Cross-Cutting Issues In Corporate Governance

TRENDING ISSUES

Here, we focus on some of the corporate governance issues, which have become topical and occasion varying views among stakeholders, operators, market practitioners and regulators:

Mandatory or Voluntary Compliance?

There has been much debate about whether or not compliance with CGCs should be made obligatory for corporate entities in Nigeria. Evidence-based researches show that substantial compliance with CGCs is better driven by the corporate culture or value system within an organization, than when it is compelled by regulatory imperatives. Therefore, where good governance ethos, ethical norms and best practices have been internalized and absorbed in an organisation, a strong positive culture and reputational strength are established. Accordingly, the CGC becomes not just the rules of engagement but a tool of competitive edge, which elicits automatic compliance by all relevant stakeholders.

Some schools of thought argue that since adherence to good government is intrinsically linked to developing goodwill and hence public trust, brand leadership and success for a company in the long run; then CGCs need not be enforced. Based on this, they opine that a more flexible “COMPLY OR EXPLAIN” rule should be the principle behind any CGC. However, there are concerns that the ‘comply or explain’ model will only work in climes where integrity is adequately rewarded and a corporate culture of proper values and ethics prevails over unethical short-term profiteering. In many of today’s societies, the ‘comply or explain’ rule may end up as escape route for companies with no good Environmental, Social and Governance (ESG) policies; to seek to explain away their deficiencies.

An example of a jurisdiction with strong and effective corporate governance culture is the United Kingdom. Even with this high reputation of good governance among the boards of UK companies, the Financial Reporting Council Limited of the United Kingdom (the “FRC UK”) in its “Developments in Corporate Governance and Stewardship 2015 Annual Report”, published in January 2016, stated that: “There has been a small decrease in the number of companies strictly complying with the provisions of the UK Corporate Governance Code … Given that the principle of ‘comply or explain’ provides flexibility for companies to depart from a Code provision, it is important that a clear explanation is provided so that shareholders can assess whether they are content with the governance arrangements which the company has put in place”.

Invariably, there is consensus of opinion globally in favour of strict compliance with CGCs in the absolutely sensitive and volatile segments of the economy; such as the financial sector. The risk of mismanagement is high and the systemic damage to the overall economy usually virulent, where unethical compromises lead to distress in the banking industry, public pensions, insurance and the capital market.