and Renneboog 2005; Braendle and Noll 2006). However, there has been renewed interest in corporate governance reforms in Nigeria amongst public and private sectors organizations (Alo, 2003; Wilson, 2006; Dabor and Adeyemi, 2009; Roe 2003; Ahmed 2007; Olusa, 2007), these practitioners and scholars have written on the benefits of good corporate governance in Nigeria but very few have drawn attention to the challenges posed by the inadequacy of the corporate governance mechanisms in Nigeria (Iyang, 2009; Wilson, 2006).
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Whilst Corporate governance might mean different things to different people, the Cadbury Committee's definition of corporate governance as the system by which companies are directed and controlled (Cadbury, 1992) provides a good basis for discussing the challenges of corporate governance improvement in Nigeria. The Organization for Economic Cooperation and Development's definition of corporate governance as 'the structure through which company objectives are set and the means of attaining those objectives and monitoring performance' (OECD, 1999; 2004) highlights the importance of resolving the challenges of corporate governance reforms in Nigeria. Without good corporate governance, corporate performance cannot be measured.
The purpose of this research is to bridge the research gap on this issue and uncover the barriers and challenges preventing the development and implementation of good corporate governance systems in Nigeria, and present an insight of this problem.
The rest of this paper is structured as follows: a review of the literature on the legal structure of corporate governance and the institutions that regulate corporate governance practices in Nigeria is first presented in order to highlight the paper's research questions. The paper then presents an account of the institutional context and empirical background of the study, by examining the state of corporate governance in Nigeria, evolving corporate governance system, issues and challenges, including relevant references to certain historical dimensions. Following on, the research methodology and the findings, discussed. No recommendation presented, which precedes the conclusions and some final remarks.
The concept of corporate governance had existed from antiquity. Historical records show that corporate governance has a long history which dated back to the ancient times where existed what is called tribal communes which supervised the activities of the tribe as well as individual members of the tribe to ensure conformity with tribal norms. As time went by, the tribal form later matured to the level of agrarian communities whereby the concept of family came to the fore with the activities of family members were monitored by the family councils. Also, in his study on corporate governance, Kurkure (2006) submits on its historical development that:
In Roman Empire, specific corporate bodies such as municipal bodies were developed to manage public affairs with transparency for common good. In the Middle East, the nomadic tribes had their councils to ensure fairplay and justice. The evolution of Christianity and Islam in the Middle East placed the responsibility of governance on religion
In the post Christ period, with improved navigation of vessels, the traders from Europe particularly the Portuguese and the Dutch explored the known expanse of the earth and gave rise to global trading entities. Those entities reported to the Kings. This was the beginning of corporate governance. As the 16th century was ush- ered in, the most powerful trading nation England formed a variety of directives and regulatory authorities such as joint stock companies and Bank of England to preside over all trading activities on the platform of accountability, efficiency effectiveness and stakeholders' satisfaction. The concept of corporate governance was the basic platform for these regulations and regulatory authorities and over a period of time, the concept and its practice took a firm root for all activities Similarly, Crawford (2007) notes that since the late 1970s, corporate governance has been the focus of momentous debate in the United States and around the globe. According to the scholar, bold and broad efforts to reform corporate governance have been driven, in past, by the needs and desires of share owners to exercise their rights of corporate possession and to augment the value of their shares and therefore, wealth. Over the past three decades, corporate directors' duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. By the first half of the 1990s, the concept and practice of corporate governance had become a public debate due to the wave of dismissals of CEOs of corporations like IBM, Kodak, Honeywell by their Board of Directors. More interestingly, there was a wave of institutional shareholders' activism under the auspices of the Californian Public Employers' Retirement System (CalPERS) in order to ensure corporate governance value despite the new traditionally cozy relationships between the CEOs and the board of directors. Wikipedia also holds that "in 1997, the Eastern Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and the Philippines severely affected by the exit of foreign capital after the collapse of huge assets. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies". In the early 2000s, the massive bankruptcies and criminal malfeasance of Enron and World Com as well as lesser corporate debacles such as Adelphia Communication, AOL, Arthur Andersen, Global Crossing, Tyco, led to increased shareholder and government interest in corporate governance. This is reflected in the passage of the US Sarbane-Oxley Act of 2002 (Wikipedia). Having put all these together gave rise to the widespread practice of corporate governance across the globe for it is a settled fact that the positive effect of corporate governance on different stakeholders ultimately, is a strengthened economy. Hence, good corporate governance is a tool for socio-economic development in Nigeria and the world over. This study will look into how Corporate governance aims at promoting accountability and transparency, enhancing the administrative duties and ethical conduct in the directing of affairs of a corporation
4. Literature review, Theoretical development for corporate governance
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In its simplest theory, corporate governance refers to the broad range of policy and practices that stockholders, executive managers, and boards of directors use to manage the operations of corporate organizations towards fulfilling their responsibilities to the investors and other stakeholders in the society. It is essentially "a system by which the organization or company directs manages and controls the business of the company to enhance corporate performance and corporate responsiveness to shareholders and other stakeholders" (Inyang, 2004:163). The basic tenets of good corporate governance are; accountability, efficiency and effectiveness, integrity and fairness, probity, responsibility and transparency. All of these must be considered as imperatives to organizational growth and survival. Corporate governance is an engaging, fascinating and important subject that has generated a plethora of literature and significant global discourse in the United States of America, Europe and Australia (Kay and Silberston, 1995); Vinten, 1998; 2002; Aquilera and Luervo-Cazurra, 2004; Bhasa, 2004; Mardjono, 2005; Wieland, 2005; Chambers, 2006; Mason, Kirkbride and Bryde, 2007; Hill, 2008; Malin, 2008; Judge, Douglas and Kutan, 2008 and De Cleyn, 2008). Such international organisations like the World Bank, IMF and OECD have in their different ways through workshops, conferences, research studies and policy initiatives contributed immensely to the development of global standards of good corporate governance. See for example (Scott, 2007 and Claessens and Bruno, 2007). The evolution of corporate governance in Africa is still in its infancy compare to the current state of affairs and the quantum of available literature in the western world. Okeahalam and Akinboade (2003) in a major review confirm the paucity of literature and the very limited rigorous research on corporate governance in Africa. Most of what is currently available in Africa are corporate governance codes of the different countries which were influenced essentially by OECD Principles of Corporate Governance (1999, 2004), the Commonwealth Association for Corporate Governance CACG (1999) and King Reports on Corporate Governance (South Africa, 1994, 2002). The financial scandals around the world and the recent collapse of major corporate institutions in the USA gave the impetus for the development of good corporate governance structure in the emerging economies of Africa. According to Ajogwu (2007. p.2),"The corporate governance structure spells out the rules and procedures for making decisions on corporate affairs [and] provides the structure through which the company objectives are set as well as the means of attaining and monitoring the performance of those objectives. It defines the accountability of those charged with the responsibility of steering the company's affairs". Good corporate governance is therefore the system of managing the affairs of corporations with a view to increasing shareholder value and meeting the expectations of other stakeholders. Similarly, Aguilera and Cuervo-Cazurra (2004:417-418) consider the codes of good governance as "a set of 'best practice' recommendations regarding the behavior and structure of the board of directors of a firm designed to address deficiencies in the corporate governance system by recommending a comprehensive set of norms on the role and composition of the board of directors, relationship with shareholders and top management, auditing and information disclosure, and selection, remuneration, and dismissal of directors and top managers". A few existing studies on African corporate governance are limited to single country investigation using case studies. Muranda (2006) investigates the relationship between corporate governance failures and financial distress in Zimbabwe's banking sector. The study found lack of a proactive approach by the regulatory authorities appeared to have encouraged poor corporate governance practices and that the failure by the board of directors to adapt to the demands of a changing competitive environment affected adherence to the principles of good corporate governance. Abor (2001) examines the relationship between corporate governance and capital structure decisions of listed firms in Ghana.
The findings illustrate statistically important and positive associations amid principal structure not only that, degree board composition and CEO duality. Abor and Adjasi (2007) provide conceptual insights on the application of corporate governance among small and medium enterprises (SMEs) in Ghana. The major finding of the study shows that the application of good corporate governance structure among SMEs in Ghana could help overcome credit constraints and managerial incompetence. Rossouw (2000) provides a background to the corporate governance reform in Africa and further analyses the relationship between business ethics and national codes of corporate governance. The study shows that business ethics are considered an integral and essential part of good governance in Africa. In his study of four African countries (Ghana, Nigeria, Kenya and South Africa). Kyereboah-Coleman (2001) explores the linkage between corporate governance and shareholder value maximization. The findings show that large board sizes enhance corporate performance and shareholder value maximization. Okeahalam and Akinboade's (2003) review of corporate governance in Africa is still a major contribution to this subject. The authors emphasize the need for African nations to learn some lessons from the financial scandals of the western world and East Asian countries, which were attributed essentially to an absence or dereliction of efficient corporate governance. The authors conclude that "The adoption of corporate governance principles by African countries will be a giant step toward creating safeguards against corruption and mismanagement, promote transparency in economic life and attracting more domestic and foreign investment" (p.28). As it is with Africa generally, corporate governance literature offerings in Nigeria, is scanty. Yakasai (2001) provides some evidence of the evolution of corporate governance in Nigeria within the banking sector. Earlier studies by Okike (1994, 1995, 1998 and 1999) specifically examined the accounting and audit-reporting environment in Nigeria, as important elements of corporate governance. In a recent work, Okike (2007) presents a comprehensive review of corporate governance developments in Nigeria, thus expanding the literature on corporate governance in developing countries. Ahunwan (2002) gives an account of the nature of corporate governance in Nigeria, and extends further, to investigate the prospects for recent reforms of economic liberalization, deregulation and privatization, contributing to more responsible governance. Alo (2003) in a pioneer and edited book presents different perspectives and insights into keys areas of the corporate governance spectrum as valuable contribution to the literature in Nigeria. Nmehielle and Nwauche (2004) examine the corporate governance climate in Nigeria and critically inquires into the external and internal standards that guide Nigerian companies in the way they are governed. Ogbechie and Koufopoulos (2007) evaluate corporate governance issues in public quoted companies in Nigeria. The findings of the study show that Nigeria public companies have embraced the principles of good corporate governance but are at different stages of adoption of various issues that contribute to good corporate governance. Amao and Amaeshi (2008) explore how recent developments in Nigeria contribute to shareholders activism and how to improve participation of shareholders in corporate governance. Ajogwu (2007) presents a comprehensive work on the law and corporate governance practices in Nigeria. As noted above the paper discusses the legal structure of corporate governance and the institutions that regulate corporate governance practices in Nigeria.
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Corporate governance is of critical significance to a developing country and evolving economy like Nigeria. This is because the institutionalization of a good corporate governance system will help to: "facilitate and stimulate the performance of corporations by creating and maintaining incentives that motivate insiders to maximize the firms' operating efficiency. At the same time it enables the limiting of insiders' abuse of power over corporate, resources, as well as providing the means of monitoring managers' behavior in order to ensure corporate accountability" (Ogbechie and Koufopoulos, 2007:351).
The origin of corporate governance system in Nigeria which, involves issues relating to the regulation, control and governance of enterprises can be traced, essentially to Companies and Allied Matters Act (CAMA) 1990, which replaced the Companies Act 1968. This legal framework has its root in the British colonial legislation. In effect, the Nigerian legal system and corporate governance practices mirrored the United Kingdom (UK) pattern (Okike, 2007). The reason for this development was because before the introduction of the indigenization programme of the government in 1972, the British nationals controlled the major business enterprises in the country, and to protect their economic interests they had to bring in their company legislation. Restriction on foreign ownership was created by the Decree with three schedules of enterprises: (i) enterprises exclusively reserved for Nigerians; (ii) enterprises in respect of which foreigners cannot hold more than 40% of the shares; and (iii) enterprises in respect of which foreigners cannot hold more than 60%. This classification was based on the perceived financial and managerial needs of the country at the time. The second schedule comprised manufacturing companies where foreign participation was expected to bring foreign capital and managerial expertise. The third schedule included capital-intensive enterprises (Ahunwan, 2002). Arising from these activities, is the publication by FITC, Issues in Corporate Governance (Alo, 2003), which today stands as a major contribution to corporate governance literature and a reference point in corporate governance discourse in Nigeria. The Society for Corporate Governance Nigeria (SCGN) established on March 31, 2005 is equally making significant contributions to the evolving corporate governance system in Nigeria. The SCGN's major objective is to promote the practice of corporate governance by directors and officers of companies with a view to optimizing shareholder value (SCGN, 2005). The promotion of good corporate governance practices will provide an important framework for a timely response by a company's board of directors to situations that may directly affect shareholders' value. Having presented the nascent history of corporate governance in Nigeria, the next section addresses the issues of corporate governance practices entrenched in the country's regulatory framework
While there are laws and corporate governance codes for ensuring good corporate governance in Nigeria the major challenge lies in the weakened, inefficient and inadequate legal regulatory frameworks for enforcing and monitoring compliance with CAMA and the corporate governance codes in Nigeria (Amaeshi et al 2006, Wilson 2006; Okhehalam and Akinboabe, 2003; Nmehielle and Nwauche, 2004; Oyejide and Soyibo, 2001; Okike, 2007; Iyang 2009). According to Brabners Chaffe Street (2003), the strict rights and entitlements that come with the ownership of shares in listed companies are rarely fully exploited or utilized by the shareholders. Nigeria has sufficient laws that were intended to guard shareholder's right and ensure good corporate governance. Conversely regulations are usually disregarded due to the fact that investors are usually not aware of the rights that they have. Brabners Chaffe Street has argued that the greater the shareholding of an individual, the greater are his or her rights as well as power within the company. Therefore, in as much as shareholding is bigger there will be a correspondence to manage attention. Reasonably, it's supposed that the marginal shareholders are likely to turn in fewer responsibilities regarding how the organization will be managed. Lack of qualifications of corporate board members is one the other challenge facing modern corporations as well in Nigeria. According to the Central Bank of Nigeria (2006), many of board members may well lack the necessary skills and capability to effectively contribute to leadership of modern corporation. According to CIPE/IEA (2001), there are several restraints in the promotion of corporate governance in Nigeria. These constraints include weak or nonexistent law enforcement mechanisms, ignorance on part of stakeholders, government interference in the operation of state-owned enterprises, and lack of regulations for businesses in the informal sector, among others (CIPE/IEA, 2001). All this been mentioned, points out that concern such as accountability and simplicity, unproductive committee, dishonesty and fragile control structure among others are issues and challenges impact the development and support of good CG in Nigeria
Issues of corporate governance have been an intrinsic weakness in Nigeria. The main problem to be investigated in this study is whether there are conflicting influences on the evolving system of corporate governance, accountability and transparency in Nigeria. According to McLennan (2007), good governance enables efficient and effective service delivery, and it also ensures high levels of accountability and transparency. These challenges top the list of problems in the country, and the main cause is problems revolving around corporate governance.
In other to interrogate corporate governance issues and challenges in Nigeria, the following questions will be answered:
What are the implication of the conflicting pressure on the developing system of corporate governance, accountability and transparency in Nigeria?
This study used a wide range of materials from secondary data source to understand the major issues and challenges to corporate governance in Nigeria. The materials used were largely from institutional, academic and professional literature reviews and publications. The study also used different reports internal and external agencies that have evaluated the parlance of the Nigerian public institutions and also analyzed the function of the corporate governance.
Findings from the research illustrates that there is high level of corruption in most government corporations where there is also lack of accountability and transparency. The study provides noteworthy information on corporate governance, issues and challenges hindering the development and implementation in Nigeria. The constraints include weak or nonexistent law enforcement mechanisms, abuse of shareholder's right not having commitment on the part of boards of directors, no adherence to the regulatory framework, frail enforcement and monitoring systems, and lack of accountability and transparency and disclosure.
This research constraints is that, barrier of execution and endorsement of good corporate governance in Nigeria take account of frail or nonexistent law enforcement mechanism, abuse of shareholder's right, lack of commitment on the parts of boards of directors their responsibilities and lack of adherence to the regulatory frame work, weak enforcement and check structure, and no lucidity and disclosure. In Nigeria, there are sufficient laws of which this are designed to protect right of the shareholders and ensuring good corporate governance, but effectual implementation of existing laws and regulation makes up major challenge for the development and putting into practice of corporate governance.
The basic problem of corporate governance in Nigeria appears to be the gulf between the principles of law and its implementation. This is apparent of which unplanned responses in dealing with exact areas of the economy that becomes an issue and challenge with corporate abuse in Nigeria. The findings disclose that there are number of problem facing the development and effective corporate governance in Nigeria. The path to attaining good corporate governance may vary from one country to another, before Nigeria can benefit from good corporate governance the corporate affairs commission must efficiently implement and monitor compliance by corporations and should be able to impose sanctions on violators without fear of prejudice in order to boost confidence and public trust and make shareholders and other stakeholders feel protected from corporate exploitation and mismanagement (Nmehielle & Nwauche 2004; Ahunwa 2002; Ajogwu, 2007 Okike, Iyang 2009).
Finally, as suggest by Steger and Hartz (2005), prescriptio of good corporate governance are not always adequate, some further efforts should be made to find out and develop some economic and sociological theories which may add to our understanding of what is really going on.