A major recipe for enhancing investor confidence is the entrenchment of sound corporate governance for companies operating in Nigeria, CHRIS UGWU writes
Weak corporate governance practice in both public and private companies has contributed a large extent to the slow pace of development in the Nigerian capital market like its counterparts in other African nations. Corporate governance is one of the key elements in improving economic efficiency and growth as well as enhancing investors’ confidence.
Hence, an effective corporate governance system within an individual company and across an economy as a whole helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.
Sound corporate governance helps to lower the cost of capital, and firms are encouraged to use resources more efficiently, thereby strengthening growth. Meanwhile, the degree to which corporations observe basic principles of good corporate governance is an important factor for investment decision in Africa and other parts of the world. However, in Nigeria that prides herself as giant of Africa, lapses in adherence to these principles have contributed majorly to crisis in the economy and Nigerian Stock Exchange in particular in spite of various measures being initiated by regulators.
Over the years, many quoted companies have been violating this important obligation, thereby keeping investors in the dark about their financial health among others. As much as good governance practices would promote the development of the capital market, weak corporate governance practices would also inhibit its development as it would erode confidence in the capital market with potential wider implications for the Nigerian financial markets and the general economy as seen in the 2008 ugly experience in the market.
Many ignorant investors have burnt their fingers by investing in some of the dormant companies, which do not furnish the market with true disclosures on their financials and other corporate governance issues.
Inaccurate reports submitted to regulators and investors by quoted companies had deprived the authorities the right information required to take timely and effective decisions on the market.
Investors and other stakeholders were also misled by distorted information supplied by quoted companies. Authorities have made a lot of efforts to promote good corporate governance practices and reposition the economy and Nigerian capital market for development, but the nation and other African countries still witness corporate failures due to weak corporate governance practice among companies.
Following serial infractions by market players, Securities and Exchange Commission (SEC) and Nigerian Stock Exchange have continued to wield the big regulatory stick by slamming fine on defaulting firms, giving notice to some companies on intention to delist or to completely delist them from its official list for violating post listing requirements.
The reaffirmed commitment by the regulator to do anything to compel operators in the market to obey the rules guiding it informed the decision to tighten the noose on market infractions and other miscellaneous capital market crimes.
This avowed determination recently saw punitive measure on about six firms that recently got suspended by the NSE for inability to disclose their financials as at when due. In order to foster good corporate governance, SEC, last week, issued a corporate governance guidelines and a template that would be effective on January next year.
NSE suspends six companies for non-disclosures
Following inability to file corporate accounts as at when due, the NSE recently suspended trading in shares of six quoted companies. The suspended companies are FTN Cocoa Processors Plc, Medview Airline Plc, Niger Insurance Plc, R.T. Briscoe (Nigeria) Plc, Union Dicon Salt Plc and Capital Oil Plc. The NSE suspended trading on the shares of the companies with effect from Tuesday September 1, 2020 over their failure to file their audited financial statement for the year ended December 31, 2019”. Regulatory rules at the local bourse require all quoted companies to submit their annual audited report and financial statement not later than 90 days after the end of the financial year. More than 85 per cent of quoted companies including all banks, insurers, major manufacturers, oil and gas companies and conglomerates use the Gregorian calendar year ending December 31 as their business year. Thus, the deadline for the submission was Monday, March 30, 2020. The disruptions caused by COVID-19 had led both the NSE and SEC to extend the deadline for submission of annual report and accounts by 60 days, till May 29, 2020. The NSE stated that the companies were suspended after the expiration of the “grace” period and many notifications demanding the submission of the financial statements. “In accordance with the rules set forth above, the suspension of trading in the shares of the above listed companies will only be lifted upon the subcilmission of the relevant accounts and provided the Exchange is satisfied that the accounts comply with all applicable rules of the Exchange,” NSE stated.
SEC sets January 2021 for corporate governance guidelines implementation
SEC had issued a Corporate Governance Guidelines and a template (revised Form 01) for reporting compliance with the Securities and SEC Corporate Governance Guideline, (SCGG) which becomes effective on January 01, 2021. According to a statement from SEC last week, some provisions of the document which can be found at the SEC website www.sec.gov.ng, indicates that membership of the board shall not be less than five and to safeguard the independence of the Board, not more than two members of the same family shall sit on the Board of a public company at the same time The guidelines also stipulate that in appointing a person to the board, shareholders should be provided with information on any real or potential conflict of interest, including whether a proposed appointee is an interlocking director, adding “the letters of appointment should cover the following: Synopsis of Director’s rights; Director evaluation programme used by the company, and any other contractual responsibilities.” On sustainability, the guideline stated: “Companies shall recognise corruption as a major threat to business and to national development and therefore as a sustainability issue for businesses in Nigeria. Companies, boards and individual directors must commit themselves to transparent dealings and to the establishment of a culture of integrity and zero tolerance to corruption and corrupt practices. “In order to foster good corporate governance, companies shall engage in increased disclosure beyond the statutory requirements in the CAMA.”
In a bid to minimise risk in the operations of companies, the guidelines states that the annual risk-based internal audit plan shall: address the broad range of risks facing the company, linking this to a risk management framework; identify audit priority areas and areas of greatest threat to the company; indicate how assurance will be provided on the company’s risk management process; and indicate the resources and skills available or required to achieve the plan. Recall that the Nigerian Code of Corporate Governance (NCCG) of 2018 issued by the Financial Reporting Council (FRC) of Nigeria effectively replaced the Code of Corporate Governance for public companies issued by the Securities and Exchange Commission (SEC). The FRC had also issued a template for reporting compliance with the NCCG 2018. According to SEC, public companies are by this circular advised to comply with the requirements of the NCCG 2018 and also note that compliance with the SCGG/revised reporting template is mandatory.
Strong organisational culture
The Head of Shared Services Division at the Nigerian Stock Exchange, Mr. Bola Adeeko, recently expressed the importance of strong corporate governance practices in building organizational culture amongst issuers. He made this known at the culture training organised by SmithsWorks Limited tagged, “A Live Session with David Eaton” at the Stock Exchange House, Lagos. Delivering his remarks at the training, Adeeko said, “In today’s accelerating world of work, organisational culture has been identified as critical to the success of an organisation. This is as a result of the need to adapt to evolving external forces, achieve internal integration and deliver on an organisation’s strategic objectives.
“In our experience, maintaining this intricate balance between internal and external forces in any organization can only be achieved through strong corporate governance practices. The NSE in its role as regulator and thought leader, therefore, provides various directives and initiatives that help drive the adoption of these practices among issuers.”
“One of such initiatives is the NSE’s partnership with the Convention on Business Integrity (CBi) to launch Nigeria’s foremost framework for ranking companies on issues related to corporate governance, the Corporate Governance Rating System (CGRS), in 2014. This rating system was designed to rate companies listed on the NSE based on their corporate governance and anti-corruption posture, thereby improving the overall level of confidence and trust in Nigeria’s capital markets and business practices.
“Defined as a set of basic values, perceptions, wants and behaviours learnt by a group of people within an ecosystem, organisational culture is of utmost importance in enhancing performance, promoting teamwork and achieving the organisation’s strategic aspirations. With benefits ranging from greater share-price increases, lower employee turnover, more employment applications, less absenteeism, greater employee productivity and greater customer satisfaction levels, it has been proven that culture can improve and sustain corporate performance,” he said. Highlighting the critical role of inclusion and strong corporate governance in framing, cascading and aligning the corporate culture with the business objectives of an organisation, Mr. Dave Eaton, globally recognized culture transformation expert – engaged participants through a series of case studies and practical exercises. Participants were asked to identify the position and aspirations of their organisations across these 7 dimensions: power, perspective, creativity, time, independence, communications and inclusion.
A developed capital market is a world class capital market and such market is one that engenders investor confidence and grows economy of any nation. Hence there is need for authorities to tighten the noose on market infractions and other miscellaneous capital market crimes.