Raising corporate governance bar for development
By Dele Fanimo
FOR the umpteenth time, the issue of corporate governance and the consequences of its failure in public and private sectors of the economy formed the kernel of discussion at the yearly forum of the Institute of Chartered Secretaries and Administration of Nigeria (ICBAN).
Indeed, there could not have been any better auspicious time for giants in the public and private sectors to come together with the aim of salvaging the economy and the nation as a whole using the platform of the institute.
The realities of an hitherto perceived robust banks and other financial institutions suffering acute haemhomage that required an "infusion" from the apex bank - central bank - are examples of corporate governance failures that cannot be ignored by stakeholders.
Although, ICSAN has been a major crusader in the fight against corporate governance failure in the country through its seminars and conferences, this year's conference can aptly pass as the best outing of the institute.
With the array of stars in the private and public sectors such as the immediate past President of the Nigerian Stock Exchange (NSE), Dr. Ayoola Oba Otudeko; retired Chief Justice of the Federation, Justice Alpha Belgore; past President of Institute of Chartered Accountants of Nigeria (ICAN), Prince Babington Ashaye; lawyer-turned businessman, Dr. Wale Babalakin; Registrar, Joint Admission and Matriculation Board, Dr. Dibu Ojerinde and the immediate past President, ICSAN, Mr. Hakeem Ogunniran, the team was intimidating.
Delivering the keynote address with the theme: "Regulatory Challenges in An Economic Recession", Otudeko, observed that with the global economic recession which rattled the world in the last two years, there was need to do a critical appraisal of corporate governance.
While recognising that the current recession remains the most severe and debilitating since the great depression of the 1930s which had its roots in United State (U.S.) like the current one, the former president of NSE, noted that the former was precipitated by lax regulation of the U.S. housing market and investment banks on Wall Street.
He recalled that the great depression was preceded by an unrestrained boom, not dissimilar to what was witnessed in the past decade, noting that "from 2001 till date, arguably late 2007, the global economy experienced a boom characterised by low interest rates, low inflation, cheaper goods, easy credit, growth of financial institutions and rising stock markets."
Otudeko stated further that even in Nigeria, the NSE All-share Index soared, reaching its peak in March 2008, only to decline by as much as 60 per cent as it headed into 2009.
He said in the midst of the boom, governments and players in the market dropped their guards as "no one wanted to believe that something could go wrong. Caution receded in the firmament. It was gone with the winds."
According to him, some analysts were rash enough to suggest that economic recessions and the business cycle had become outdated.
Nonetheless, the former NSE boss noted that the bubble bust in U.S. and the current financial services sector crisis in the country have shown that we are not after all immune, neither are we an island in today's globalised world economy.
Immediate past President of ICSAN, Ogunniran in his paper entitled: "Independent Directors: Myth or Reality", took a look at the definition of independent directors, their roles and responsibilities in line with ethical codes.
He described an independent director as "a non-executive director who holds no posts other than the position of a director, and who has no professional, financial relationship with the company or its major shareholder which may prevent him from making objective judgments independently.
According to him, an independent director should have a separate personality and possess some special qualifications.
Ogunniran noted that most institutions rely on Code of Corporate governance to determine the appointment of an independent director.
According to him, each code is peculiar to a particular industry - banking, insurance, pensions, security and Exchange commission - among others state clearly the number to be appointed, qualification and their roles in the company.
He said independent directors occupy a unique position in the governance of a company, its board and management, adding, "he (independent director) is able to exercise objective judgment on corporate matters independently.
According to him, he plays a neutral role in critical areas where the interest of the management, the company and shareholders may conflict, adding that the director also participate in strategy formulation, management oversight, protecting shareholders' rights.
He, however, noted that lack of independence of the independent directors has remained the bane of ensuring the enthronement of corporate governance in systems.
Ogunniran listed reasons for such to include faulty appointment, lack of knowledge, lack of time, information and absence of personal motivation which make the view that independent directors only exist in the realm of myth.
In his paper entitled "The Downturn in the Capital Market, Lessons in Corporate Governance", former director general of Securities and Exchange Commission (SEC). Dr. Sulleyman Ndanusa, corroborated the stance of Ogunniran on the obligations and responsibilities of directors in companies.
According to him, corporate governance focuses on a number of issues, which include, inter alia, accountability and fiduciary duty to shareholders, as well as economic efficiency, meaning the optimisation of economic results for the welfare of shareholders.
He said the major responsibility for the success or failure of any company must be located in the board of directors, because they are the directing mind and will of the company. It is imperative, therefore, that the board be composed of directors who are knowledgeable on the business of the company and its operating environment.
Ndanusa stated that to improve the process and quality of decision making, serious minded companies should make a distinction between matters exclusively reserved for the board and those on which management may act without recourse to the board.
According to him, such matters are usually spelt out in the company's Articles of Association. Thus, matter like committing the company to a contract above certain defined limits; disposal of assets other than in the normal course of business; divestments, mergers, acquisition; capital structure and indebtedness; among others may be reserved for the board's final decision. But matters should not just end there.
Ndanusa said: "Decisions entailing even relatively modest resources should be taken to the board if they are of strategic significance, because they touch on the company's core values. In addition, when directors have the opportunity and resources to carefully vet the underlying issues, the board can bring invaluable insight and analysis to bear that is not otherwise available, resulting in a better company decision than management would have made on its own.
"A company that must deliver superior returns to its stakeholders must avoid the mortal antagonism between board and management that has become the hallmark of some organisations. Working in partnership with a committed management, the board can successfully combine its oversight and compliance functions with its role as shaper of the company's strategy.
"From their places around the table, directors must steer themselves and the company's management team toward farsighted strategic and financial thinking and succession planning. Certainly it is management's responsibility to develop and implement strategy but the board must use a long-range lens when requesting and vetting senior leaders' proposals - encouraging the top team to raise its game even when things are going well and challenging it to respond creatively when threats or problems emerge.
"Directors must remain vigilant after making their decisions, following up with management to ensure that they are effectively implemented and that the many secondary decisions stemming from the primary decisions are dealt with as well.
"Company directors must therefore appreciate the central role they play in ensuring that their companies perform creditably".
But former Chief Justice of Nigeria (CJN), Justice Modibbo Alfa Belgore, was unsparing when he chided accountants in the banking sector for looking the other way while it was on fire, thus violating corporate governance.
The former CJN said accountants were culpable, as they kept mute when banks were declaring unimaginable profits to attract innocent customers.
According to him, if professionals such as accountants had been alive to their responsibilities, the country would not have witnessed the current rot in the sector.
He said: "Up to the time that I am talking to you, none of them including their professional body have issued any statement why we are in this economic mess. They owe the entire nation an explanation why we find ourselves in this economic mess".
On the issue of effective corporate governance, Otudeko posited that government oversight is the most effective way of safeguarding societies against risks. He, however, said that from the perspective of the private sector, businesses have consistently complained about the high costs of regulatory compliance, much of which is eventually transferred to consumers of goods and services. Also, Otudeko noted that regulation is also considered an impediment to foreign direct investments (FDIs). And, in many countries, especially in developing economies, business regulation sometimes equates to red tape or, worse, a means of assisting official corruption.
Therefore, a major challenge confronting most governments, including ours, is how to balance public versus private ownership; that is, how to encourage entrepreneurship, financial liberalisation and private-property rights without stifling private enterprise with excessive government regulations. Although, it would seem that in the last decade governments across the world tilted the balance in favour of entrepreneurship, financial liberalisation and private-property rights. Now that we have had our fingers burnt by tilting the balance against regulation, what should we be doing to redress the situation? He quipped.
