Corporate governance reform in Nigeria: upstream and downstream interventions

• DOI: https://doi.org/10.1108/CG-09-2021-0347
• Published date: 14 January 2022
• Date: 14 January 2022
• Pages: 979-1003
• Subject Matter: Strategy,Corporate governance
• Author: Franklin Nakpodia,Femi Olan

Corporate governance reform in Nigeria:

upstream and downstream interventions

Franklin Nakpodia and Femi Olan

Abstract

Purpose –Internal (e.g. firm performance, internal stakeholders) and external pressures (e.g.

globalisation, technology, corporate scandals) have intensified calls for corporate governance reforms

across varieties of capitalism. Yet, corporate governance practices among developing economies

remain problematic.Drawing insights from Africa’slargest economy (Nigeria)and relying on the resource

dependence theorisation, this study aims to address two questions –what are the prerequisites for

effectivereforms; and what reforms yield robustcorporate governance?

Design/methodology/approach –This study adopts a qualitative methodology comprising semi-

structured interviews with 21 executives in publicly listed Nigerian firms. The interviews were analysed

using the contentanalysis technique.

Findings –This study proposes two sequential reforms (i.e. the upstream and downstream). The

upstreamfactors highlight the preconditions thatsupport corporate governance reforms,i.e. government

commitment and enablingenvironment, while the downstream reforms combine elementsof awareness

and regulationto proffer robust corporate governanceinterventions.

Originality/value –This research further stresses the need to consider a bottom-up approach to

corporate governance in place of the dominant top-down strategy. This strategy allows agents to

participateactively in corporate governancepolicy-making rather than a top-downmodel, which imposes

corporategovernance on agents.

Keywords Regulation, Corporate governance, Developing economies, Reforms, Bottom-up,

Awareness, Upstream, Downstream

Paper type Research paper

1. Introduction

Interest in corporate governance continues to grow at an exponential rate (Solomon, 2021)

due to two primary factors. The first draws from the widely reported positive impact of

corporate governance on firm performance (Bhatt and Bhatt, 2017;Usman and Yakubu,

2019), whereas the second focuses on the enduring incidences of corporate governance-

inspired failures (Hsu and Wu, 2014) and their damaging effects on stakeholders. These

factors induce policymakers to establish corporate governance systems. Indeed, major

corporate crises provoke corporate governance reforms (Mees and Smith, 2019). It is,

therefore, unsurprising that governments and scholars propose reforms to deal with

hitherto-unaddressedcorporate governance issues.

The escalating interest in corporate governance reforms notwithstanding, the effectiveness

of these reforms varies across countries. While this inconsistency stimulates growing

research in this space, much of the literature (Andreasson, 2011;Mees and Smith, 2019)

admits that institutional variations influence reform outcomes. This view challenges

corporate governance’s “one-size-fits-all” reform model that underrates the value of context-

inspired regulations (Andreasson, 2011). In recognising problems of a “one-size-fits-all”

reform agenda, this research extends the corporate governance reform scholarship by

studying a less-researched setting (i.e. Nigeria). The country is Africa’s largest economy in

Franklin Nakpodia is based

at Durham University

Business School, Durham

University, Durham, UK and

Department of Financial

Intelligence, University of

South Africa, Pretoria,

South Africa.

Femi Olan is based at

Newcastle Business

School, Northumbria

University, Newcastle upon

Tyne, UK.

Received 16 September 2021

Revised 10 December 2021

Accepted 13 December 2021

Notes. Compliance with ethical

standards.

Conflict of interest.

The authors of this research

declare that they have no

conflict of interest.

Ethical approval. All procedures

performedin studiesinvolving

human participants were in

accordance with the ethical

standards of the institutional

and/or national research

committee and with the 1964

Declaration of Helsinki and its

later amendments or comparable

ethical standards.

Animal rights statement. This

article does not contain any

studies with animals performed

by any of the authors.

Informed consent.Thisstudy

relied on publicly available data.

DOI 10.1108/CG-09-2021-0347 VOL. 22 NO. 5 2022,pp. 979-1003, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 979

terms of nominal gross domestic product. Tsamenyi and Uddin (2009) note that most

Anglophone African countries share economic and institutional characteristics. Therefore, a

robust corporate governance system in Nigeria could trigger similar structures across the

region.

Nigeria has had its share of corporate governance reforms. F ollowing the introduction of the

first corporate governance code (Securities and Exchange Commission [SEC] Co de) in 2003,

various reforms prompted the revision of the code in 2011 and 2018. Stakeholders, notably

practitioners and academics, called for these reforms (Adekoya, 2011;Okoy e, 2014;Daodu

et al., 2017). Despite these interventions, the state of corporate governance in Nigeria

suggests that the reforms have underachieved. While scholars offer vari ous factors to explain

the reforms’ ineffectiveness, the lack of the necessary empirics i s noteworthy. Consequently,

this research takes a different path to investigate reform implementation. Relying on semi-

structured interviews with 21 executives, we examine two issues: what are the pr erequisites for

effective reforms; and, what reforms could inspire robust corporate g overnance in Nigeria?

Drawing insights from the resource dependence theory (RDT), this study articulates a

sequential corporate governance reform agenda. The first set of interventions –the

upstream reforms –uncovers the preconditions that support robust corporate governance.

The governance reform literature often overlooks these prerequisites. These upstream

reforms include government commitment and an enabling operating environment. Once

these preconditions are established, they provide the foundation to implement the next set

of reforms, i.e. the downstream reforms. While the upstream reforms enhance the

effectiveness of downstream reforms, the downstream interventions comprise reforms

targeted at corporate governance mechanisms. These downstream reforms are classed

into two areas, i.e. awareness-related (AR) and regulation-related (RR) reforms. AR reforms

involve education and enlightenment programmes and the promotion of corporate

governance at the micro-level. The RR reforms entail whistle-blowing, governance

scorecard and the monitoring of regulators. This research also recommends a bottom-up

strategy to corporate governance regulation that accommodate greater stakeholder

participation in corporate governancepolicy-making.

The rest of this paper proceeds with a discussion of cor porate governance in Nigeria, focusing

on corporate governance regulation and the challenges confronting it. Next, we present the

theoretical anchor for this research (RDT) and review the cor porate governance reform

literature. We then describe the research methodology, follow ed by the presentation and

analysis of the study’s findings. To conclude, we reflect on t he practical implications of the

findings, present the research’s limitations and suggest areas for further s cholarly inquiry.

2. Corporate governance in Nigeria

The drive towards sound governance practices among Nigerian firms commenced

approximately three decades ago withthe enactment, in 1990, of the Companies and Allied

Matters Act (CAMA). Inyang (2009) notes that the need to curtail growing unethical

practices among firms accelerated CAMA’s introduction. CAMA signalled a comprehensive

attempt at addressing various corporate management issues in Nigeria, offering an

extensive regulatory framework for corporate Nigeria (Ogbuozobe, 2009). However, CAMA

was criticised for its weak enforcement mechanism, as corporate infractions persist. This

challenge contributed to unprecedented corporate failures, notably in the banking sector

(Nworji et al.,2011). These concerns, coupled with global developments, heightened calls

for a dedicated corporate governanceregulation.

In response, corporate governanceregulation in Nigeria took off in 2003 with the SEC Code

of Corporate Governance. The SEC Code (2003) primarily recognises directors and

shareholders’ roles in establishing corporate governance systems. The code also

addresses critical governance areas such as the roles of non-executive directors and the

PAGE 980 jCORPORATE GOVERNANCE jVOL. 22 NO. 5 2022