CORPORATE GOVERNANCE IN THE NIGERIA BANKING INDUSTRY

 

CORPORATE
GOVERNANCE IN THE NIGERIA BANKING INDUSTRY

Corporate
Governance has in recent times assumed heightened importance requiring that boards
and management of companies’ exhibit greater transparency and accountability in
their business conduct (Anameje, 2006) as reported in Adeyemi, 2009. Corporate
governance in Nigeria is at a rudimentary stage and only 40% of companies
(banks inclusive) quoted on the Nigerian Stock Exchange have recognized codes
of corporate governance in place (Wilson, 2006). Governance in any banking
institution in Nigeria is centrally placed in the hands of the board of
directors. Nevertheless, the Nigerian banking sector had been bedeviled with
poor corporate governance as a result of executive duality, ineffective board
oversight functions, weak internal control, non-performing credits including
insider related credits, non-disclosure of financial information and lack of
transparency among others (CBN, 2006). The new code of corporate governance
stands to correct and address these challenges in order to create a sound
banking system in Nigeria. However, the code of corporate governance for banks
in Nigeria post consolidation released by the Central Bank of Nigeria in March,
2006 has recommended several practices including whistle blowing as means to decisively
addressed the issue of corporate governance.
According to Quadri (2010) research confirms that there is lack of law
enforcement capacity to implement the corporate governance codes of conduct in
Nigeria, and so is lack of thorough selection, evaluation and replacement of
CEOs. It is also confirmed that retired or replaced CEOs are graduated to the
membership of the board which creates not only lots of conflicts and tension
with the new CEOs, but also, present an opportunity for continuous cover up to
perpetuate corporate shenanigans.

 

 It should be pointed out that while the
Company and Allied Matters Act envisages good corporate governance by
specifying the structure of companies, the powers and roles of the boards of
directors, management, shareholders, etc., the reality of our situation is that
all this has become academic on account of impotent and moribund regulatory
agencies such as the CBN, SEC and the Nigeria Deposit Insurance Commission
(Oyebode, 2009). Any
bank that is able to demonstrate measurable improvements in the implementation
and adherence to best practice corporate governance standards will be more
attractive in a beauty parade investment. Given the multiplicity of interests
in any bank, a situation which partly informs their sanctioning and approval by
the Central Bank of Nigeria irrespective of what the shareholders think of any
director. To this extent, appointment to the board of any Nigerian bank differs
marked from those of other private sector corporate institutions (Yakasai,
2001)

 

 THE
DUALITY OF OWNERSHIP AND MANAGEMENT

Corporate governance is a philosophy and mechanism
that entails processes and structure which facilitate the creation of
shareholder value through management of the corporate affairs in such a way
that ensures the protection of the individual and collective interest of all
the stakeholders. Corporate governance is generally associated with the
existence of agency problem and its roots can be traced back to separation of
ownership and control of the firm. Agency problems arise as a result of the
relationships between shareholders and managers and are based on conflicts of
interest within the firm. Similarly conflict of interests between controlling
shareholders and minority shareholders is also at the heart of the corporate
governance literature. Another important feature of modern corporate governance
is CEO/Chair duality. It indicates the corporate management where the CEO also
serves as chairman of the board. This situation has direct impact on the
financing decision of the company.

 

Fama and Jensen (1983) argue that in a firm decision
management and decision control functions should be separate. Decision
management function encompasses the right to initiate and execute new proposals
for the disbursement of the firm's resources while decision control function
comprises of the right to approve and monitor those proposals. This separation
is ensured through a set of internal checks and controls. This system
facilitates the judicious utilization of firm’s resources. Thus the same system
should be implemented at the premier level. Though, role of chief decision
management authority (CEO) should also be separated from role of chief decision
control authority (chairman). Board of directors is the seat of premier level
of decision control mechanism in the corporate structure so it must not be
controlled by CEO. Presence of CEO/Chair duality signals the absence of
separation of decision management and decision control and it ultimately leads
to agency problems.

CEO/Chair Duality and manager ownership are negatively
correlated with profitability according to Hassan (2009).