Corporate governance which is the controlling and directing of companies in a systematic form,to regulate market mechanisms, and the relationship between a company’s management,shareholders, and other stakeholders thereby alleviating interest conflict. This frame work of rules and practices by which board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders, is about good decisions being made by the right members.
Corporate governance structure needs authoritative members who delegates authority, to guide employees to recognize decisions that would be favorable. However, developing clear policies and procedure are essential for creating planned business outcomes. These are particularly helpful in communicating clear steps to achieve the organizational goal. Policies with concise and easily understandable plans to the organizational objectives as well as the management risk plan are of great advantage, thus there is a need for constant revisit to the policies to ensure they are up to date, particularly when there is dynamism in the business environment.
Basically, the level of confidence in a business depends on the corporate governance. The presence of an active group of independent directors on board, contributes a great deal towards ensuring confidence in the market. Hence, foreign institutional investors are increasingly depending on the healthy nature of the corporate governance as it has a positive influence on the share price of a company. Long-term performances of a company are of the high quality of
corporate governance as it would provide an attractive market to new investors.
Transparency and accountability are elements which promotes good corporate governance.
Provision of good quality information to all stakeholders after every change in the market, with a plausible decisions making process where shareholders are given proper consideration to information provided, and making considered judgments. Transparent financial reporting reduces unevenness within the business firm, which facilitates management monitoring, therefore, the timely and informative disclosure reduces the likelihood of withholding relevant information, as a result, are charged a lower risk premium by creditors. Hence, the reliability of financial information is due, in part, the quality and integrity of the audit process.
Organizational recognitions of legal, social and market driven obligations to non-shareholders, including employees, creditors, customers and policy makers are guidance to corporate governance. Hence the board needs sufficient relevant skills and understanding to review, and challenge management performance. Thus corporate officers and board members should meet the fundamental requirement, so as to promote ethical and responsible decision making. Business firms with a greater proportion of outside directors on board provide better monitoring of
management actions. Board comprised of members who are more competent will do a better job of monitoring the activities of management and makes better decisions leading to less default risk, as great attentiveness which would be perceived by the board members as their legal responsibility. Better firm performance should benefit all stakeholders, leading to higher credit ratings. However, good board structure and process ensures long-term success of the company.
Firm with weak corporate governance have a lower probability of receiving an investment-grade credit rating and as a consequence sustain significantly high debt costs and causes corporate fraud. However, the cost of weak governance is suffered by all stakeholders. Hence, weaker corporate governance structures exhibit greater overcompensation of CEOs and face greater agency problems.
Conservatism is potentially useful in corporate governance, as it reduces the likelihood of over-compensation of management by constraining possible overstatements of assets and earnings, thus, enlightening directors on negative projects and takes corrective actions to limit losses.
Nigerian capital market which started operation a year after her independence met the high level of competitiveness, as the market evolved. Transparent market practice at the early stage of the capital market brings together, the best African enterprises and global investor communities.
Nigerian capital market is regulated by the ‘securities and exchange commission’, which has mandate and surveillance over the exchange to forestall breaches of the market rules and to detect unfair manipulations. However, foreign investors are encouraged into Nigerian capital market, after the abolishment of legislation preventing the flow of foreign brokers on enlists as dealers on the Nigerian stock exchange. Hence, multiple and cross-border listing on foreign markets are allowed.
Despite the early operation of capital market in Nigeria, corporate governance which ensures well-run institutions, that earn the confidence of investors and lenders, the process which ensures safeguard against corruption and mismanagement, while promoting fundamental value of a market economy in a democratic society is currently a new concept.
Africa as a whole are faced with challenges ranging from weak civil and judicial system, undeveloped monitoring institution, limited human resources capabilities, interlocking relationships with government and the financial sector. Identification of these challenges is important, given the recent outburst of high profile scandals and financial crises at a number of corporations in developed economy. However, there is a need for effective and sound regulatory framework for various aspect of corporate governance especially in Nigeria.
The informal natures of most businesses, and high level of government ownership of enterprise in Nigeria, pose challenges to the practice of corporate governance. Thus, a more prevalent constraint arises from restricted competition in the market for goods and services. Impediments to competition are diverse, ranging from anti-competitive practices by firms to policy restriction on ownership and entry.
Nigerian capital market challenges are threatening, as majority of listed companies are subsidiaries of foreign multinationals, and a minority of shares with local float for public investors are unable to use voting power to enforce corporate governance. Therefore, no effective control because of insufficient liquidity.
Prevalence of corrupt practices is particularly problematic for the development of small enterprise, whose existence may depend on winning a single contract. By diverting investment into unproductive dead-ends and blocking business growth. Corruption and bribery makes it more difficult to protect the right and interest of stakeholders in the capital market. However, an effective program to combat corruption and bribery is also capable of protecting stakeholder’s
value in an important requirement for the development of corporate governance in Nigeria’s capital market.
The pervasive influence of corporate governance principle is largely attributable to the diverse consequence of non-compliance with provisions of corporate governance codes. Hence, there is inadequacy in the implementation strategy of corporate governance In Nigeria.
Privatization is expected to improve managerial incentives and raise corporate efficiency. However, inherent conflicts associated with corporate governance are mostly found to occur in post privatization, due to the lack of independence and sizeable cronyism in the sale of enterprises.
The Nigerian capital market needs a more diverse mix of members, which will enable it to address challenges of an uncertain and dynamic business environment, because, dissimilarities in the ethnic and gender background of directors would contribute different sociological perceptions and understandings to the decision-making process. Ethnic and gender diversity also enhances the board’s flexibility in its decision making process, due to a wider set of perceptions and views. However, this would enable the capital market to facilitate strategic change. Consequently, the capital market will be able to respond more rapidly to changes in the dynamic and uncertain business environment.
Installations of a committed board of directors which will exercise its oversight functions with a high degree of independence from management and shareholders within the capital market, and a Lesser number of non-executive directors compare to the executive directors as well as division of responsibilities would balance the power and authority so that no individual or coalition of individuals have unfettered power of decision making.
Good corporate governance is an important step towards building market confidence and encouraging stable, long-term international investment flows into the country. Since the business corporation is becoming an increasingly important engine of wealth creation not only in our economy, but also worldwide.
The problem of non-transparency needs to be addressed. Non-transparency will be a growing problem as natural resource operations become increasingly located in less developed countries, where civil society and government transparency are proportionately weaker. Depoliticizing the issue of payment disclosure in authoritarian regime, and allowing companies greater freedom of responsible behavior, by publishing what is paid to such regime is likely to have a knock-on
effect of encouraging greater transparency and a profitable governance . Hence, political interference in enterprise decision-making is widely spread in Nigeria, which is detrimental to corporate governance development.
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