JUST about a month ago, I read a publication in UCLA Law Review written by Edward B. Rock, a Distinguished Professor of Business Law at the University of Pennsylvania Law School.
In the publication titled Saints and Sinners: How does Delaware Corporate Law work? he asked the following questions about corporation - How is it that most managers do a good job most of the time? How is it that most managers most of the time are worthy of the trust of investors?
He gave the following answers: (a) The legal constraints that is the courts through the enforcement of specific legal prohibitions (like laws outliving embezzlement, theft, etc) and through the enforcement of more vague legal constraints (e.g. duty of care, etc) sometimes catch errant managers. (b) Institutional structures such as Board of Directors, Shareholders voting etc, keep managers in line. (c) Pressure from the various markets that impinge on the corporation and managers e.g capital markets and market for corporate control may keep managers in line.
I have decided to state the above position of the distinguished professor in order to draw a corollary from the event of August 14, 2009 which saw to the removal of Managing Directors of five banks by the Central Bank of Nigeria (CBN).
Has any of the above stated checks provided a robust check on the managers of our companies? The questions may not be answered in the affirmative because we have scarcely seen in the history of our dear country where the chief executives of our public companies are docked and publicly prosecuted in our courts.
We have not equally seen where the shareholders of our public companies stoutly stand up against the chief executives for non-performance or perceived recklessness and remove them from office rather they collaborate and give them a yes at the Annual General Meetings (AGM) after receiving paltry gifts.
Have we equally seen where managers of our companies resign as a result of constant poor performances in terms of profits? Rather what they do is to enrich themselves personally and look for a way of buying the companies for themselves and their cronies.
The question to ask is: can effective corporate governance indeed help guide or at least assist the corporate managers to live by the rule of the game? I will like to answer the question in the affirmative.
Fundamentally, Corporate Governance is one key element that helps to improve economic efficiency and growth as well as enhancing investor's confidence. According to Organisation for Economic Cooperation and Development (OECD) it has become an international benchmark for policy makers, investors, companies and other stakeholders worldwide and a key standard for sound financial systems. Economies all over the world are enjoined to adopt a Corporate Governance codes and ensure a strict adherence to it.
Nigeria has since followed suit by the codes issued by the Securities and Exchange Commission (SEC) in conjunction with the Corporate Affairs Commission (CAC) to guide the public companies and other capital market stakeholders. With this, all public companies in Nigeria are to disclose their compliance level in respect of their annual reports and accounts as this is meant to be a powerful tool for influencing the behaviour of companies and for protecting investors and other stakeholders.
Can the public companies in Nigeria be given a pass mark in respect of disclosure and transparency?
If yes, how did the five banks recently facing the wrath of the CBN get to this level? Where were the other stakeholders to Corporate Governance i.e. Board of Directors, Shareholders, Customers, The Courts, Corporate Affairs Commission (CAC) (which has always said it has an oversight function on companies incorporated in Nigeria) and the banking public at large when traces of extravagance of these managers were rumoured?
We were all in Nigeria when some of the chief executives went on acquiring airplanes or jets at the time other executives worldwide were becoming more frugal with their expenses.
The challenges posed by the present events are two-fold: (a) How do we ensure a strong disclosure regime in our public companies in order to reduce the risk of financial scandals and possible distress of our public companies most especially our banks? (b) How can the parties to Corporate Governance assist in curbing future excesses or recklessness of these executives?
My humble opinion is to encourage the concept of whistle-blowing within the system. Most atrocities committed by the bank executives are to the knowledge of some staff who are mostly not happy with the atrocities of their bosses but they have learnt to live by them.
Transfer of funds abroad to phoney accounts to purchase choice properties is done with the connivance of the staff who again may not be happy with it or at least sometimes compensated by their bosses; manipulation of financial accounts to reflect fake results is done by the staff.
CBN should create an avenue and encourage whistle-blowing. Whistle-lowing is not novel, the United States of America SOX Act that came into being after the Enron Saga gave credence to this as it copiously encouraged whistle blowing as a veritable tool to curb or reduce the recklessness of managers.
Again, our shareholders should come out more forcefully to challenge the managers at the Annual General meetings if they discover anomalies in the accounts; they should more than any other time be more vigilant and always recognise their positions as the owners of these companies.
Lastly, in my opinion, the CBN should be commended for its stand on the banks. For the first time it has exercised the power legally conferred on it by BOFIA to curb the excesses of the managers of these banks and it should be encouraged.
By Muyiwa Olusa, a legal practitioner, lives in Lagos
In the publication titled Saints and Sinners: How does Delaware Corporate Law work? he asked the following questions about corporation - How is it that most managers do a good job most of the time? How is it that most managers most of the time are worthy of the trust of investors?
He gave the following answers: (a) The legal constraints that is the courts through the enforcement of specific legal prohibitions (like laws outliving embezzlement, theft, etc) and through the enforcement of more vague legal constraints (e.g. duty of care, etc) sometimes catch errant managers. (b) Institutional structures such as Board of Directors, Shareholders voting etc, keep managers in line. (c) Pressure from the various markets that impinge on the corporation and managers e.g capital markets and market for corporate control may keep managers in line.
I have decided to state the above position of the distinguished professor in order to draw a corollary from the event of August 14, 2009 which saw to the removal of Managing Directors of five banks by the Central Bank of Nigeria (CBN).
Has any of the above stated checks provided a robust check on the managers of our companies? The questions may not be answered in the affirmative because we have scarcely seen in the history of our dear country where the chief executives of our public companies are docked and publicly prosecuted in our courts.
We have not equally seen where the shareholders of our public companies stoutly stand up against the chief executives for non-performance or perceived recklessness and remove them from office rather they collaborate and give them a yes at the Annual General Meetings (AGM) after receiving paltry gifts.
Have we equally seen where managers of our companies resign as a result of constant poor performances in terms of profits? Rather what they do is to enrich themselves personally and look for a way of buying the companies for themselves and their cronies.
The question to ask is: can effective corporate governance indeed help guide or at least assist the corporate managers to live by the rule of the game? I will like to answer the question in the affirmative.
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| CBN |
Nigeria has since followed suit by the codes issued by the Securities and Exchange Commission (SEC) in conjunction with the Corporate Affairs Commission (CAC) to guide the public companies and other capital market stakeholders. With this, all public companies in Nigeria are to disclose their compliance level in respect of their annual reports and accounts as this is meant to be a powerful tool for influencing the behaviour of companies and for protecting investors and other stakeholders.
Can the public companies in Nigeria be given a pass mark in respect of disclosure and transparency?
If yes, how did the five banks recently facing the wrath of the CBN get to this level? Where were the other stakeholders to Corporate Governance i.e. Board of Directors, Shareholders, Customers, The Courts, Corporate Affairs Commission (CAC) (which has always said it has an oversight function on companies incorporated in Nigeria) and the banking public at large when traces of extravagance of these managers were rumoured?
We were all in Nigeria when some of the chief executives went on acquiring airplanes or jets at the time other executives worldwide were becoming more frugal with their expenses.
The challenges posed by the present events are two-fold: (a) How do we ensure a strong disclosure regime in our public companies in order to reduce the risk of financial scandals and possible distress of our public companies most especially our banks? (b) How can the parties to Corporate Governance assist in curbing future excesses or recklessness of these executives?
My humble opinion is to encourage the concept of whistle-blowing within the system. Most atrocities committed by the bank executives are to the knowledge of some staff who are mostly not happy with the atrocities of their bosses but they have learnt to live by them.
Transfer of funds abroad to phoney accounts to purchase choice properties is done with the connivance of the staff who again may not be happy with it or at least sometimes compensated by their bosses; manipulation of financial accounts to reflect fake results is done by the staff.
CBN should create an avenue and encourage whistle-blowing. Whistle-lowing is not novel, the United States of America SOX Act that came into being after the Enron Saga gave credence to this as it copiously encouraged whistle blowing as a veritable tool to curb or reduce the recklessness of managers.
Again, our shareholders should come out more forcefully to challenge the managers at the Annual General meetings if they discover anomalies in the accounts; they should more than any other time be more vigilant and always recognise their positions as the owners of these companies.
Lastly, in my opinion, the CBN should be commended for its stand on the banks. For the first time it has exercised the power legally conferred on it by BOFIA to curb the excesses of the managers of these banks and it should be encouraged.
By Muyiwa Olusa, a legal practitioner, lives in Lagos
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