When we say corporate governance, two things come to the fore of our minds; corporations and governance. It follows therefore that corporate governance simply refers to the way an organization handles or governs itself.
In scholarly circles, corporate governance has been defined as “the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company…” As such, corporate governance provides the framework for attaining a company’s objectives; it includes almost everything that concerns the management of the company- beginning with plans, in-house rules and regulations, performance measurement and profit sharing schemes.
In recent years, corporate governance has been gaining media attention and notable mentions among political and business leaders as the economics and politics of countries are becoming closely linked together. Corporate governance models and measures have therefore been developed at national and international levels to ensure that companies operate in the best interests of their investors and of the government.
Why is corporate governance so important?
Corporate governance is increasing in popularity and in importance because; it has been identified by economists as the key to the continued existence of business corporations all over the world.
Speaking on the importance of corporate governance, the former Central Bank governor, Sanusi Lamido Sanusi once stated that “good [corporate] governance is … an important step in building market confidence and encouraging stable, long-term international investment flows into the country. Since the business corporation is increasingly important engine of wealth creation and growth, not only in our economy but also worldwide, it is imperative that our companies operate within the standards that keep them well focused on their objectives and hold them accountable to the shareholders and for their actions.”
From the above, it needs no telling that corporate governance plays a very important role in the provision of jobs, improvement of workers’ living standards and increasing government’s income from taxes. Even more important is the word ‘stable’ and the phrase ‘long-term’ as used in his speech. Surely, good corporate governance practices alone can stabilize the Nigerian job market, inflation rates and other economic factors.
We will proceed to give a sketchy portrait of what corporate governance is all about for better understanding and adherence to its basic principles by all players involved.
Basic Principles of Corporate Governance
The 2003 code of corporate governance is a very intimidating book and so I will not reference it here. I’d rather reference a paper by Lai Osu and Bello Seminu on corporate governance. In that paper, the basic principles for corporate governance are outlined as:
1. Rights and Equitable Treatment of Shareholders
This means that shareholders can exercise the rights given to them by the corporation without fear or favor. Shareholders are entitled to meeting with the board and executives of the company to find out how things are going.
2. Interest of Stakeholders
Closely tied to the first principle is that organisations should have the interest of their stakeholders at heart thus fulfilling their obligations at all times.
3. Role and Responsibility of the Board of Directors
A board with competent technocrats should be put in place and allowed to function effectively by reviewing management’s performance.
4. Integrity and Ethical Behavior
Quite important to the practice of good governance, it involves ethical and responsible decisions making which is necessary in managing risk and avoiding lawsuits.
5. Disclosure and Transparency
Corporate governance requires high level of accountability. Also, there should be set of procedures to ensure independent verification of the company’s financial reporting to safeguard the integrity of the organization.
This is by far not an exhaustive list of the code of corporate governance but I only have space for a blog post. More information can be found here.
Whether these principles are adhered to by corporations or not will be the topic of another blog post.
For now, let’s interact in the comment section below!
- The Concept and Practice of Corporate Governance in Nigeria: The Need for Public Relations and Effective Corporate Communication
- Security Exchange Commission’s Code of Corporate Governance