Sound corporate governance as elixir to market confidence

Every quoted company strives to achieve its objectives. In a profit-oriented enterprise, these objectives would be to maximise returns to its shareholders.

In addition, the organisation has to function within its environmental guidelines and constraints, which include behaving in an ethical manner and in compliance with laws and regulations.

Boards of directors have responsibility for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors, and to satisfy themselves that an appropriate governance structure is in place.

Indeed, the purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can lead to the long-term success of the company.

Weak corporate governance practices in both the public and private companies have contributed to a large extent the slow pace of economic development.

Corporate governance is one of the key elements in improving economic efficiency and growth, as well as enhancing investors’ confidence.

Hence, an effective corporate governance system within an individual company and across an economy as a whole helps provide a degree of confidence that is necessary for the proper functioning of a market. It reduces cost of capital and firms are encouraged to use resources more efficiently, thereby strengthening growth.

Furthermore, the degree to which corporations observe basic principles of good corporate governance is an important factor for investment decision in Africa and other parts of the world.

Unfortunately, lapses in adherence to principles of corporate governance in Nigeria have contributed majorly to crisis in the nation’s economy, especially in the capital market despite various measures being initiated by regulators.

Over the years, many quoted companies have been violating this important obligation, thereby keeping investors in the dark about their financial health among others.

Experts believe that in as much as good governance practices would promote development of the capital market, but weakness inhibits growth, erode investors’ confidence, and heightens vulnerability of financial institutions to external shocks as seen in the 2008 global financial crisis.

Many ignorant investors have burnt their fingers by investing in some of the dormant companies, which do not furnish the market with true disclosures on their financials and other corporate governance issues.

For instance, It is about 11 years now that investors pooled together a N700billion in a well-advertised private placements of companies operating at the capital market, but till date, both the capital and interest earnings remain uncertain

Checks by The Guardian revealed that the companies were successful in their bids, but a good number of them have changed their franchise and registrars to avoid any trace of location.

Inaccurate reports submitted to regulators and investors by quoted companies had deprived the authorities the right information required to take timely and effective decisions on the market.

Investors and other stakeholders were also misled by distorted information supplied by quoted companies.

Regulatory authorities have made a lot of efforts to promote good corporate governance practices and reposition the Nigerian capital market for sustainable growth, but the market still witnesses corporate failures due to weak practices among companies.

Following serial infractions by market players, the Securities and Exchange Commission (SEC), and Nigerian Stock Exchange (NSE), have continued to wield the big stick by slamming fine on defaulting firms, giving notice to some companies on intention to delist, or to completely delist them from its official list for violating post-listing requirements.

The reaffirmed commitment by the regulators to do everything within their powers to compel operators to obey laid down rules informed the decision to tighten the noose on infractions, and other miscellaneous capital market crimes.

This avowed determination recently saw punitive measures, as NSE fined about 37 quoted companies N430.9 million for failure to file their audited financial statements after the regulatory due date.

Some of the companies were sanctioned for their inability to meet requirements ranging between full year ended December 31, 2017, and full year of 2018.

The companies include Abbey Mortgage Bank Plc, Academy Press Plc, International Breweries Plc, Mutual Benefit Assurance Plc, NPF Microfinance Bank Plc, AG Leventis Plc, PZ Cussons Nigeria Plc, Meyer Plc, Presco Plc, and Royal Exchange Plc, among others.

The Exchange in its X-Compliance report explained that initiative was designed to maintain market integrity and protect the investors by providing compliance related information on all listed companies.

The report stated that, “Companies that are listed on the Exchange are required to adhere to high disclosure standards, which are prescribed in Appendix 111 of the Listing Rules.

“Financial information which is periodic disclosure and on-going material events disclosure should be released to The Exchange in a timely manner to enable it efficiently perform its function of maintaining an orderly market.”

The Publicity Secretary, Independence Shareholders Association, Moses Igbrude, said good corporate governance is the soul of any business that wants to outlive its founder.

According to him, when a business is well-managed with good ethical conduct, all will benefit – owners, workers, government, the society and environment the business operates.

“Corporate governance requires managers to run their businesses in a transparent manner and in accordance with rules and regulations to achieve profitability and sustainability in the business.”

The Acting Director-General, SEC, Ms. Mary Uduk, said lack of good corporate governance has created a lot of issues in the corporate world, adding that such issues are some of the reasons people avoid the capital market.

Uduk said the capital market community has resolved that the issues that led to the 2008/2009 crisis will not re-occur, saying: “That is why we have different corporate governance codes in place to ensure good corporate governance. SEC set the pace in 2003, with a code and renewed it in 2011. When we saw there were still gaps, we reviewed it in 2014 and came up with a scorecard.

“In pursuance of our goals of ensuring that the market we regulate is sound, we went ahead to do a lot of trainings with International Finance Corporation (IFC).

“The scorecard is a direct compliance with the code. Even though at the moment we are still doing a pilot, there is now a lot of compliance in terms of submissions. From January 2020, we will go to these companies to ascertain the veracity of their submissions.”

The Acting DG said the SEC codes are mandatory because they are now in its Rules and Regulations, adding that it is now compulsory for companies to adhere to and there are provisions to punish violators.

“All hands need to be on deck to ensure we succeed on this one. Even operators know the disadvantage of not complying. When the market is down, they do not earn much. So they have decided to ensure that the right thing is done.

“We are hoping that since this is the only market we have, we all have to do the right thing in the interest of everyone,” adding that SEC is determined to ensure capital market investors are adequately protected in all transactions.

Uduk noted that it is the Commission’s responsibility to ensure that investors are not short-changed in any transaction, and therefore, urged them to participate to grow the market.
To this end, she said SEC is taking steps to reduce transaction costs to ensure investors do not bear unnecessary costs, adding: “we are doing a lot to boost investors’ confidence in our market. But I want to say that both local and foreign investors are very good for the market.

“For instance, the foreign investors, because they trade their shares all of the time it leads to price discovery as against the local investors that just takes a long term view on their investments.

“Investors’ fears can be two-fold; firstly, they could be afraid because they feel that capital market operators will mismanage their investments, secondly, it is looking at the volatility of the market that makes investors sceptical.

“For the first scenario, we have a number of initiatives that we have put in place to boost investors’ confidence. We have the e-dividend mandate system, the direct cash settlement as well as multiple subscriptions in place. For the second category, investors have to take ownership of their investments.

“They have to be able to monitor their investments, attend annual general meetings as well as read the annual reports sent out to them.”

On its part, The Stock Exchange, in efforts to achieve a world-class capital market, reiterated its commitment to maintain a zero tolerance posture on dealing member firms and quoted companies on violations of rules and regulations.

This on the back of the Exchange’s determination to drive innovations centred on increasing global visibility for the Nigerian capital market, its Chief Executive Officer, Oscar Onyema, said recently that the exchange will sustain a zero-tolerance stance to help boost market confidence.

The Governor, Central Bank of Nigeria (CBN), Godwin Emefiele, had argued that weak corporate governance can undermine financial stability by heightening vulnerability of financial institutions to external shocks.

Besides, he noted that economic recession has shown that the financial industry still harbours weaknesses in governance, exemplified by instances of unclear rendition of returns, corporate governance abuses such as unreported losses, huge exit packages for directors.

There are also insider non-performing loans, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits and weakening of shareholders’ funds, etc. Overall, the huge challenge of “key-man” risk abound in the industry

Emefiele said the credibility, resilience, soundness and efficiency of the financial industry rests squarely on good corporate governance regime.

According to him, corporate governance is undoubtedly an essential pillar in financial system stability. It encompasses the protection of minority shareholders, disclosure provisions, the role and structure of the board, complexity on the definition of related parties, compensation structures and much more.

He said what is evident from corporate performance of the financial system is that; institutions with sound corporate governance and effective board oversights are more resilient to shocks and operate more profitably.

“Given the crucial financial intermediation role, which banks and other financial institutions play in the economy, corporate governance for financial institutions is arguably, of great importance in contrast to governance in non-financial companies,” he maintained.