Corporate Governance in Nigeria: the status quo

• Author: Elewechi N. M. Okike
• Date: 01 March 2007
• DOI: http://doi.org/10.1111/j.1467-8683.2007.00553.x
• Published date: 01 March 2007

CORPORATE GOVERNANCE IN NIGERIA

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Corporate Governance in Nigeria:

the status quo

Elewechi N. M. Okike*

It is generally believed that poor corporate governance has been the Achilles’ heel of many

corporations in both rich and poor nations. This is particularly true of Nigeria, where

corruption is endemic. However, following the change of government in 1999, the Federal

Government is keen to attract foreign investments into the country. Given the high correlation

between corporate governance and investor decisions, the government is keen to position the

country to take advantage of the opportunities in the global market by adhering to principles

of good governance. Yet not much is known about the state of, or the current framework for,

corporate governance in Nigeria. By providing a comprehensive review of the state of

corporate governance in Africa’s most populous country, this paper makes a contribution to

the literature on the state of corporate governance in developing countries. The paper

examines the mechanism for corporate governance, including the requirements of the recently

established Code of Best Practices for Public Companies in Nigeria. In particular, it examines

the roles of the government, the Corporate Affairs Commission, the Securities and Exchange

Commission, the Nigerian Stock Exchange, the representatives of the shareholders of the

companies, directors, auditors and the Audit Committee in the governance process. The paper

addresses the issue of whether the governance mechanisms in Nigeria are adequate in the face

of the changes and challenges in the global corporate scene. It argues that whilst there is a

case for adherence to global corporate governance standards, any Code of Best Practices

adopted in Nigeria must ref‌lect its peculiar socio-political and economic environment, whilst

at the same time providing the right assurance to prospective and existing shareholders.

Keywords: Corporate governance, Nigeria, mechanisms, status quo

Introduction

n recognition of the vital role that the

modern corporation plays in the economic

development of any nation, and the need to

ensure good governance of these corporations,

there has been an upsurge in global initiatives

to provide governance principles for the effec-

tive management and control of these corpo-

rations. Most of these initiatives have featured

prominently in the developed countries such

as the UK, the US, Canada, France and Ger-

many, amongst others. However, some devel-

oping countries such as South Africa (see the

King Report 1994 and 2002) have also taken

steps to address corporate governance issues.

What is happening in Nigeria?

There is now a renewed emphasis in Nigeria

for the effective corporate governance of pub-

I

lic companies. To this end, in June 2000 the

Securities and Exchange Commission (SEC) in

Nigeria set up The Committee on Corporate

Governance of Public Companies in Nigeria,

1

to

To review the practices of corporate governance

in Nigeria and thereafter, recommend a Code of

Best Practices to be followed by public com-

panies registered in Nigeria in the exercise of

power over the direction of the enterprise, the

supervision of executive actions, the transpar-

ency and accountability in governance of these

companies within the regulatory framework and

market.

The Committee was also required to

1. Identify weaknesses in the current cor-

porate governance practices in Nigeria

with respect to public companies.

174

CORPORATE GOVERNANCE

© 2007 The Author

Journal compilation © Blackwell Publishing Ltd. 2007

Volume 15 Number 2 March 2007

2. Examine practices in other jurisdictions

with a view to the adoption of international

best practices in corporate governance in

Nigeria.

3. Make recommendations on necessary

changes to current practices.

4. Examine other issues relating to corporate

governance in Nigeria.

At the end of its deliberations, the Committee

submitted its Report in April 2001, in which it

made recommendations that are meant to

focus on the transparency and accountability

of the management and boards of public com-

panies. The Committee notes that its recom-

mendations “have been arrived at after re-

viewing the existing practices in Nigeria and

other countries around the world in order

to ensure that they also conform to global

best practices” (Report of the Committee on

Corporate Governance, 2001). Recently too,

following a renewed emphasis within the

international community on the major role

that the observance of international standards

and codes of best practices can play in streng-

thening national and international f‌inancial

systems, the World Bank and the International

Monetary Fund (IMF) called for the prepara-

tion of Reports on the Observance of Stan-

dards and Codes (ROSC), an assessment of the

degree to which an economy observes inter-

nationally recognised standards and codes.

This led to the preparation of a report on the

observance of standards and codes (Account-

ing and Auditing) in Nigeria by a team led

by the World Bank between November

2003 and March 2004. The f‌indings and

recommendations contained in the report

were presented and discussed at a Country

Stakeholders Workshop on 13 September 2004,

following which a country action plan was

agreed (ROSC, 2004). However, prior to these

developments, the need to address corporate

governance in Nigeria was recognised when

the 28th Annual Accountants Conference or-

ganised by the Institute of Chartered Accoun-

tants of Nigeria (ICAN) in September 1998 had

“Corporate Governance” as the main thrust, to

re-emphasise the commitment of the profes-

sion to “trust, transparency, accountability and

honesty in the management of the nation’s re-

sources” and to “disprove and enlighten the

public that corporate failures are not synony-

mous with audit failures” (Nwokolo, 1998).

The conference also recognised that corporate

governance is a global phenomenon that must

be embraced by all nations and organisations

that intended to succeed.

In the light of the foregoing, this paper

examines the current framework for corporate

governance in Nigeria as well as the mecha-

nisms put in place to ensure good governance

of public companies in Nigeria. Although

corporate governance continues to grow in

importance internationally, especially in the

wake of recent corporate failures, not much is

known about the corporate governance prac-

tices in Africa’s most populous nation, and the

world’s sixth largest producer of oil.

Although it would appear that corporate

governance in Nigeria is inf‌luenced by a num-

ber of internal and external factors (Okike,

1998), this paper examines the roles of key

players in the governance process. These are

the players mentioned in the Companies and

Allied Matters Act 1990

2

as having specif‌ic

roles in the monitoring of corporate activities

in Nigeria. The players include the govern-

ment, the Corporate Affairs Commission

(CAC), the Securities and Exchange Com-

mission (SEC), the Nigerian Stock Exchange

(NSE) and the “representatives of the share-

holders of the company”. It also examines the

roles of directors, auditors and the Audit

Committee within the corporate governance

framework. The paper addresses the issue of

whether these governance mechanisms in

Nigeria are adequate in the face of the changes

in the global corporate scene. Given current

initiatives by the democratically elected gov-

ernment in Nigeria to attract foreign invest-

ments into the country, the paper provides

useful insights into the state of corporate gov-

ernance in Nigeria, to enable potential inves-

tors make reasoned decisions. Furthermore,

the paper is an addition to the literature on

the state of corporate governance in different

countries.

Literature review

Whilst there would appear to be an upsurge

in the literature on corporate governance

developments across the globe (see Shleifer

and Vishny, 1997; Demirag, 1998; Solomon and

Solomon, 2004), there is still a lacuna in the

literature on corporate governance develop-

ments, especially in the developing world. Al-

though some authors (Mallin and Jelic, 2000;

Ow-Yong and Guan, 2000; Sarkar and Sarkar,

2000; Apreda, 2001; Hussain and Mallin, 2002;

Fremond and Capaul, 2003, amongst others)

provide evidence of corporate governance de-

velopments in some developing countries,

there is little evidence of corporate governance

developments in Africa, with the exception of

South Africa (see King Report, 1994, 2002).

Yasaki (2001) provides some evidence of the

evolution of corporate governance in Nigeria,

albeit within the banking sector. Although not

much is known about the state of corporate