Corporate governance has in recent years assumed considerable significance as a veritable tool for ensuring corporate survival since business confidence usually suffers each time a corporate entity collapses. Most of the business failures in the recent past are attributed to failure in corporate governance practices, for instance, the collapse of banks in Nigeria in the early 1990s and onwards was as a result of inadequate corporate governance practices such as insider-related credit abuses and poor risk appreciation and internal control system failure. To stem the tide in corporate failure, scholars and practitioners have advocated consistently different approaches to corporate governance. A critical tool in corporate governance is disclosure and transparency. Major problems identified by this study are that there is no adequate disclosure on the risk profile of the banks and there is no uniformity in disclosure of the banks. It is recommended that minimum disclosures requirements be required of the banks on the risk profile and management.
An Introduction
Corporate governance refers to the organizational framework for decision making and action taking within a corporate entity. In this regard it can be defined as the structure of relationships within an entity for making decisions and implementation. Simply put, it refers to how an organization is run, that is, how the resources of an organization are employed in pursuant of the set mission and goals of the organization.
Hussey (1999) defines corporate governance more formally as “the manner in which organizations, particularly limited companies, are managed and the nature of accountability of the managers to the owners”. In other words, corporate governance is not just a set of rules but also a structure of relationships geared towards establishing good corporate practice and culture.
The Ultimate Business Dictionary (2003) defines corporate governance functionally as “the managerial or directorial control of an incorporated organisation, which, when well-practiced can reduce the risk of fraud, improve company performance and leadership and demonstrate social responsibility.” Essentially, corporate governance is focused on controlling the activities of those in whose custody the resources of an organisation are entrusted with a view to protecting the interest of the resource owners.
The above definitions are summarized into one by the Report of the Committee on Corporate Governance of Public Companies in Nigeria (2003) which sees corporate governance as “the system by which companies in Nigeria are directed, and managers are held accountable for the performance of the organisation.” This further emphasizes the fact that the concept of corporate governance is principally on the structure of relationship within an organisation which are directed at best practice in the overall interest of the organisation and its owners/stakeholders.
Rwegasira (2000) cited in Oyejide and Soyibo (2001) sees corporate governance merely as being concerned with the structures within which a corporate entity receives its basic orientation and direction. Corporate governance sets the pace that in turn determines the corporate culture of an organisation on the long-run.
Corporate governance only seems to have attracted the attention of scholars on a wide scale, over the last three decades though the issues in corporate governance have always been around. This seemingly new interest arose from the collapse of corporate giants in Europe and America, and the attendant sufferings. For instance, when Enron collapsed towards the end of 2001, it not only led to the loss of employment for thousands of employees it also took with it the life savings of many more who were shareholders and creditors to the world energy giant.
As observed by Hussey (1999) the topic of corporate governance assumed increased importance in 1992 with the publication of the Cadbury Report. In Nigeria the topic gained importance in the post structural adjustment programme (SAP) era. This era witnessed the growth of private ownership of productive resources and the multiplication of banks and financial institutions. Because of the weak corporate culture in these banks, the nation witnessed a very high incidence of corporate failure and distress. To regain the confidence of the public the Securities and Exchange Commission set up a committee in 2000 whose report was the first to articulate a code of best practices for public companies in Nigeria. This was followed by a similar code by the Central Bank of Nigeria (CBN) in 2006 to address corporate governance practices in Nigerian banks. And ever since there have been unending discussions on corporate governance practices in Nigeria.
The Central Bank of Nigeria (2006) traces the need for a new code of corporate governance in Nigerian banking industry to the poor corporate governance practices in the banks which has been identified as one of the major factors in virtually all known instances of corporate collapse of financial institutions in the country, citing that according to a survey by the Securities and Exchange Commission, corporate governance was at a rudimentary level in only about 40% of quoted companies in Nigeria as at the period before 2003. The CBN identified weaknesses in corporate governance practices of banks in Nigeria as:
