Corporate Governance & the Enterprise Culture: Pointers
for Nigeria's transition economy
By
CORPORATE governance and the enterprise culture have
become important for the survival of companies and indeed of national economies in the increasingly global economy.
For transition economies, such as Nigeria's, which are faced with the double challenge of restructuring
for greater efficiency and creating foreign investment-friendly environment, good corporate governance and a thriving enterprise culture are crucial
for success. I propose to discuss the essential attributes of corporate governance and the enterprise
culture and to suggest how they may be applied to Nigeria’s transition economy.
I would like to make a number of points. The
points are based on my own observations; they also derive from the practical experience of my former colleagues in the Commonwealth which has over
the past six years been operating an extensive corporate governance programme involving 36 countries including 14 in Africa.
The first point is that corporate governance is a necessity for all countries, both developed
countries with highly sophisticated stock exchanges, and the developing countries which are anxious to attract international portfolio investment.
The president of the World Bank has remarked that “the proper governance of companies will become as crucial to the world economy as the
proper governance of countries”.
The significance of corporate governance was emphasized back in 1997 by the Commonwealth Business Forum representing the private and state-owned corporate sector. The Forum then passed a resolution to the effect that “capacity should be established in every Commonwealth country to create or reinforce institutions to promote best practice in corporate governance; in particular, codes of good practice establishing standards of behaviour in the public and private sector should be agreed to secure greater transparency and to reduce corruption”.
The second point is that the enterprise culture is absolutely essential for the founding and
survival of companies not only in the local markets but also in the global market.
Enterprise culture is needed for motivating entrepreneurs and for the operation of business in a competitive environment; but even if there
were no competition, a spirit of enterprise would still be essential for any form of progress for operational improvements, for efficiency, for
quality, for innovation. For many years there has been a debate on the ingredients and the sources of
enterprise culture. I would suggest that the enterprise culture is fostered not by any single factor
but by a combination of factors and conditions, by a “total” enabling environment of policies, institutions, conditions and the personal
attributes of the members of the society concerned.
My third point is to suggest that corporate governance and the enterprise culture are closely
linked because they both directly relate to the leadership of enterprises. There are various
definitions of corporate governance - the Cadbury Report defined it as “the system by which companies
are directed and controlled”; Professor Colin Tricker (who originally coined the term corporate governance back in 1984) made the important
distinction between management and direction, stating “if management is about running business, governance is about seeing that it is run properly”,
which is the old distinction between doing things right and doing the right thing.
In every corporation of enterprise, leadership should in the first place be with the board of directors. And here I speak of board of directors unlike the practice in many where boards of directors are often no
more than attempts to satisfy company legal requirements because they are composed only of family or
friends with nothing to contribute to the running of the enterprises concerned.
In the publication to which I have just referred, there are a number of guiding principles of corporate governance aimed primarily to boards of
directors of enterprises with a unitary board structure as is often found in most countries.
To quote some of the principles in their summary form, they stipulate that for a corporation or enterprise, the board of directors should:
* exercise leadership, enterprise, integrity and judgment in directing the corporation so as to achieve continuing prosperity for the corporation and
to act in the best interest of the business enterprise in a manner based on transparency, accountability and responsibility;
* ensure that through a managed and effective process board appointments are made that provide a mix of proficient directors, each of whom is able to
add value and to bring independent judgement to bear on the decision-making process;
* determine the corporation’s purpose and values, determine the strategy to achieve its purpose and to implement its values in order to ensure that
it survives and thrives, and ensure that procedures and practices are in place that protect the corporation’s assets and reputation;
* monitor and evaluate the implementation of strategies, policies, management performance criteria and business plans;
* ensure that the corporation complies with all relevant laws, regulations and codes of best business practice;
* ensure that the corporation communicates with shareholders and other stakeholders effectively;
* serve the legitimate interests of the shareholders of the corporation and account to them fully;
* identify the corporation’s internal and external stakeholders and agree on a policy, or policies, determining how the corporation should relate
to them;
* appoint the chief executive officer and at least participate in the appointment of senior management, ensure the motivation and protection of
intellectual capital intrinsic to the corporation, ensure that there is adequate training in the corporation for management and employees, and a
succession plan for senior management;
* ensure that all technology and systems used in the corporation are adequate to properly run the business and for it to remain a meaningful
competitor;
* identify key risk areas and key performance indicators of the business enterprise and monitor these
factors;
* ensure annually that the corporation will continue as a going concern for its next fiscal year.
The experience in the Commonwealth is that corporate governance can be summarized to cover three essential areas; conformance, performance and consensus.
• The conformance of company managers to high standards of transparency, probity, accountability and responsibility;
• The performance of board directors in providing the strategic leadership which will sustain their companies’ competitiveness locally and
in the global market; and
• the consensus (for want of a better term) which maintains the harmonious and productive relationships between the company and its host
society.
I emphasize these three areas because the preoccupation of the corporate governance debate has attended to be on the conformance issues.
Certainly these are vital and they should not be subordinated. But it is clear from the
experience of many countries that the issues related to performance and consensus are also critically important and should
be taken together in assessing the quality of corporate governance existing in any given situation.
So far I have discussed what corporate governance and enterprise culture are all about, may I now turn to the reasons why they are so important.
Corporate governance is an effective policy instrument in many areas of the operation of the national economy. While it should certainly not be perceived as some sort of panacea, the widespread practice of good corporate governance can help to achieve multiple
objectives in both developed and developing countries. To cite a few examples, good corporate
governance contributes:
To increase probity, efficiency and effectiveness of the financial markets - and we all saw from the
South East Asia financial crisis of 1997-98 what happens when there is a systemic failure of corporate
governance. It contributes to improved risk management and to better strategic direction and oversight
of operational efficiency. Good corporate governance also contributes to the attack
on the supply side of corruption - and we all know that corruption is not only bad but that it has an enormously damaging effect on national
economies and to the self-regulation of companies, especially newly privatized utilities and public service companies.
The principles, structure and systems of corporate governance can and should be applied in a wide range
of organisations - not just publicly listed joint stock companies, but also throughout the banking
sector, in state enterprises, in co-operatives, in the ever-growing and increasingly important NGO sector, and in public services such as health and
education boards. In Nigeria, where corruption and sharp practice seem to have permeated all strata of
the society, good corporate governance should become a rallying cry. In this way, the impact of
improved corporate governance can be felt in all sectors of our
Second, in many developing countries including Nigeria, the equity markets are small and do not play a
strong role in the national capital markets, as many companies rely more on debt financing from their
banks. In such a situation there are no institutional investors to perform the powerful role of
encouraging corporate governance as they have done in many of the OECD countries; in developing countries, this function can be fulfilled to some
extent by the banks.
Thirdly, Central Banks can exert moral suasion and influence over the commercial banks by setting requirements for all licensed commercial banks in
accordance with the standards set by the Bank of International Settlements. And the commercial banks
can in turn recommend good corporate governance practices to their corporate customers (including private and family owned companies which are not
publicly listed and subject to the stock exchange) in order to reduce risks and encourage better performance.
It would certainly be useful for Nigeria to develop national codes, standards and practices for corporate governance, for three main reasons:
* first, to formulate our own appropriate concepts of corporate governance that are relevant to our national priority needs;
* second, to set appropriate standards to encourage investment in Nigeria not only by foreign investors but also by the citizens who would thereby be
encouraged to entrust their local and off-shore savings to national corporate enterprises and institutions, and
* third, to contribute to the international debates and formulation of international policies on this particular pillar of the global financial
architecture.
My next important point is that corporate governance cannot progress without parallel
improvements in national public governance.
We have heard from many countries that many of the greatest constraints to good corporate governance and enterprise culture are external to
the corporate sector, and emanate from deficiencies in the government. Some of these deficiencies are
associated with politicians and civil servants, with company and contract law, with the professions (especially auditing and financial advisers) and
with the national policy environment.
The concern for corporate governance will therefore in Nigeria need to involve government policy makers, National Assembly select committees, and
civil service structures. This may open up a large area for discussion and still wider area for finding
solution. We may lose focus if we embark on that aspect of debate, but we shall also lose sight of
reality if we believe that the objectives we desire from corporate governance can be achieved by the corporate sector alone.
The conclusions from my observations so far, are that corporate governance can be a powerful lever for change throughout our economy.
Archimedes, the Greek mathematician, once said that given a firm place to stand and with a lever he could move the earth.
If the same lever of corporate governance is pulled throughout our nation’s economy, we can expect some movement to change the enterprise
culture throughout the country.
Corporate governance should be embraced by the leading institutions in all the sectors of the national economy.
The stock exchange and capital markets authority can influence the listed companies, especially through listing requirements and annual
reports. The Central Bank can enforce corporate governance on licensed commercial banks who in turn
would similarly do so on their corporate customers (including private and family owned companies). And
state enterprise and privatization agencies can set standards for government and newly privatized companies.
In this way corporate governance can be used as a tool for a national economic policy which would lead in the public sector, to the inculcation of an
enterprise culture and improved performance of state enterprises, thereby stopping their fiscal hemorrhage and encouraging their real contribution
to GDP; and in the private sector, to a dynamic enterprise culture and increased performance and profitability of private companies, leading to both
increased exports and increased rate of GDP growth.
In conclusion, I believe that the adoption of these attributes of corporate governance in our public and private sectors, will send a powerful signal to the local and external markets, which should lead to increased inflow into Nigeria of national and international investment funds, thereby producing more employment and greater national prosperity.