Imperatives of corporate governance in national development
ENRON Corporation, for many decades to come, would be a good example of the glorious rise and disastrous crash of business organisations amidst good corporate governance or the lack of it.
For sheer ingenuity and revolutionary changes to energy trading, the then American leading business empire made global fame, becoming the seventh largest company in the United States by 2001.
A year later, it found itself at the centre of one of corporate America’s biggest scandals. In less than a year, Enron had gone from being considered one of the most innovative companies of the late 20th century to being deemed a byword for corruption and mismanagement.
Enron in 2001 revised its financial statements for the previous five years, acknowledging that instead of taking profits, it actually had posted $586 million in losses. Its stock value began to crater—it fell below $1 per share by the end of November and was delisted on January 16, 2002. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom’s bankruptcy the next year.
Enron Corp., WorldCom, Parmalat, Barings Bank and so on are multiple examples of global brands that had bit the dust for lack of good corporate governance practices and lessons for corporate organisations world over, including Nigeria.
President and Chairman of Council, Chartered Institute of Personnel Management of Nigeria (CIPM), Anthony Arabome noted that events in the global marketplace and in government at all levels over the last three decades and the world’s reaction to them, created a global economic order based on rectitude, which demands honesty, transparency and integrity as mandatory prerequisites for doing business responsibly and gainfully.
Arabome, at the 19th yearly public lecture of the CIPM held recently in Lagos, added that Nigeria as a country aiming to attract foreign investors and national development cannot underestimate the value of sound corporate governance – a first-order condition for building successful nations, institutions and businesses.
He said that the theme: “Corporate governance: Essential ingredient for national development” was particularly relevant to our current national drive to enthrone probity, annihilate corruption and honour excellent and ethical leadership.
Executive Secretary/Chief Executive Officer, Financial Reporting Council (FRC) of Nigeria, Jim Obazee, who oversees the setting, monitoring, and enforcement of financial reporting standards and corporate governance practices in both public and private sectors of the Nigerian economy, explained that the essence of good corporate governance is for boards and managers of organisations to use their freedom to drive their company forward within the framework of effective accountability.
Obazee, who is also responsible for harmonizing the activities of relevant professional and regulatory bodies in Nigeria, however said that very little had been achieved in promoting good corporate governance in the country, because it is yet to be linked with improved investment in-flow and national development.
Corporate Governance, according to the FRC act, refers to the roles of persons entrusted with supervisions, control and direction of an entity. It concerns the relation among the management, the board of directors, controlling shareholders, minority shareholders and other stakeholders.
While corporate governance exists as a concept, it only becomes good when it is contributing to sustainable economic development by enhancing the performance of the company and increasing their access to outside capital. Good corporate governance is tied to leveraging on internal values and obligations to building reputation, Obazee said.
After the scandal of Enron Corp., WorldCom and co, Obazee noted, it was no surprise that government regulators and shareholders and other stakeholders alike in the US and Europe called for reforms and greater transparencies in relation to corporate practices. It was a departure from erstwhile intra-professional self-regulation, with government insisting that the people (shareholders) as well as image of the home country have to be protected beginning from 2002.
He said: “Granted that businesses must be allowed to run according to their objectives and their policies, but it must be in line with effective accountability. If no one is found accountable, then there will be issues.”
He explained that the reason anyone would invest in a company is because of the assurance that the company is operating in an enabling environment and the rules and regulations are obeyed.
“You can buy more long-term investment if you are sure of the rules governing business conduct and your corporate structure is properly regulated. That is definitely an added advantage. Because better disclosure is what provides investors the comfort.”
Key elements of good corporate governance
Obazee, who was the guest speaker at the lecture, highlighted the key elements of good corporate governance to include independence of the directors and separation of strategic planners’ role from that of the operator.
The common trend in institutions today, he observed, is a situation where the governing council even signs cheques, meanwhile their duty is not operations but strategy formulations.
“Also, there must be exit strategy for the company owner, otherwise the company will just grow a little and die. Toyota is from the Toyoda Family and today, they own two per cent of the share. Where are the Abiola’s companies today? They had no exit strategy. Fola Adeola is still alive, he is two MD backwards, yet his bank is still standing. When we have institutions that die with the big boss, it is because there is no exit strategy.”
Continuing, he said that there must also be reliable systems, documented procedures of operation, coupled with credible financial system, remuneration and human resource policy. “In all of these, the financial report process is at the heart of good corporate governance.”
He recalled that in January 17, 2013, The Federal Government did set up a Committee on national code of Corporate Governance. Essence of the committee was to ensure that Nigeria, as a country is competitive, deal with socio-economic issues like corruption and lack of independence.
For Nigeria, we believe that if we have a statutory code, it raises the bar in public and private sector. There are penalties for directors and they should be liable for their actions and inactions. It is also an effort aimed at improving the investment climate because the Foreign Director Investors too are also on the lookout for your competitiveness.
“Our international perception is also important. People want to see what rules here. In China, if you flout their corporate governance law, it is punishable by death. But when people come here they would say: ‘this is Nigeria now’. I just don’t get it.”
He said further that with the FRC Act, Section 50, it is the job of the directors of corporate governance in organisations to develop principles and practices of corporate good governance, then promote the highest standard of corporate governance, promote public awareness, then act as natural coordinating body of all matters relating to corporate governance. Promote sound financial reporting and accountability, because “you cannot be talking about corporate governance if you are not accountable”.
Religious organisations and financial accountability
Financial reporting system, Obazee observed, remains a very big challenge for religious organisations who still struggle to see the rationale for obeying the law.
“In keeping other peoples’ money, you have to prepare an account. That is why churches fought me so badly; took me to court as a person and then my office too. Mosques and orthodox churches freely complied, but those Pentecostal churches called me to ask questions. They said ‘this church is church of God and we are accountable to God.’ And I told them, ‘Very good, so you must take this church to heaven, you can’t operate it here’.
Till date now, 89 churches have come to register their accounts and they are among the big ones out of the 23,216 churches registered with the Corporate Affairs Commission. When public funds are involved, government needs to ensure proper accountability.
I have tried to explain to some of the General Overseas several times. I told them that what they are doing is not for-profit, which is an institution of public character. When you set up a church, your motive is to ensure that people are well focused to go to heaven.
Then the money in the church should be targeted in ensuring that people are helped to do that. If you want to set up a school, then it should be free for all your members’ children. If you charge any money, then you are in the same league with other schools outside that are paying taxes to the government.
“If you set up schools, hospitals and the likes under a church, there is a high likelihood that you will be engaging in non-charitable activities within charity. If you are doing that, then what stops Dangote from setting up a mosque and having all his cements, rice and sugar under it?
“The interesting thing is that a lot of those churches fighting against preparing their account here are actually doing that in the United Kingdom. So that is why there is no going back on these accounting things and they must all comply with the rules,” he said
CIPM past president and discussant at the lecture, Dr. Oladimeji Alo, stressed that the promotion of corporate good governance must be backed by ethics and responsibility.
Alo, in agreement with Obazee that corporate government is key to national development, added that individual character have more roles in deciding the faith of an organisation than a set of rules and regulations.