ABSTRACT
Research into corporate governance in Nigerian Bank was born out of
necessity to investigate the frequent collapse of some banks. Bank failure is so disturbing because it sits at the center of the economy. The first chapter discussed the causes of bank failures, Barriers and faults centralization of management, misreporting, insider abuses and fraud, violation and non- compliance of internal controls put in place, etc. Review of literature
historically traced back bank distress in Nigeria from pre-independence to date. Reasons for the recorded failures were also identified. The procedures adopted in data generations, data collection, measurement criteria, analysis and interpretations were highlighted in chapter three. The empirical approach adopted in the research gave the work a scientific outlook. Sufficient data generated were tabulated so as to aid analysis. Pictorial analytic tools graphs were employed in analyzing the data. In data analysis, a comparative study of the values given to various stakeholders of banks, insurance, conglomerates, breweries, food and beverages were done so as to determine their fairness or otherwise. Before arriving at a result data of various companies under review as contained in value added statement in the past six years were carefully analyzed. The analyzed data presented in graphs simplified the analysis. Conclusively, the study criticized the returns given to shareholders of banks and recommended a comparative review.
CHAPTER ONE
1.0 INTRODUCTION
Corporate failure today is a global issue. In 2010, we saw the collapse of large companies like Bank of Credit and Commerce International (BCC1), Enron and WorldCom In Nigeria, corporate failure is very rampant in the financial and non- financial services sector.
Soludo (2005) hinted that by 1998, a total number of 26 banks have been liquidated and at the time of consolidation, 11 banks were already dead literally.
John Clutter Buck in Al-Faki (2006) highlights that companies that failed shared some common characteristics and they are:-
a. Leadership of the company is vested in an individual who combines the office of chairman and chief Executive with domineering tendency.
b. Persistent violation and non-compliance with internal control of the company by the chief Executive.
c. Optimistic (or even distorted) rather than prudential financial reporting.
d. Irregular board meetings often without adequate information given in advance.
e. Minimal disclosure in the accounts of the company.
It is the combination of these factors that undermine the ability of companies to withstand economic downturns thus, leading to a collapse.
In the Nigerian banking scenario, issues such as lack of probity, transparency, integrity, accountability, inflation of balance sheet with unearned income, weak capital base, unskilled and inefficient management also contributed to the death of many banks . Such, also identified the reasons of early indigenous bank failure as mismanagement, and accounting incompetence.
What then is the adequacy of bank legislations in controlling and regulating the banking practices in the sector? The question is relevant because in spite of the exiting legislations, a number of failures and distresses have been recorded in the industry . In an attempt to design codes that
will be appropriate to quell these irregularities, a global phenomenon termed corporate governance came into being. Today it has become a contemporary issue, which has dominated the interest of all business, legal and government circle world wide. In the Nigerian scene, the provisions in the code of corporate governance was designed to augment the provisions of Company and Allied Matters Act (CAMA)1990 ; Bank and Other Financial Institution Decree (BOFID) 1991; Failed Banks and Financial Malpractices in Banks Decree, 1994; Nigeria Deposit Insurance Corporation Decree, 1988; Money Laundering Decree, 1995; Prudential Guidelines and other relevant banking codes.
1.1 CORPORATE GOVERNANCE: AN OVERVIEW
Corporate governance is a topical issue that gained prominence in United Kingdom towards the end of the last century. Many reports have been issued on this subject matter in the UK and around the globe. Some of these are Greenbury report, the Hampel Report , the Turnbell committee Report, the king’s report (south Africa), Sarbanes-Oxley Act (USA)
and OECD Report (Oki, 2005). Then in Nigeria we have Peterside Report , Bankers committee Report and CBN Report, each of these reports came up with different suggestions on the subject matter but shared almost similar definitions. Oki (2005) noted that Cadbury Report defined corporate governance as the system by which companies are directed and controlled. While in 1995, Greenbury code went beyond Cadbury Report to stipulate that director’s remuneration and detailed disclosures are to be given in the annual reports . Hampel report made little modifications in the areas of duties of executive and non-executive directors , share holders and AGM , accountability, audit and reporting.
Turnbull (1997) described corporate governance as all the influence affecting the institutional processes, including those for appointing the controllers and / or regulators, involved in organizing the production and sale of goods and services. Described in this way, corporate governance includes all types of firms whether or not they are incorporated under civil law.
Bob Tracker in Al-faki (2006) defined it as ‘essentially the exercise of power over the modern corporation (large and small), holding company and subsidiary” .
Wofensohn (the former world Bank president) defined corporate governance in terms of what have come to be generally considered as the principle of corporate governance. To him, corporate governance is all about promoting corporate fairness, transparency and accountability (Abbey, 2005).
Peter side committee (2003) accepted the definition of the subject matter as “the way and manner in which the affairs of companies are conducted by those charged with the responsibility. And which has a positive link to national growth and development’’. Given to the peculiarity and fragility in the banking business, a special code of corporate governance for Banks and other financial institutions in Nigeria was drafted by the bankers.
1.2 STATEMENT OF THE PROBLEM
Banks in Nigeria ever since the emergence of the early indigenous banks in 1927 have witnessed series of
systemic distress and failures. The collapse is quite particular with indigenous banks while foreign banks established in the colonial days have all survived the turbulent Nigeria economy . Example of those banks of foreign origin are Bank of British West African (BBWA) (now union bank plc) and British and French Bank of Commerce and Industry (later to become United Bank for Africa) were established in 1925 and 1948 respectively (Uche, 2001a). So why did more indigenous banks fail in spite of the recipes of G. Paton in 1958. Uche (2001b) summarily insinuated that incidence of fraud and unethical practices were behind the debacle of these banks. Persistent fraud and unethical issues are then the indices of weak corporate governance.
Weak corporate governance has been a hydra- headed problem to the industry ever since the emergence of indigenous banks. Many recipes have also failed to strengthen the integrity and enthrone ethical practices. More still, poor banking cultures, unethical practices, centralized ownership (though practically addressed by consolidation), incompetence
in management culminate into weak corporate governance. Weak corporate governance is the most disturbing issue in the industry today. Now that mega banks have emerged from the consolidation, more challenges are posed to corporate governance.
1.3 THE RESEARCH QUESTION
The following research questions will guide the conduct of this study:
1. Does corporate governance enhance efficiency in the organization?
2. How equitable is the returns to shareholders of Nigeria banks over the years.
3. Does corporate governance restore investors’ confidence?
4. Is there a proper code of corporate governance in the industry ?
5. Do government agencies oversee the implementation of corporate governance?
1.4 OBJECTIVES OF THE STUDY
i To investigate the extent to which corporate governance enhances efficiency.
ii To highlight the criteria and parameters which feasible corporate governance must follow.
iii To determine the fairness of returns given to shareholders of Nigeria banks.
iv To perform a comparative study of how value added is distributed to the various stakeholders.
v. To ascertain how Nigeria banks have provided for the future business expansion and growth.
vi To perform across the border comparism with the returns made to shareholders of other foreign banks.
vii To establish equity in the values given to the employee of
Nigeria banks.
viii To examine the relationship if any between corporate governance and investors’ confidence.
ix To establish relationship if any between share price in the secondary market and the retained earnings and reserves of the banks over the years.
1.5 SIGNIFICANCE OF THE STUDY
Sound corporate governance is not, and ends in itself but a means. It is not about strict policing of the managers,
who are the company agents; the bottom line is about superior corporate performance based on a rescannable cost. This study celebrates the sprit of corporate governance instead of the letter of corporate governance. When managers and boards understand the relevance of their positive effort towards the promotion of corporate governance, the enforcement of the code becomes easier.
This study will positively change the banking attitude of Nigerians and improve the international perception of Nigerians banks. For students and researchers, this study will serve as a stepping stone in their work. This study will serve also as the writers own contribution to the
improvement of corporate governance in both public and non- public quoted organization.
1.6 SCOPE OF THE STUDY
The subject matter is a very deep and broad topic. The depth lies in the secrecy of the real account of what actually happens at the management. The insider alone knows the depth.
The cases abound of creative account, which is made available to the regulatory bodies and to the public. This level of misreporting conceals the extent of bank mismanagement, which may not be apparent to the whistle blower and to the regulator. Fact finding in this study will not go beyond the published reports of banks.
The study will draw its conclusion based on 6 years comparative analysis of samples drawn from Nigeria and Non- Nigerian banks, Insurance, Conglomerates, Breweries, food and Beverages Companies. The criteria for the selection will be discussed in chapter three. This study will not employ judgmental approach instead it will adopt a more pragmatic approach of financial and situational analysis.
1.7 LIMITATIONS OF THE STUDY
More thorough analysis of the subject matter will require the availability of undiluted financial and non- financial details about the industry. In the Nigeria case, banks are known for misrepresenting facts and figures so as to conceal
abuses and unprofessional practices inherit in some
banks. Therefore, total reliance on the published facts may limit the chances of optimum result in the research.
Research such as this is very cost intensive and requires good time for more diligent study of the subject matter. Time constraints and financial bottleneck were important limiting factors to this research.
1.8 ORGANIZATION OF THE STUDY
This project is a five- chapter research work. The first chapter sets direction for the entire work. It builds a firm background for the study, sets the objectives, determine the scope , and establish the bounds and limits of the study. The work of other researchers will be reviewed in chapter two.
Chapter three will simply outline the research Methodology used, while chapter four will concentrate on the data presentation and analysis of some important variables necessary in answering the research question. The fifth chapter will aptly give the summary of the findings, recommendations and conclusion.
At the end of every chapter, reference of all books, articles, journals, newspapers, codes and websites, cited will be alphabetically arranged.
1.9 DEFINITION OF TERMS
Corporate:
That which belongs to body collectively or in general. It is also defined as something, which is owned by a group of persons or bodies.
Governance:
Although the term governance is often used synonymously with the term government, it tends rather to be used to describe the proves and systems by which a government or governor operates. The term government and governor describe the institutions and people involved. It is often use
by corporate organizations to describe the manner in which a corporation is directed and laws and customs supplying to that directions.
Efficiency:
According to Collins dictionary the term efficiency is defined as being capable, able to perform duties well, competent. Privatization:
This means a shift of individuals involvement from the whole to the part that is from public action to private concerns.
Executive Director:
A director involved in the day- to- day management and / or in the full time employ of the company, or any of its subsidiaries (king II).
Non – Executive Director : A director not involved in the day to day management of the company and not a full time salaried employee of the company or any of its subsidiaries. Non – Executive Independent Directors:
Directors who do not represent any particular shareholder interest and hold no special business interest with the bank and are appointed by the bank on merit (CBN, 2006).
Also defined by the banker’s committee as such director who has other relationship with management which could materially interfere with the exercise of no significant financial or personal management, he is free from any business or his/ her independent judgment, and receives no compensation from institution other than directors remuneration or shareholders dividends.
King II defined a non- executive director as director who is not a representative of a shareholder and who has not been employed by the company in any executive capacity for the preceding three financial years and has no significant contractual relationship or interest in the company or group. The new code/ CBN code of corporate governance. This work recognizes code of corporate governance in Nigerian banks in the post consolidation period by central bank of Nigeria as the new code.
Shadow Directors: Individuals who are not directors but who instruct, direct and guide the directors in their decision making. They work at the background while the directors are at the forefront (Aniemena, 2005).
This material content is developed to serve as a GUIDE for students to conduct academic research
BARRIERS TO EFFECTIVE CORPORATE GOVERNANCE IN THE BANKING INDUSTRY>
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