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Corporate governance has been the Achilles' heel of many corporations in both rich and poor nations. In Nigeria, there have been meaningful development in corporate governance over the last two decades, especially in the financial sector and capital market. But concerns remain in the development and implementation of good corporate governance in the wider economy.
    
In a paper on corporate governance presented at a workshop organised by the Asian Development Bank Institute in 1999, K.F. Chow explained that the objectives of corporate governance include ensuring transparency, accountability, adequate disclosure and effectiveness of reporting systems. He asserted that good corporate governance is imperative because of what he termed “expectation gap,” which arises when the behaviour of a company falls short of the expectations of its stakeholders.

There is a high correlation between good corporate governance and sustained business growth. Companies that adopt good corporate governance practices stand a better chance of increasing their share values and attracting investment. They are perceived as less risky and they enjoy the loyalty of customers and other stakeholders.

The evolution of corporate governance standards in Nigeria has seen issuance of different codes of corporate governance by major regulators. These include: Code of Corporate Governance for Public Companies in Nigeria issued by the Securities and Exchange Commission (SEC) in 2003 and reviewed in 2011 and the Code of Corporate Governance for Banks and Discount Houses in Nigeria issued by the Central Bank of Nigeria (CBN) initially in 2006 and replaced in 2014.

The Nigerian Communications Commission (NCC) issued the Code of Corporate Governance for the Telecommunication Industry in 2014 and updated it in 2016. National Pension Commission (PenCom) issued the Code of Corporate Governance for Licensed Pension Fund Operators in 2008, while National Insurance Commission (NAICOM)'s Code of Good Corporate Governance for Insurance Industry in Nigeria was issued in 2009.

The implication of these different codes is that there were no uniform corporate governance standards for all companies in Nigeria until the Federal Government unveiled the Nigerian Code of Corporate Governance (NCCG) 2018 in January 2019. The NCCG provides minimum corporate governance expectations for all companies. Among other objectives, the code aims to institutionalise good corporate governance practices in the public and private sectors of the Nigerian economy and to rebuild public trust and confidence.  

The implementation of the NCCG is to be monitored by the Financial Reporting Council of Nigeria (FRC) through guidelines that the Council will provide to sectoral regulators that will implement the code. In addition to the convergence of minimum standards for all types of companies in the country, the code is applicable to all companies regardless of their size.

Corporate governance covers all aspects of business operations, ranging from the simple act as responding to an unsolicited job application to the complex task of risk management. All these tasks have to be carried out in an effective and responsible manner without causing any backlash for the organisation. This understanding of corporate governance is embodied in what experts have broken down into four simple words: People, Purpose, Process, and Performance – also known as the Four Ps of corporate governance.

People exist on every side of the business equation. They constitute the founders, the board, the stakeholders and impartial observers, and they participate in promoting, complying with and being the beneficiaries of good corporate governance. The governance standards exist for a purpose and they are designed to achieve a purpose for the business and its people. Processes are meant to help in achieving the purpose of the governance codes that the business is guided by. The fourth P, which is performance, deals with analyzing the governance process and determining how successful it is. In essence, good corporate governance helps in improving strategic thinking at the top and adds substantial value to the operational performance of companies.  

In Nigeria, corporate governance in the private sector is of interest to the general public. It is more so for listed companies where corporate governance is of particular interest to the government, regulators, shareholders, investors, creditors as well as customers. The Nigerian Stock Exchange (NSE), in partnership with the Convention on Business Integrity (CBi), established the Corporate Governance Rating System (CGRS), which is regarded as Nigeria’s first rating system responsible for incentivising sound corporate governance practices.

Launched in 2014, the CGRS's objectives include strengthening corporate governance and corporate integrity practices of listed companies and improving the overall perception and trust in the Nigerian capital market. Following the establishment of the rating system, the NSE introduced the Premium Board on the exchange.

The Premium Board features companies that adhere to international best practices on corporate governance and meet the NSE’s highest standards of capitalisation and liquidity. The companies on the board are those that have achieved the CGRS' minimum rating score of 70 per cent, apart from meeting the minimum market capitalisation requirement of N200 billion. There are only eight of such companies: Dangote Cement, MTN Nigeria Communications, Access Bank, Seplat Petroleum Development Company and Zenith Bank Plc. The others are Lafarge Africa Plc, United Bank for Africa Plc and FBN Holdings Plc.

To demonstrate how high corporate governance standards help in making companies more attractive to international investors, the Premium Board provides listed companies access to a global pool of investors who are focused on companies that are well managed and conform to the highest governance standards. This goes to show why in the context of the global competition for capital, the incentivisation and implementation of economy-wide corporate governance standards is critical for developing the Nigerian private sector.

In this context, the delay in the implementation of the NCCG two years after it was announced is unproductive. In June 2020, the FRC issued a guidance for reporting on compliance with NCCG. However, it said it was still engaging with sectoral regulators for the purpose of developing specific corporate governance requirements for each sector that were not covered under the NCCG.

What this means, according to the Council, is that the NCCG will invalidate all the existing sectoral governance codes. The NCCG’s sectoral guidelines are due to be issued to address sector-specific corporate governance matters. "To this end, NCCG 2018 as the National Code, would be the only Code of Corporate Governance in Nigeria," the FRC said.

Institutionalising good corporate governance standards, not just for large corporations, but also for small and medium-sized enterprises (SMEs) that may not have had sound corporate governance practices is a good step in further supporting the growth of the private sector. It is also good for the Nigerian economy as it would enable the markets to be more attractive to foreign investors.

Oseini Wale Bamigbaiye (LLB, BL, Acis.) is Principal Partner at Corporate Legal Consulting.