CORPORATE GOVERNANCE AND IMPLICATION FOR ORGANIZATIONAL EFFECTIVENESS

ABSRACT

The study sought to identify the benefits derived from corporate governance practice, assess the challenges encountered in corporate governance practice, and determine the  nature of the relationship between corporate governance and organizational effectiveness. The study has a population size of   613, out of which a sample size of 242 was realized using Taro Yamane’s Formula at 5% error tolerance and 95% level of confidence. The Instruments used for data collection were questionnaire and interview. A total of 242 copies of the questionnaire were distributed while 191(79%) copies were returned and 51(21%) were not returned. The Survey research design was adopted for the study. Three hypotheses were tested using Pearson product moment correlation coefficient and chi- square statistical tools. The findings indicated that good corporate governance practice improves corporate performance, improves access to international capital markets and attracts quality foreign investments. Supply of accounting information, demand for information and monitoring cost are challenges encountered in corporate governance practice. There is a positive relationship between corporate governance practice and organizational effectiveness. The study recommended that organisations should be providing shareholders with periodic reports on changes affecting  the  shareholders in the company, and should hold regular meetings with members of the Board of Directors to ensure that their roles should be done.

CHAPTER ONE INTRODUCTION

1.1         BACKGROUND OF THE STUDY

Corporate governance is a system by which companies (business organizations) are directed and  controlled. Dignam and  Lowry (2006:4) define corporate governance as  a  set of processes, customs, policies, laws and institutions affecting the way a corporation (organization) is  directed,  administered or  controlled.  They went  further  to  state  that corporate governance is meant to ensure accountability of certain individual in an organization through mechanism that try to reduce or eliminate the problem(s) that exist(s) between the principal and the agent.

Singh (2006:73) states  that the  broad concept of  corporate governance is  that  it  is  a continuous process of  the  company which relentlessly pursues through full  regulatory compliance, transparency, efficient operational practices, strong internal control and risk management systems, and operating with fairness and integrity to enhance the interest of stakeholders.

O’Donovan (2006:2) opines that corporate governance as an internal control system encompassing policies, processes, and people which serves the needs of shareholders and other stakeholders by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. it is a system of structuring operating and controlling  a  company with  a  view  to  achieve  a  long  term  strategic  goal  to  satisfy shareholders, creditors, employees, customers and suppliers and complying with the legal and regulatory requirements, apart from meeting environmental and local community need (social responsibility).

Ayida (2004:82) stresses that corporate governance is a set of mechanism through which outside investors are protected from expropriation by insiders (including management, family interest and /or governments). He states that expropriation of outsiders takes many forms:  outright  theft  of  assets,  transfer  pricing,  excessive  executive  compensation,

entrenchment of in-depth management terms, diversion of funds to unsuitable projects that benefit one group of insiders etc.

The recent spate of corporate failure in Nigeria especially the private/public owned organizations, has  brought to  the  fore the  need to  re-examine the  issues of corporate governance practices in Nigeria.

Kootnz and Weihrich (2006:425) assert that since 2001, there has been renewed interest in corporate governance in modern corporations due to high profile collapses of a number of US (multinational) firms such as Enron Corporation, MCI Inc., formally known as Worldcom, Tyco, a conglomerate and others. All these corporate failures have rekindled the need to ascertain what makes up corporate governance and the attendant reasons for its failures.

Molokwu (2003:2) states that corporate governance facilitates the achievement of economic development, provides the tools for plugging  loopholes, checking of pilfering and leakages and encourages rationality and virtues which are highly needed in the Nigerian economy. Johnson and Scholes (1999:19) opine that Corporate governance serving as a tool for corporate  profitability  in  organizations  involves  corporate  planning  and  control  in competitive environment that strategically position them. In their analysis, it was clearly expressed that competition among corporate organizations about the present and future resources  available  in  their  environment  determines  their  good  corporate  governance (competence) as well as achieving their profit objective.

In other words, the ability of corporate organizations to effectively and efficiently manage the complex factors of the environment (commercial, economic, political, technological, cultural and social) is very important in their profit making goals. In coping with competition, a  review  of  opportunities and  threats as  well as  strengths and  weakness available in an industry is necessary so as to minimize costs and maximize profit (benefits). It is paramount to note that corporate governance could be utilized in achieving corporate or organizational goals when such an organization address some internal management problems that could hinder her from attaining competitive advantage over her colleagues in the  industry.  Some  internal  resources  to  corporate  organizations  in  good  governance

includes: location or sitting of such organization, technology, favour, market, human resources and skills (proficiency), responsibility to each of the stakeholders (government, shareholders, creditors, customers, cultural influences etc)( Pool and Warner, 2000:681).

1.2      STATEMENT OF THE PROBLEM

Corporate governance is  regarded as  the  key foundation of  organizations to  be  more productive, governed and controlled. Corporate Governance is needed to create a corporate culture of consciousness, transparency and openness. Good corporate governance is essential for any company or country that is willing to compete effectively in the global market. The effect of corporate governance on the financial performance of firms was an important issue since the last financial distresses over the world. It is widely accepted that bad management practices have triggered the financial crises and company scandals that broke out in recent years.  This  has  clarified  the  importance  of  the  concept  of  sound  corporate  management practices.

In the immediate past two decades, the financial services industry has experienced fluctuating fortunes  leading  to  high  profile  cases  of  corporate  failure.  Banking  businesses  are  not conducted with high ethical standard; there are gross insider abuses such as granting of insider- related credits resulting in large quantum of non-performing credits. The internal control and operational procedures are  often  not  followed  thus  rendering  the  system  very  weak  and allowing fraudulent and self-serving practices among members of the board, management and staff. There is also deliberate manipulation or distortion of records to conceal the correct and true statement of affairs. These records which form the bedrock of supervisory oversight by the regulatory authorities in monitoring the soundness of the system has thus been undermined. The implications of these on our tottering economy are obviously negative.

Consequently these have resulted in unprecedented rise in operating cost, drastic fall in share price, abuse of lending resulting in huge bad debts, weak risk management practices resulting in large quantum of non-performing credits including insider related credits, poor leadership and administrative ability, loss of public confidence and government patronage. Furthermore, the merger of some of the banks and outright sale of non performing banks have all led to huge

job loss in the sector. Thus the study focuses on corporate governance and implication for organizational effectiveness

1.3    OBJECTIVES OF THE STUDY

The specific objectives of this study include the following:

1.         To identify the benefits derived from corporate governance practice.

2.         To assess the challenges encountered in corporate governance practice.

3.         To determine the nature of the relationship between corporate governance and organizational effectiveness.

1.4      RESEARCH QUESTIONS

The research questions of this study include the following:

1.  What are the benefits derived from corporate governance practice?

2.  What are the challenges encountered in corporate governance practice?

3.  What  is  the  nature  of  the  relationship  between  corporate  governance  and organizational effectiveness?

1.5  HYPOTHESES

For the purpose of the study, the following hypotheses were formulated:-

1.	Hi:	Corporate governance practice improves corporate performance,
		improves access to international capital market and attracts quality foreign
		investments.
	Ho:	Corporate governance practice does not improves corporate
		performance, does not improves access to international capital market and
		does not attract quality foreign investments.
2	Hi:	Supply of accounting information, demand for information and monitoring
		cost are challenges encountered in corporate governance practice.
	Ho:	Supply of accounting information, demand for information and monitoring
		cost are not challenges encountered in corporate governance practice.
3	Hi:	There is a positive relationship between corporate governance practice
		and organizational effectiveness.

Ho:     There is no positive relationship between corporate governance practice and organizational effectiveness

1.6 SIGNIFICANCE OF THE STUDY

The study is significant in the following ways:

1.  The benefit derived from corporate governance practice enhances organizational effectiveness.

2.  It will help future students to know the challenges encountered in corporate governance practice.

3.  It  will  help  the  general  public  see  the  benefits  form  corporate  governance practice

1.7    SCOPE OF THE STUDY

The study discusses the following topics: traditional perspective of corporate governance, current perspective of corporate governance, the purpose and objective of corporate governance, features of corporate governance, principles of good corporate governance, functions of corporate governance, causes of corporate governance failure, problems of corporate governance, corporate governance controls, corporate governance and the achievement of organizational goals, benefits of good corporate governance. The study was carried  out  in  the  following  organization:  Anambra  Motor  Manufacturing  Company Limited  (ANAMMCO) and  EMENITE  Limited, Emene  Enugu.  The  study covers  the period of 2008 – 2014

1.8  LIMITATIONS OF THE STUDY

The major constraints of the study include the following:

Time Constraint: Due to limited time given for the study, the researcher could not get all the information needed for the study.

Financial Constraint: The researcher has not got enough money to embark on the study. Due to financial hurdles, the researcher could not visit places where information relevant to the study could be obtained.

Attitude of the Respondents: Some of the respondents showed negative attitude towards the study because they felt that they have no financial gain from the study.

1.9  DEFINITION OF TERMS

Corporate Governance

Corporate Governance System is the combination of mechanisms which ensure that the management runs the firm for the benefit of one or several stakeholders. business dictionary)

Stakeholders

Stakeholders are claimant /owners (i.e. creditors, workers, government, etc) of an organization dictionary)

External Auditors

External auditors are auditors that carry out statutory and independent duty of ensuring that corporate organizations deliberately work on policy to operate a transparent system that is anchored on integrity and best ethical business practice of accountability to the shareholders of the organization dictionary).

Internal Auditors

Internal Auditors are staff employed by the management of an organization whose duty is to identify problems challenging the organizational internal control measure and directing the  management attention to  the  way of  solving them business dictionary).

Employees

Employees are the workers of an organization. They are the linking tool for the success or failure of corporate governance dictionary).

1.10  PROFILE OF THE ORGANIZATIONS UNDERSTUDIED

ANAMMCO

Daimler Ben A. G. of Germany, the parent company of Anambra Motor Manufacturing Company Limited (ANAMMCO) started its export to Nigeria since 1952. Mercedes- Benz Commercial vehicles have been successfully marketed throughout Nigeria since utilizing a distributive network which has particularly laid emphasis on services. This brand of vehicles has been made market leaders in the country through imports.

The then Federal Military Government of Murtala/Obasanjo came up with the bold plan of negotiating joint venture associations with other manufacturers of commercial vehicle

in Nigeria. The company was incorporated on January 17, 1977. The foundation stone laying ceremony was performed on May 12, 1978 while the factory of Nigeria, Alhaji Shehu Shagari. Official production activities started in January, 1981.Originally, a joint venture  between  the  Federal Government of  Nigeria  and  Daimler-Benz  A.G.  (now Daimler AG) of Germany, the government has today, almost diverted from the company and part of its interests has been sold to private investors. The plant remains a shinning examples of a viable economic and technology co-operation between Nigeria and foreign investors. The company is located on a 300,000 square metres site located strategically on the Airport Road at Emene Industrial Layout. Its main line of business is assembly and  production of  Mercedez-Benz Commercial  vehicles  –  trucks,  buses  and  utility vehicles from 5 tons payload and above.

The company has in his payroll a total staff strength of 530 (five hundred and thirty)

including casual, junior and senior staff.

Emenite Industries Limited

With the name of the company changing to Turners Building Products (Emene) Limited. Due to dwindling fortunes of the company in March 24th 1988. Turners and Newall Ltd divested its interest in the company and transferred 51% of its shareholding to Eteroutreme Society Anonyme of Belgium (now Etex Group S. A) and the balance of

49% went to the then Anambra and Imo States, now Anambra, Enugu, Imo, Abia and Ebonyi States. As a result of the new shareholding arrangement, the company changed its name to Emenite Limited as is presently known.

Emenite has made considerable progress in terms of product development and the market they operate is the roofing and ceiling market. Their range of product include:

1. Roofing Products

(a)     Big six corrugated sheets (grey, red and green colours) 1086-Mn x 1800mm (b)     Standard corrugated sheets – 1118mm x 1800mm and 1118mm x 2400mm. (c)     Ultimate corrugated sheets – 680mm x 1800mm

(d)     Prestige concrete tiles.

2. Ceiling Products

(a)       Excel fiat sheets – 1220mm x 1220mm

(b)      Duraceil decorative ceiling – 610mm x 610mm (c)       Emlux decorative ceiling – 610mm x 610mm (d)       Qualities decorative ceiling – 610mm x 610mm

These products are made from fiber and cement. I decide to use this organization as a case study because it is a very wide establishment that covers a lot of things.

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