The importance of good corporate governance practices are vital in an era of transparency, accountability, and company sustainability.
According to the Organisation for Economic Co-Operation and Development (OECD), corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. It is important to note that corporate governance has an even bigger role to play and is essential to well-functioning and vibrant financial markets.
In order to ensure that corporate power is exercised in the best interest of the company and its stakeholders, a company can use a myriad of best practice codes and regulations.
The Nigerian corporate sector has undergone different phases in its effort to develop and redefine the corporate landscape so as to inculcate good corporate governance in Nigeria. In 2003, the Code of Best Practices on Corporate Governance in Nigeria (the 2003 SEC Code) issued by the Securities and Exchange Commission, was the first corporate governance code to be issued by any regulator in Nigeria, and its application was extended to all public companies registered in Nigeria.
In 2011, the SEC issued the Code of Corporate Governance in Nigeria 2011 (the 2011 SEC Code) to address the weaknesses of the 2003 SEC Code, and to improve the mechanism for its enforceability. In furtherance of the powers under the Financial Reporting Council of Nigeria (FRCN) Act that the FRCN issued the three-tiered National Code of Corporate Governance in 2016.
Explaining the role of its board, Dangote Sugar Refinery in its annual report said “the Board is the highest governing body in the Company with oversight of the strategic goals of the Company. The Board considers the long-term and short-term strategies of the Company and monitors the implementation by Management.
“The primary responsibilities of the Board are the performance, oversight of affairs and direction of the Company. It is responsible for defining the Company’s strategic goals and deploying the relevant personnel for the attainment of these goals. In addition, the Board has supervisory oversight in ensuring that the Company’s affairs are run in compliance with the law, its Articles of Association and principles of good corporate governance.”
It added that “the Board defines the vision, goals, objectives and strategic priorities of the Company, monitors the integrity of financial and internal control policies and management information systems. It presents the audited financial statements to the shareholders and ensures the accuracy and efficiency of the accounting and financial management.”
Achieving Good Corporate Governance
Balance board composition; Greater diversity on boards introduces new ways of thinking and creative methods of solving problems, which prevent directors from resting on their laurels.
Evaluate the board regularly
Ensure director independence; Independence is desirable on a board that wants to break away from safe, conservative thinking.
Ensure auditor independence; Undue influence over the work of audit committees and independent auditors is a concern in terms of corporate governance. Investors need to know that they can trust the financial reporting that an issuer makes, so independence is key to show that the reports are accurate and tell the true tale of the company.
Be transparent; The previous point feeds into this one. Transparency is essential for good corporate governance. The openness and willingness to share accurate, clear and easy-to-understand information with stakeholders, including shareholders, breeds trust and solidifies a business’s reputation.
Define shareholder rights; Shareholders should know their rights when they invest in your business and you should ensure that the rights you provide are backed up by your Articles of Association, constitution and company bylaws.
Aim for long-term value creation; Although short-term wins look good and create opportunities for publicity, long-term value creation should be the aim for a company with solid governance. A business that is committed to sustainable growth is likely to be much less volatile than a company with its eye only on the short term.
Manage risk proactively; Identifying risks is important, but taking a proactive approach to mitigate that risk before you face it is the goal. Rather than attempting to weather the storm, it is better for the organisation to avoid the storm completely.
