Company performance is a measure of the success of the implementation of financial functions within a company. Good performance must be supported by the application of good corporate governance mechanisms as well.
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.
Most recently, the FRCN issued the Nigerian Code of Corporate Governance (NCCG) in 2018, replacing all existing sectoral codes of corporate governance in the country, and is currently applicable to all sectors of the economy. The intention presumably behind these iterations is to stay in line with global best practice where corporate governance is concerned.
Steps Company Can Take To Enhance Corporate Governance
The Structure And Composition Of The Board Of Directors
In order for a company to have effective corporate governance, the first thing to consider is to have a properly constituted board.
Understanding The Rights Of Shareholders
Investor protection and shareholder rights are imperative to ensuring that a company is not only able to innovate and raise the capital needed to grow but is able to compete effectively in the market.
Manage Your Stakeholder Relations
Stakeholders include any group of persons who can either affect or be affected by the decisions of a company or the company’s reputation. To this end, the board is encouraged to take a stakeholder-inclusive approach when executing its strategy.
Maintain Ethical Standards
Over and above the general responsibilities of the board, there is one specific aspect that should underpin the conduct of all the persons working for the company, and that is ethics. The board is responsible for setting the standard of ethical behavior that is expected of board members, managers and employees.
Good Corporate Citizenship Through Corporate Social Responsibility (CSR)
The company does not exist in a vacuum. In as much as the company is an economic institution interested in its reputation, its returns, and its clients, it has to maintain a balance between economic, social and environmental value. The company exists in a social environment and it has the responsibility to act as a good corporate citizen of the community in which it conducts its day-to-day business. This can be done by having programs that address social and environmental issues that impact the community for the long term.
Prioritise Risk Management Risk management is essentially identifying and analysing any risks that are associated with the company and then taking the requisite steps to manage those risks.
Transparency Is Key
Disclosure is a very powerful tool. It can attract investors to invest in the company, it can help maintain the confidence of the company in the markets as well as enhance shareholder protection. However, if the company’s disclosure is weak, then this can encourage unethical practices by the board or the company’s employees and even loss of investor confidence.
Develop And Mature Through A Corporate Governance Framework
The final step is to ensure that the company has a framework, which it uses to gauge the corporate governance level at a particular point in time. All the above steps are elements of a corporate governance framework. When effected, the framework could be reviewed annually and can also be used to analyse the company’s level of corporate governance and forge a way to improve.
Meanwhile, it is evident that there is a cost of good governance because it requires investing in competent and skilled people, processes and policies however notwithstanding in the long run it is still a worthwhile investment.
Building companies and organisations is a form of economic and social activity that should be done with a long term view and so it is important to remind all companies and stakeholders that, no matter how small or large a company may be, we must never take corporate governance for granted. Invest in good corporate governance not just for profitability but also for sustainability.
