1.1 BACKGROUND OF THE STUDY
Corporate governance are processes and structures by which business and affairs of an institution are directed and managed in order to improve long term shareholder value by enhancing corporate performance and accountability, while taking into consideration the interest of other shareholder. Corporate governance is building credibility, ensuring transparency and accountability and maintaining an effective channel of information disfiguration that would foster good corporate governance. Corporate governance that entails an integration of laws, regulations and practice of integrity in corporations aids in mobilizing both foreign and local capital. Nigeria needs to develop a mechanism that will attract foreign investors. Differences in culture and values will influence corporate governance laws and practices because of the theory of path dependence.
In Nigeria and all market based economies the promulgation of good investment or corporate law is significant for attracting foreign private capital. Law creates a climate for the operations of markets in which entrepreneurship, efficiency and growth will be encouraged.
Legislation on corporate governance in Nigeria has followed a pattern laid down. The various laws are made to regulate the practice of a particular trade or profession in order to protect investors and ensure a sustainable business environment. In Nigeria, we have the Central Bank of Nigeria Act (1991), the Banks and other Financial Institutions Act (BOFIA) 1991 as amended, Investment and Security Act (ISA) 1999, the Nigeria Deposit Insurance Corporation Act (NDIC) 1985 as amended and other laws. However, the basic law governing all companies operating in Nigeria is the companies and Allied matter Act (CAMA) 1990.
The Act provides that the board of directors of a company has the duty to prepare financial statements of the operations of the company during its financial year which must and at a specified period. The five year financial summary of the company must be prepared in order to chart the progress of the company. The five year financial summary of the company must be prepared in order to display the progress of the company.
The law requires that the company’s external auditors appointed by the Directors and approved at the AGM by the shareholders. Employers of the company are not allowed to act as auditors. In the case of a bank, no person who has any interest in the bank other than a depositor is a firm in which a director of a bank has interest as a director or partner, who is indebted to the bank, shall be an auditor. The CBN must approve the appointment of any firm or a person as an auditor of a bank as provided for in the BOFIA. The Audit committee made up of equal number of directors and representatives of the shareholders shall examine and make recommendations to the AGM based on its findings.
All companies that operate in Nigeria should file their annual venture to the corporate affairs Commission (CAC) which registers all companies. In respect of the capital market, all accredited capital market operators must file both quarterly and annual return to SEC. All licensed banks and other financial institutions must also render regular return to the CBN and NDIC. All insurance companies are expected to submit regular returns in the prescribed format to National Insurance Commission (NAICOM). Also the financial statements of the company must be audited and certified by approved external auditors.
The fact that share holders of the company. Corporate governance is a term that is commonly used to describe the way business organizations are managed. The organisations may be for profit or not-for-profit. Either way, the enshrined in certain objectives) and the way its activities are managed should enhanced those objectives.
In very broad terms, corporate governance covers every aspect of the organizational set-up, right from how resources are generated up to how they are deployed and utilized. Good corporate governance requires judicious and prudent management of resources, both internally and from the social responsibility perspective. For instance, if a chief executive officer overpays himself or herself, it is in violation of good practice of corporate governance. This indeed was why the erstwhile boss of the New York stock exchange (Richard Grasso) lost his job – he gave himself a pay packet of US$140million per annum!
The same violation would count against a bank executive who hires a relative of his/hers for the sole purpose of facilitating easy access to the organizations resources, beyond normal entitlement, or where it is done with intent to defraud the organization. In which case, corporate governance also concerns the recruitment process – whether it is fair and allows the organization to attract and retain the most suitable caliber of people for its type of business.
Corporate governance thus requires that all things done in organizations (profit or not-for-profit) must be aimed at achieving the organizational objectives. Naturally, the test of every action or decision rests on its contribution to organizational objective, or otherwise. Where a decision or action vitiates or compromises the corporate objectives, especially when it is done deliberately, a return of poor corporate governance is given.
The external dimension to corporate governance also requires that if a decision enhances corporate objective to the detriment of public good, then there is poor corporate governance. This immediately makes the issue relevant at both the micro (i.e individual) and macro (societal) levels. The general mood is that good corporate governance at the individual level aggregates into the same at the macro level.
STATEMENT OF THE PROBLEM
The financial system of the Nigeria financial system is pivotal to the growth of other sectors of the economy. Therefore the absence of corporate governance in the financial service industry will no doubt adversely affect the economic development of the country.