International Journal of Administration and Governance, 1(4) Special 2015, Pages: 123-127
IWNEST PUBLISHER
International Journal of Administration and
Governance
(ISSN 2077-4486)
Journal home page: http://www.iwnest.com/AACE/
Corporate Governance Mechanism and the Applicable Legal Regimes in Nigeria
1Adejoh
1
2
3
Edogbanya, 2Shedrack Ekpa, 3Hasnah Kamardin
School of Accountancy, Universiti Utara Malaysia.
School of Law, Universiti Utara Malaysia.
School of Accountancy, Universiti Utara Malaysia.
ARTICLE INFO
Article history:
Received 23 Feb 2015
Accepted 6 March 2015
Available online 28 March 2015
Keywords:
Corporate Governance, Applicable
Laws,
Regulation
and
Firm
performance.
ABSTRACT
This paper examines the development of corporate governance (CG) mechanism in
Nigeria. The CG code was developed by the Securities and Exchange Commission
(SEC) and The Central Bank of Nigeria (CBN) to handle non-financial and financial
companies in Nigeria respectively. The new SEC code is to address certain
contemporary issues in financial reporting disclosure. The practical implications for
board of directors and other stake holders in the companies are discussed. It assesses
corporate governance within the context of the tripartite legal framework of the
Companies and Allied Matters Act, Investments and Securities Act and the Bank and
Other Financial Institutions Act. It finally concludes that good laws and policies
without the requisite will to conform will only remain sacred only in papers and thus
amounts to an exercise in futility. This paper is purely a theoretical review from
published articles and corporate governance code and the applicable regulatory legal
regime in Nigeria.
© 2015 IWNEST Publisher All rights reserved.
To Cite This Article: Adejoh Edogbanya, Shedrack Ekpa, Hasnah Kamardin., Corporate Governance Mechanism and the Applicable Legal
Regimes in Nigeria. Int. J. Adm. Gov., 1(4), 123-127, 2015
INTRODUCTION
The importance of corporate governance in guaranteeing that companies are managed to the best interest of
the board of directors and to the benefit of the shareholders and other stakeholders in business cannot be
overemphasized. Good corporate governances ensures that financial report are dependable because of the extent
of disclosure and internal control framework which is the responsibility of board of directors through board
committees such as audit committee, risk management committee, management committee and remuneration
committee[1]. Corporate governance is thus defined in the following ways;[2] defines “corporate governance as
the system by which business corporations are directed and controlled”; [3]sees corporate governance as “the
system by which companies are directed and controlled”. It is also defined as “a set of relationship between a
company management, its board, its shareholders and other stakeholders”. (OECD Principles, 1998).
Therights and responsibilitiesamong different players such asthe board, managers, shareholders and other
stakeholders, the rules and procedures for making decisions on corporate affairsin the corporationare spelt out in
thecorporate governance structure.
World corporate scandals and the failure of major corporate institutions around the world such as Adelphia,
Enron, World Com, Commerce Bank XL Holidays and particularly in Nigeria such as Afri-Bank’s failure, Bank
PHB nationalization, Intercontinental Bank problems, the Cadbury issue of overstatement and false financial
reporting and delisting of some companies by the Nigerian Stock Exchange Market have risen doubt in the mind
of investors andcorporate governance practices in promoting transparency and accountability of dealings of
managers. This has brought to the need for the practice of good corporate governance in Nigeria[4,5,6,2]. These
factors have led to some crucial regulatory and legal regimes to strengthen the corporate governance code of
best practice in Nigeria.
Literature Review:
Corporate Governance Practice in Nigeria:
The Organization for Economic Cooperation and Development (OECD) formation has made crucial
contributions to the existence ofCG. This is done through its surveys of accounting practices in countries with
Corresponding Author: Adejoh Edogbanya, School of Accounting, Universiti Utara Malaysia.
E-mail: [email protected]
124
Adejoh Edogbanya et al, 2015
International Journal of Administration and Governance, 1(4) Special 2015, Pages: 123-127
OECD membership and its assessment of the diversity, conformity, adoption and compliance of such practices.
Its Working Group on Accounting Standards supports efforts by regional, national, and global bodies promoting
accounting harmonization. In 1998, the OECD issued "Principles of Corporate Governance"to improve the
comparability of information between countriesand support the development of high-quality, globally
recognized standards that can serve as a medium of curtailing the excesses of the companies executive[7].
The campaign for the installation of good CG arises from the expectation that it will result in companies
been directed carefully by the principal appointed to do business on behalf of principal. Afterward, in the United
Kingdom, just as in Nigeria, firm’s legislation has led to the establishment of certain committees to look into
CG weaknesses as a result, committees were set up inthe UKand it generates series of reports, which include
the following; the Greenbury Report, Cadbury Report, Turnbull Report and Hampel Report. These reports
highlight the loopholes in the corporate governance mechanism and how to strengthen the corporate governance
structure in an organization[8, 9].
In Nigeria, it is stated in the corporate governance code of best practices for the Nigerian firm that the
failure and collapse of companies is as a result of poor corporate governance practices among the executive of
company[10]. The corporate code of best practice was first launched in 2003 to take care of corporate
weaknesses in Nigeria. It was further reviewed in 2008 by SEC committee to address the weakness of 2003 code
and to improve accountability and enforceability[10]. The board of SEC believes that the new code will improve
corporate governance and highest standard of transparency in company dealings and financial reporting. The
code was further reviewed in 2011 to include Adoption of International Reporting Standard and whistle
blowing. The code of best practice is categorized into eight parts;
a. Application of the code
b. The board of directors
c. Relationship with shareholders
d. Relationship with other stake holder
e. Accountability and reporting
f. Communication
g. Code of ethics
h. Interpretation.
SEC recommends that firm should disclose more than the statutory requirements to show the level of
transparency. Also, the consolidation of the banking sector in Nigeria in 2005 led to renew of the existing
corporate governance code and development of corporate governance code for banks in Nigeria in the year[11,
5].
Corporate Governance and Firm Performance:
“Corporate governance is a system through which companies are directed and controlled”[3].The empirical
studies show that a lot of studies try to evaluate CG mechanism and performance of businesses. Some studies on
CGand company performance reveal mixed result such as[7, 12, 13,14,15, 16, 17,18]. Researches reveals that
firm with excellent corporate governance have higher firm performance [19].In the context of Africa continent,
CG issues are often discussed in relation to corruption, which has been serious problem to the overall
development of the continent. These problems are social, economic and political development. African
corporate and capital markets regulators sees good corporate governance and accountability is one of the most
effective tools to minimize corporate corruption[20]. The adoption of the Security and Exchange code of best
practices and disclosure of material fact beyond the recommendation of SEC will lead to higher firm
performance.
Corporate Governance and Disclosure:
Globalization and internationalization of capital market has been the focus of many nations. Hence the need
for harmonization of financial reporting procedure and single set ofhigh quality financial reporting standardhas
gained wide spread acceptance amongpolicies makers, those with responsibility of setting standard and those
charge with the responsibility of preparing the financial statement[21].International Financial Reporting
Standards (IFRS) as a result for the need for high quality and uniformity in the preparation and presentation of
financial statements and disclosure of material fact in the annual report[21, 22]. The reporting of the any firm
determines how transparent they are.Better quality CG practicesis dependent on higher the level of transparency
displayed by the executive[23]. However, past corporate scandals and governance failures were as a result of
absence of transparency and disclosure by firm. This led to theconfidencepublicto be adversely affectedin the
corporate and financial reporting reliability [23, 24].
125
Adejoh Edogbanya et al, 2015
International Journal of Administration and Governance, 1(4) Special 2015, Pages: 123-127
Legal Regimes in Corporate Governance in Nigeria:
Corporate Governance is underpinned in Nigeria by tripartite legal order to wit; Companies and Allied
Matters Act (CAMA,2004), Investment and Securities Act (ISA, 2007) and Bank and Other Financial
Institutions Act (BOFIA, 1991).
CAMA remains the mandatory legal instrument for all incorporated companies in Nigeria as it specifies the
duties and functions of directors,shareholders, and audit committee as the key players in corporate
administration of companies. It also provided for disclosures and financial statements, board control by the
shareholders through the instrumentality of mandatory annual general meeting which must be held in Nigeria.
The Act also frowns at any attempt to circumvent the legislative authority vested in the meeting by board of
directors.
The ISA re-affirmed the continued leading regulatory role of the Securities and Exchange Commission
(SEC) on capital market investments in Nigeria. SEC ensures that investors are protected against fraudulent
dealings through the maintenance of fair, efficientand transparent market and reduction of systematic risk. In
order to properly ground protection beyond mere stipulation, the Act made adequate statutory safeguards in
ensuring that businesses must be registered in accordance with the provisions of the Act in order to forestall
sharp practices as a way of promoting transparency and accountability. The responsibility for ensuring the
integrity of financing controls and reporting is squarely placed on the shoulders of the Board of Directors under
the Act. Auditors who prepares such financial reports upon which disclosures is anchored are also required to be
registered with the commission under the Act.
The Act imposes strict penalties for contravention of the provisions by institutionalizing prosecution
through the Investment and Securities Tribunal (IST), as avenue for quick resolutions of disputes under the Act.
This is in addition to the duties placed on companies dealing in securities in Nigeria to comply with CAMA,
Nigerian Accounting Standard Board (NASB) and the mandatory requirement of filing of audited financial
statements.
Under BOFIA, the Central Bank of Nigeria (CBN) as the apex statutory regulator of banks and other
financial institutions in Nigeria charged with the uphill responsibilities of supervising and monitoring their
activities. The CBN under BOFIA has the powers to make subordinate legislation and regulations as this is how
corporate governance became entrenched practices especially in the face of incessant banks failures in Nigeria
owing to sharp practices such as insider trading among several others [25].
In order to curtail this excesses on the part of those saddled with the responsibility of managing financial
companies in Nigeria, the Act provides for the prosecution of any directors who contravenes the provision of the
Act. The Act also provides for the keeping and maintenance of books of account in consonance with extant
accounting standards as may be prescribed by the Bankor other legislation from time to time. Appointment of
auditors must have the blessing and approval of the apex bank.
It is in the exercise of the foregoing powers and responsibilities that the CBN drafted the Mandatory Code
of Corporate Governance for Banks in Nigeria.
Framework and Methodology:
The framework for this study is developedto address the convergence and adoption CG code in Nigeria and
legal regimes in the context of the transformation of activities of Board of Directors.Theapproachadopted for
this paper is review approach. The research presented here holds on an analysis of review of relevant articles in
journal, reports and text book in this research area.The Corporatecode of best practice in Nigeria was also
reviewed. This paper is purely a conceptual review [26].
Corporate
Governance
Legal regimes
Firm
performance
Fig. 1.1: Conceptual Framework.
The framework above explains the interrelationship between corporate governance, legal regimes and firm
performance.
126
Adejoh Edogbanya et al, 2015
International Journal of Administration and Governance, 1(4) Special 2015, Pages: 123-127
Conclusion:
Even though the legal and institutional framework for engendering effective corporate governance in
Nigeria is well settled, it cannot attain the utopia owing to some inherent weakness such as slow judicial process
which erodes the confidence of shareholders and other stakeholders in the capital market operations and
inefficient monitoring of compliance among others.Good corporate governance is the yardstick for measuring
firm performance and thus it is also the spring board that mirrors a stable capital market by promoting investors’
confidence.
REFERENCES
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
Abiola, J., 2012. Corporate Governance in Nigerian Banking Sector and Relevance of Internal Auditors.
British Journal of Art and Social Sciences, 5(1): 66-74.
Sunday, O., 2008. Corporate Governance and Firm Performance : The Case of Nigerian Listed Firms.
European Journal of Economics, Finbance and Administrative Sciences, 14(14): 17-30.
Cadbury, S.A., 1992. Committee on Financial aspect of Corporate Governance.
Clatworthy, M.A., M. John, 2006. differential Patterns of Textual characteristics and Company
Performance in the Chairmans Statement. Accounting, Auditing and Accountability Journal, 19(4): 493511. doi:dx.org/10.1108/09513570610679100.
Nworji, I.D., 2011. Corporate Governance and Bank Failure in Nigeria: Issues, Challenges and
Opportunities. Research Journal of Finance and Accounting, 2(2): 1-19.
Reynald, M., S.B. Ii, 2009. The Impact of Selected Corporate Governance Variables in Mitigating
Earnings Management in the Philippines. Business and Economic Review, 19(1): 17-27.
Haniffa, R., M. Hudaib, 2006. Corporate Governance Structure and Performance of Malaysian Listed
Companies. Journal of Business Finance <html_ent Glyph=“@amp;” Ascii=“&”/> Accounting, 33(7-8):
1034-1062. doi:10.1111/j.1468-5957.2006.00594.x.
Cohen, B.D., T.J. Dean, 2005. Information asymmetry and investor valuation of IPOs: top management
team legitimacy as a capital market signal. Strategic Management Journal, 26(7): 683-690.
doi:10.1002/smj.463.
Hughes, J.J., 1995. The Greenbury Report on directors ’ remuneration. International Journal of
Mampower, 17(1): 4-9.
SEC. 2011. Code of Corporate Governance in Nigeria.
Ikoh, I.M., Nsien, C. Ben, W.N. Tamuno-Inam, 2013. Corporate Governance and Banks’ Turmoils:
Assessment of Shareholders Response. Journal of Educational and Social Research, 3(8): 39-48.
doi:10.5901/jesr.2013.v3n8p39.
Rechner, P.L., R. Dan, 1989. The Impact of CEO as Board Chairperson on Corporate Performance :
Evidence vs . Rhetoric. Academy of Management Journal, III(2).
Kamardin, H., R.A. Latif, T.N.K. Mohd, N. Che-Adam, 2012. Are Multiple Directorship Benefits or Cost
to Malaysian Listed Companies. In International Conference on Management, Economics and Finance
(pp: 747-764).
Morck, Randall Shleifer, Andrei, R.W. Vishny, 1988. Management ownership and market valuation : An
empirical analysis. Journal of Financial Economics, 20(1): 293-315.
Reynald, M., S.B. Ii, 2009. The Impact of Selected Corporate Governance Variables in Mitigating
Earnings Management in the Philippines. Business and Economic Review, 19(1): 17-27.
Ross, B.S.A., 1973. The Economic Theory of Agency : The Principal ’ s Problem. American Economic
Review, 63(2): 134-139.
Shaker, Z., 1989. Boards of Directors and Corporate Financial Performance: A Review and integrative
Modei. Journal of Management, 15( 2): 291-334.
Zahra, S.A., J.A. PearceII, 1989. Boards of Directors and Corporate Financial Performance : A Review
and integrative Modei. Journal of Management, 15(2): 291-334.
Payne, G.T., G.S. Benson, D.L. Finegold, 2009. Corporate Board Attributes, Team Effectiveness and
Financial Performance. Journal of Management Studies, 46(4): 704-731. doi:10.1111/j.14676486.2008.00819.x.
Adegbite, E., 2012. Corporate governance regulation in Nigeria. Corporate Governance, 12(2): 257-276.
doi:10.1108/14720701211214124.
Edogbanya, A., H. Kamardin, 2014. Adoption of International Financial Reporting Standards in Nigeria:
Concepts and Issues. Journal of Advanced Management Science, 2(1): 72-75. doi:10.12720/joams.2.1.7275.
Madawaki, A., 2014. Adoption of International Financial Reporting Standards in Developing Countries :
The Case of Nigeria, 7(3): 152-161. doi:10.5539/ijbm.v7n3p152.
Alexandrina, Ş.C., 2007. Ownership Concentration and Corporate Governance Disclosure – The Case of
Financial Institutions. Econonomic Science Series, 830-837.
127
Adejoh Edogbanya et al, 2015
International Journal of Administration and Governance, 1(4) Special 2015, Pages: 123-127
[24] Bijalwan, J.G., P. Madan, 2013. Corporate Governance Practices, Transparency and Performance of Indian
Companies. IUP Journal of Corporate Governance, 12(3): 46-79.
[25] Adetunji, O., 2004. Nigeria’s Banking Rules on Insider Related Credits, Journal of International Business
and Law Research (J.I.B.L.R), 382.
[26] Adefila, J.J., 2008. Research Methodology in Behavioural Sciences. (O. T.O, Ed.) (first edit., pp. 1–227).
Kaduna: Apani Publishers.