Corporate Governance Framework in Nigeria: An International Review

By Olusola A. Akinpelu

Since her political independence from the British government in 1960, Nigeria has gone through different phases in the effort to develop the corporate sector. The intention was to drive the economy through corporate enterprises; however, the absence of effective corporate governance structure and conducive investment environment has no doubt been a source of concern for investors and successive governments.

Meticulously researched and organized, this book takes the global view on corporate governance to provide insight into the corporate governance conundrum in Nigeria. Against the background of international standard, Author, Olusola A. Akinpelu proposes a number of reforms to the existing governance structure and delves into the history of corporate development from the 1960s through the present.

In addition, Akinpelu offers an in-depth analysis of the philosophical foundations for corporate governance and compiles the theories, models, statutes, reforms, international standards, guidelines, and legal cases on corporate governance in the United Kingdom, Germany, the United States of America, and elsewhere to show how no country is completely immune from corporate collapse.

A timely work, Corporate Governance Framework in Nigeria will interest students of business economics, business law, legal practitioners, and researchers in the field of corporate governance.

An excellently well written book on all important subject of socio-economic value and relevance.
- Guoleba Seri (Esq),
Chairman/CEO, Seri Associates, LLC, NY.
Founder and President/CEO, African Chambers of Commerce, United States.

• Language: English
• Publisher: iUniverse
• Release date: Jan 5, 2012
• ISBN: 9781462035151

Olusola A. Akinpelu

Olusola A. Akinpelu, LLB, BL(Nig.), LLM, PhD(Ife) is a Lecturer in the Department of International Law, Faculty of Law, Obafemi Awolowo University(formerly University of Ife), Nigeria where he has been teaching since 2006. As a Legal Academic, he has to his credit several articles published in academic and professional journals. Since his call to the Nigerian Bar in 2001 as a Barrister and Solicitor of the Supreme Court of Nigeria, Dr. Akinpelu has practiced law in reputable law firms of Chris Ogunbanjo &Co, Olurotimi Williams & Co and Legal Services Bureau.

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Copyright © 2011 by Olusola A. Akinpelu.

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ISBN: 978-1-4620-3514-4 (sc)

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Library of Congress Control Number: 2011962283

Printed in the United States of America

iUniverse rev. date: 12/22/2011

Contents

List of Abbreviations

Foreword

Preface

Acknowledgements

Introduction

ENDNOTES

Chapter 1

END NOTES

Chapter 2

ENDNOTES

Chapter 3

ENDNOTES

Chapter 4

ENDNOTES

Chapter 5

END NOTES

Chapter 6

END NOTES

Chapter 7

END NOTES

Chapter 8

END NOTES

Chapter 9

END NOTES

Appendix A

References

Dedicated

First to God of all wisdom; ‘Bunmi, Ayooluwa and Akinloluwa (my wife and children) and Joseph & Mary Akinpelu (my late parents)

List of Abbreviations

Foreword

Dr. Olusola Akinpelu’s treatise on Corporate Governance in Nigeria is very timely. With spectacular corporate failures and their associated scandals trailed by the sub-prime mortgage crisis in the USA, few topics appear as deserving of attention as this. Incredible corporate failures in Asia, Europe, USA and Africa indicated that no country or region is immune from this ‘moral hazard’ and underscored the imperative for efficient governance of the modern corporation. More recently, the plethora of high brow financial crises and scandals in Nigeria brought corporate governance to the fore in our collective conscience. I had the privilege to be associated with this work right from the start. With ‘business’ as our common interest, teaching Business Economics at the same University meant close interactions with the author and other colleagues in the Department of Business Law. When the author informed me he was going to publish his doctoral thesis on corporate governance, I was elated. For one, books on corporate governance in developing countries and especially Nigeria are very rare. Further, few topics have generated widespread attention in recent business and development discourse than corporate governance.

This book is an enthusiastic cumulation of years of hard work and diligent research into corporate governance in Nigeria. It is also a unique tribute to the author’s industry in compiling a rich compendium of the history, theories, models, statutes, reforms, international standards, guidelines and legal cases on corporate governance in the United Kingdom, Germany, the USA and elsewhere. This was done meticulously and with ample references to many previous contributors to the literature who were appropriately cited in the text. In addition, over fifty case studies that interweave business economics and business law in a very appealing way were summarized. Apart from the rich literature review and insights into the evolution of global corporate governance in other countries, the book critically analyzed the salient dimensions of the Nigerian business and legal environments. An appraisal of the legal and non-legal mechanisms for corporate governance in Nigeria was followed by an in-depth analysis of the country’s corporate governance reforms. The fifth Chapter highlighted corporate governance crisis in Nigeria’s banking and non-banking sectors and concluded that Nigeria’s system of corporate governance required further strengthening and enforcement. I found this Chapter most illuminating with case after case of corporate (mis) governance lucidly articulated to underscore the imperative for an effective ‘bark and bite’ regulatory framework.

Although the emphasis of this book is on business law, it contains much that will be of interest to those outside this field, especially to scholars of business economics, economic history, banking, international finance and international business, indeed to anyone with a fascination with the efficient and accountable utilization of the vast resources entrusted to the managers of firms. To the student of Business Economics and Business Law, this book is a masterpiece not only because of its sheer volume but also in view of the range and depth of issues examined. The author has selected over fifty legal cases, summarized in four of the nine chapters and diligently researched the framework for corporate governance as the subject of his study. While the cases represent a small sample of global corporate governance failures, they largely underscore the relevance of legal and institutional reforms to this field of study and the way the field is evolving in developing countries. I think the author can be confident that there will be many interested readers who will gain a broader perspective of the disciplines of business law and business economics as well as economic history and international business from its pages.

I would not have expected anything less from this consummate academic, articulate legal practitioner and now passionate author. Not many authors can write so succinctly and yet demonstrate such breadth of knowledge of an issue that spans time and continents. I found this book most compelling; I nodded most knowingly as I read about theories and models of corporate governance and frowned with discomfort at the repetition of scandals in several countries including my own. Now that there’s a global discourse on the way forward from the global economic and financial crises, Dr. Akinpelu has produced a compass for a sustainable roadmap.

Professor ‘Funmi Soetan,

Professor of Economics,

Director, Centre for Gender and Social Policy Studies,

Obafemi Awolowo University,

Ile-Ife, Nigeria.

Preface

This book forms substantial part of my PhD research work on the Legal and Institutional Framework for Corporate Governance in Nigeria. Corporate governance appears to have received more attention than any other fields of study in the recent times due to its social-economic relevance for investment and national economies. Much credit goes to individual and institutional corporate governance researchers in developed economies for committing huge resources to the study of governance related problems in corporations in the past three decades. However, the tons of research materials generated are capable of obfuscating the corporate governance experience in developing economies. Though Nigeria is a potential investment destination in black Africa, not much is known about her corporate governance structure. This position is expected to have a serious economic implication for the Country and investors.

The book underscores the need to advance the knowledge of corporate governance practice; and with particular emphasis on Nigeria, to bridge the gap in literature, bearing in mind the international benchmark for governance of corporations. One important feature of the book is the broader perspective it takes on the scope of corporate governance; which with all modesty, is the first of its kind in Nigeria. The book is cognizant of the major shift from the traditional shareholder-value approach and explores the broader perspectives largely responsible for the development of corporate governance in advanced economies. Bearing in mind that there is paucity of literature on philosophical foundations for corporate governance, the book explores corporate theories to explain the corporate governance problems responsible for the collapse of several corporations in Nigeria just as in other countries. Relevant to this is also the attention given to the two models of corporate governance which have been developed and adopted based on existing framework for governance.

The experiences in the United States of America, United Kingdom and other developed nations mentioned in the book show that no country is completely immune from corporate collapses. The implication of this for Nigeria is that, though her corporate governance framework is substantially patterned after the Anglo-American model, there is no guaranty for stability; for example, the banking sector in Nigeria was nearly crippled in 2009 due to factors attributed to bad governance. That singular experience attests to the fact that, the level of sophistication of the legal and institutional framework in a particular economy may not necessarily guarantee best corporate practice; in fact there is yet to be formulated a full-proof corporate governance model with universal application. Thus, while Nigeria might adopt all the institutional structures of the governance Codes in the UK and Sarbanes-Oxley Act in the US and the like, it might struggle in terms of implementation because of differences in culture and practice.

To avoid the error of the past, the book does not seek to transpose a particular governance model from advanced economy into Nigeria to solve her problem, but rather advocates for the development of a culture of best practices characterized by accountability, disclosure, transparency and responsibility mandatory for corporate management. Much emphasis should be on what Bursa Malaysia regards as the ingredients of good corporate governance which include: strong business ethics, sound policy and procedures and effective and efficient monitoring systems with proper checks and balances.

Acknowledgements

My sincere appreciation goes to many people who are too numerous to be specifically mentioned here for their priceless contribution to the success of this book. Prominent among these are: Professor M.T Okorodudu-Fubara (my Supervisor), Professor A.O Popoola (Dean), Professor J.O Fabunmi, Professor O.O Oladele, Dr. Taiwo Ogunleye, Dr. A.A Adedeji, Mr. Tunji Oyelade and Mr. Michael Adeleke who are all members of staff of the Faculty of Law, Obafemi Awolowo University, Nigeria. I would also like to thank Professor P.K Fogam of the University of Lagos, Professor Funmi Soetan (who wrote the forward to the book), Dr. Femi Soetan (my Counselor), Dr. Ademakinwa Adereti, Dr. Jide Oladipo, Mr. Tokunbo Akinlonu, Dr. Leah Akinlonu and Mr. & Mrs. Lanre Idowu for the encouragement I received from them in the course of writing this book.

Finally, I would like to specifically acknowledge all the authors of the books, journals and other research materials whose works are referred to in this book. Many thanks to you for your resourcefulness, without your works, writing this book would not have been possible.

Introduction

A new economic orthodoxy has taken root worldwide—that the corporation, as opposed to the government, is the principal driver of economic growth and improved living standards¹. The modern corporation² is one of the most successful inventions in history, as evidenced by its widespread adoption and survival as a primary vehicle of capitalism over the past century³. The corporation is not only the melting point of motley of economic interests, but most importantly, it represents the convergence of capital, labour and entrepreneurship⁴. In various forms⁵, companies provide the cynosure for national and international investment, employment and production of goods and services. Much more and in addition to commerce, companies provide a veritable channel for trans-border relations. The corporate form has not only opened the vista to perpetuate creativity but also provide the basic framework for understanding the industrial and commercial enterprise on a large scale. It has created the means by which large sums of capital may be raised from the multitude of investors and its application confided within broad limits to a small group of managers. Corporations are indispensable economic units and because of this, governments the world over pursue conscious economic policies to provide an enabling climate for them to operate and thrive⁶.

The prediction a couple of decades ago that, the proper governance of companies will become as crucial to the world economy as the proper governing of countries has come to pass⁷. Corporate governance⁸ is one key element in improving economic efficiency and growth as well as enhancing investor confidence. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders such as employees, customers, communities where they operate etc. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The presence of an effective corporate governance system, within an individual company and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy. As a result, the cost of capital is lower and firms are encouraged to use resources more efficiently, thereby underpinning growth⁹.

The major concern of corporate governance therefore, is to ensure the conditions whereby a firm’s directors and managers act in the interests of the firm and its shareholders¹⁰, and to ensure the means by which managers are held accountable to capital providers for the use of assets¹¹. This makes the issues of fiduciary duty and accountability that are often discussed within the framework of corporate governance very fundamental. To make the corporate managers accountable, there is required a framework and establishment of mechanisms, processes and systems that ensure amongst others, that there is transparency and accountability to the various corporate stakeholders, that corporation complies with legal and regulatory requirements, that there is effective monitoring and management of risk, innovation and change and also that there is disclosure of all pertinent information to stakeholders. Modern corporations are today constituted by a large number of stakeholders ranging from the shareholders who are referred to as the owners of the company to the board of directors, the managers, the chief executive officers and also creditors who lend their money to the company¹². Within this web of relationships, it is expected that governance of corporations will throw up a number of problems and conflicts of interest amongst the stakeholders in the areas of financial reporting and auditing¹³, directors’ remuneration¹⁴ and a lack of communication between the directors and shareholders, and decision making powers¹⁵.

Along with the corporate responsibility¹⁶, effective corporate governance provides the foundation of market integrity and thus, imposes a lot of responsibility on the board of directors that involves striking a balance between the various stakeholders. With emphasis, balancing the stakeholders’ interest goes beyond protecting the interest of the shareholders in an individual organization. Indeed, it revolves around embracing good corporate governance that sets the rules and practices that govern the relationship between managers and shareholders of corporations, as well as stakeholders like the public, employees, pensioners and local communities while at the same time, ensuring transparency, fairness and accountability. Striking an appropriate balance between various stakeholders’ interests is a prerequisite for the integrity and credibility of market institutions¹⁷. This facilitates the building of confidence and trust which allow corporations access to external finance and to make reliable commitments to directors, employees and shareholders. This is regarded as a contract that forms the basis for economic growth in the market economy¹⁸.

A series of events over the last three decades have placed corporate governance issues as a top concern for the international community and international institutions. Across the globe, there have been spectacular business failures, the first of such reported was the infamous Bank of Credit and Commerce International (BCCI)¹⁹ forced to close by the Bank of England in July 1991, yet the auditors’ report appeared to give little prior indication of the bank’s precarious position. In its tow was also the case of the giant newspaper company, the Mirror Group whose founder Robert Maxwell²⁰, was indicted for stealing from employee pension schemes under his control and whose business empire collapsed in December 1991. In response to the two cases of bankruptcy, the Cadbury Committee²¹ was set up to study the problem. In the ensuing Report, the Committee confirmed there was ‘the continuing concern about standards of financial reporting and accountability, heightened by BCCI, Maxwell and the controversy over directors’ pay which has kept corporate governance in the public eye. In the same decade, events of several high profile scandals were unfolding in Russia and the Asian²² countries. Judging from the economic crisis in these regions combined with that in developing countries and transitional economies, corporate governance issues became topical. In India²³, the debate on corporate governance came up due mainly to corporate failures, serious financial and other irregularities, and dereliction of duties by management, which led to a growing public distrust of the governance process in the corporate sector²⁴. As a result, national business communities have come to realize that there is no substitute for getting the basic business and management systems in place in order to be competitive internationally and to attract investment²⁵.

It was reported that, between 2001 and 2002, more than a quarter of the largest corporations in the American economy experienced downturns in current sales revenues or prospects for future revenues that caused their common share prices to fall from the $50 range to $1 or less²⁶. The Enron failure in America²⁷, in conjunction with other similar corporate scandals, has resulted in a significant and broad scale re-examination of the American system of corporate governance. Much of this re-examination focuses on the board of directors—the entity at the top of a governance structure. A dramatic change in the approach to corporate board composition, conduct, and responsibility has occurred at the legal and regulatory levels, largely in response to a perceived failure by the Enron Board to have prevented management misconduct that led to the company’s downfall. Legally, the board of directors is expected to act as an active monitor of management for shareholder benefit, yet, the reality is that boards of directors in many instances have become reasonably unimportant and impotent entities—mere parsley on the corporate fish²⁸.

The Central Bank of Nigeria (CBN)²⁹ in 2009 came across some unwholesome practices by top management of banks, sometimes with the active collusion and connivance of the boards of directors that were detrimental to the interest of other stakeholders in the banking sector and national economy³⁰. A good example of this was the large scale insider loans given to management staff, directors, major shareholders, their relations and companies, which eventually became non-performing and, thereby impaired the performances of these institutions³¹. Though it was expected that, the non-executive directors of the companies would act as a check on the excesses of the management, including the executive directors, but it appeared they colluded, and were involved, thus making it difficult to protect other stakeholders’ interest. The situation was further compounded because the management had a strong hold on the non-executive directors³². Given the observable lapses in the system, the CBN took the position that the directors would be held responsible or accountable for any breach of rules on the part of the management of their institutions. Directors were expected to live up to their responsibilities and protect the interests of the stakeholders alike. This explained why the management and board of directors of the banks, in line with current norm the world over, were removed for failure in performing their roles³³.

Considering the contributions of corporate enterprises to the economic development of nations and the world as a whole, the corporate scandals of the 1990s to date have generated a lot of concern across the globe over the future of corporate enterprises³⁴. The contributions of these enterprises to the economic development of nations and the world as a whole cannot be over-emphasized. Realizing that the existing legal, institutional and regulatory frameworks were inadequate to meet the challenges posed to corporate governance, the national government and international institutions decided to take further initiatives in ensuring that basic corporate cultures are evolved for corporations operating within their jurisdictions. While concerted efforts were made at national level, the Organization for Economic Co-operation and Development (OECD) in 1999 embarked on convergence of corporate governance rules that would be the models for members and non-member countries to adopt in order to ensure an acceptable international minimum standard for corporations³⁵.

Amongst others, the World Bank³⁶, most of the regional development banks and the various national development agencies³⁷ have either launched or expanded initiatives and projects in this area in the last several years. Similarly, business related organizations like the Center for International Private Enterprise (CIPE)³⁸, have placed corporate governance at the top of their list of concerns. Think tanks and business associations throughout the developing world and in the transitional economies are also focusing resources on these issues. In addition, the Basle Committee³⁹ has since 1999, issued reports on the principles of good corporate governance which were aimed at assisting supervisory authorities in promoting the adoption of sound corporate practices in the banking sector. Similarly, the International Monetary Fund (IMF) Code of Good Practices on Transparency in Monetary and Financial Policies on Corporate Governance⁴⁰ call on central banks and financial agencies to adopt policies that enhance greater independence and make them more accountable to the public⁴¹.

The Enron scandal and those of other companies have indeed only helped to accelerate a process that had begun to emerge with the globalization of economies around the world⁴². With globalization, there has been a growing consensus that the competitiveness of businesses, especially in emerging and developing economies, will be better enhanced if they are perceived to be fair, transparent, accountable and socially responsible⁴³. In order to grow and to compete effectively in the global marketplace, therefore, it is an imperative that all businesses are run on the principles of sound corporate governance⁴⁴. The globalization of the market place within this context has ushered in an era where the traditional dimensions of corporate governance defined within local laws, regulations and national priorities are becoming increasingly challenged by circumstances and events having international impact⁴⁵. In reality, nations compete for investment capital, and the assurances investors seek as they decide to provide that capital are universal. The quality of institutions matters and is a major factor, just as the legal system plays a particular important role, with strong investor protection laws generally linked with broader and deeper capital market, a more dispersed shareholder base, and a more efficient allocation of capital across firms. Arguably, good corporate governance at the firm level may at least partly compensate for perceived weaknesses in the institutional and legal framework which has led to a rising demand for a global benchmark of corporate behaviour⁴⁶.

The degree to which corporations observe basic principles of good corporate governance is an increasingly important factor for investment decisions⁴⁷. Of particular relevance is the relation between corporate governance practices and the international character of investment. Today, international flows of capital enable companies to access financing from a much larger pool of investors, but with certain preconditions. For countries to reap the full benefits of the global capital market and to attract what has been described as long-term patient capital, corporate governance arrangements must be credible, well understood across borders and adhere to internationally accepted principles. These conditions have become imperative because the question of which countries are attractive to investors is, in addition to the economic efficiency of a country, closely linked with the issue of whether foreign investors in country can depend on a stable political and legal system that protect property rights. Shareholders are in principle regarded as the owners of companies and, as owners, are expected to have property rights and other rights. It is noted that, where these conditions do not prevail in financial markets of a country, they will avoid investing in that country. The consequence of this is that, there will be loss of investments, which in turn will cripple the economic development of the country⁴⁸. Even if corporations do not rely primarily on foreign sources of capital, adherence to good corporate governance practices will help improve the confidence of domestic investors, reduce the cost of capital, underpin the efficiency of financial markets, and ultimately induce more stable sources of financing⁴⁹.

There is also required in every market today a stable legal system and supportive current legislation which include not only the constitution and laws, but also the accounting systems or regulations governing the official listing of securities on the stock exchange, all these have become vital factors in the attractiveness of a country. Though of utmost relevance, the legal framework with its main components alone are often insufficient to attract investors⁵⁰. Further, it is increasingly becoming a norm to formulate generally accepted forms of conduct enshrined in voluntary corporate governance codes of best practices, among others⁵¹.Almost without equivocation, the corporate governance structure of a country is a further important indicator of the credibility of the economy as a whole and of the financial market in particular⁵². It is expected that an effective corporate governance mechanisms will protect the interests of investors and other stakeholders in business ventures. This is mainly because these mechanisms are central to a country’s financial and economic development. Relevant also is the fact that, for the development of capital markets, it is a precondition that outside investors can expect insiders (managers) and more often controlling shareholders not to divert corporate assets to themselves. Above all, the law and its enforcement institutions play an important role in preventing insiders’ opportunism and hence strengthening investors’ expectation⁵³.

Meanwhile, corporate governance is at a crossroads at which many developing and emerging economies realize that good corporate governance is important to sustainable economic development, but fail to institute reform⁵⁴ because they are searching for a new model to apply to their particular domestic environment⁵⁵. In searching for the right model, one question raised is whether the response of the Americans to the Enron crisis provides a model for corporate governance elsewhere⁵⁶. Because corporate governance is an all embracing subject, it is considered in this book within the context of prevailing economic, political, social, cultural, and public governance conditions in Nigeria as a developing economy⁵⁷. In essence, it is imperative that, beside sound legal and institutional structure basic pre-conditions must exist for the proper functioning of corporate governance codes and rules⁵⁸.

The thrust of the book is to attempt a review of the Nigerian corporate governance framework against the backdrop of international benchmark on best practices in corporate management. It seeks to make proposals for the formulation of corporate governance framework established on a culture of best practices for enhancement of corporate performance in the country. Against the background of statutory provisions contained in Company Law⁵⁹, Finance Law⁶⁰ and other relevant statutes for corporate governance in Nigeria, the book examines the roles of the Federal Government⁶¹ and its agencies including: the Corporate Affairs Commission (CAC)⁶², the Securities and Exchange Commission (SEC)⁶³, the Nigerian Stock Exchange (NSE)⁶⁴; representatives of shareholders⁶⁵, directors⁶⁶, audit committee⁶⁷ and auditors⁶⁸ in the governance process. Besides, the book is also guided by corporate governance rules and ethical standards espoused in the Earth Charter⁶⁹, Cadbury Code of Corporate Governance(1992)⁷⁰, the United Kingdom Combined Code on Corporate Governance (2003)⁷¹, the Sarbanes Oxley’s Act of the United States of America (2002)⁷², the OECD Principles of Corporate Governance (2004⁷³), the Commonwealth Association for Corporate Governance Principles(CACG) (1994)⁷⁴, the Code of Best Practices in Nigeria (2003)⁷⁵ and the Code of Corporate Governance for Banks and Other Financial Institutions in Nigeria (2006)⁷⁶.

Since there is no single universal model of corporate governance nor is there a static, final structure that every country or enterprise should emulate, the book takes cognizance of some observable common elements that underlie good corporate governance at the various levels of economic activities⁷⁷. Amongst others, such corporate governance requirements namely; a viable board of directors, maintenance of shareholders rights and privileges, executives remuneration, audit committee, internal control, accountability and transparency, auditor independence, risk management, relations with stakeholders are considered⁷⁸. Besides, other relevant corporate governance issue such as insider trading is also duly examined. The focus is on providing a viable structure that could enhance best practices in corporate governance in Nigeria.

ENDNOTES

1 Robert A.G.Monks and Neil Minow, Corporate Governance, 3rd ed., Blackwell Publishing, 2004, p.295. The authors relate the experience in developed markets (particularly the UK and France) and emerging markets (Eastern Europe, the former Soviet Union, Asia and South America), where the triumph of the corporation has been expressed in the form of widespread privatizations, as the government seeks to minimize its role in the economy through privatization, commercialization and deregulation. Reference is also made to a United Kingdom source who observed that: Private business has rarely been as celebrated and lauded as today. It is hailed not only as the source of wealth creation and job generation; it is the driver of technological innovation and the very idea of modernity. (See Will Hutton, Society Bites Back, the Industrial Society, ). As a vehicle for financial gains, a corporation is a business organization that makes money by producing or selling goods and services (Oxford Advanced Learner’s Dictionary, New Seventh Edition, 2006). The American Law Institute in codifying the proper objects of corporate behaviour states that, a business corporation should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain. In its rather dynamic form, the corporation is at once a legal entity, an economic artifact, and a social organization; it can be studied as each of them. As a legal entity the company is an artificial being created, bounded, and controlled by the laws of the land in which it was incorporated. As an economic artifact the company strives to respond to market forces and meet the goals of it owners and directors. As a social organization it works through the people, operationally, managerially, and, most significantly, strategically through its directors. (See Bob Tricker, Corporate Governance: Principles, Policies, and Practices, Oxford University Press, 2009, p.390). The word corporation or company is used interchangeably to refer to listed public company having economic, legal and social roles in the economy (the word corporation is frequently used in North America while company is used in the United Kingdom, Australia and parts of Asia).

2 Modern corporations can be divided into three main types: (a) Public limited company, where the company’s shares may be offered for sale to the general public. In this type of company, members’ liability is limited to any amount unpaid on their shares. It is a legal requirement in the United Kingdom and Nigeria for public companies to add the designation ‘PLC’ to their name. In some other jurisdictions, such companies are required to add the word ‘Limited’ or ‘Ltd’ to their name, so that those contracting with them understand that the shareholders liability is limited. It is very important to know that, though not all public companies are listed on a stock exchange, but all listed companies must be public companies. (b) Private company limited by shares, where members’ liability is limited to the amount unpaid on shares they hold. This form of company is the most common form of incorporation and one of its important features is that the word ‘Limited’ or ‘Ltd’ must be added to the name for the same reason as in the case of a public company (c) Private company limited by guarantee is distinguished making guarantor members’ liability limited to the amount they have agreed to contribute to the company’s assets if it wound up. It is important to state that the amount guaranteed us usually a nominal amount. This form of incorporation is suitable for charities and other non-for-profit entities and in many jurisdictions the word ‘Limited’ need not appear in the company name. "Apart from the three types of corporations, another form of company has been recently developed in the United Kingdom known as Community Interest Companies (CICs). The main purpose of CICs is to facilitate participative ventures between the public and private sectors and may take the form of private companies limited by shares, companies limited by guarantee, or public limited companies. (See Bob Tricker, Corporate Governance: Principles, Policies, and Practices, op cit).

3 See Henry N. Butler, The Contractual Theory of the Corporation Corporate Practice Commentator, Vol.31 No.4 1990, p.556. In its origin, the corporate form of business was a marvelous invention designed to organize labour and capital to accommodate the Industrial Revolution, and has justifiably survived as the principal organizing mechanism in succeeding eras of business development. However, though the economic values of corporations had long been manifest, economists only begun to understand the economic nature of the corporation less than two decades ago (See Paul W. MacAvoy and Ira M. Millstein, The Recurrent Crisis in Corporate Governance (1st ed.), Palgrave Macmillan, New York, 2003, p.2).

4 By combining these factors of production, corporate governance comes within the purview of economics as a subject, while the law provides the required framework. Within this framework, the modern corporate form is said to exist primarily, to ensure that the making of profits is not only made easier, but that it is both legitimate and lawful. Judging from the magnitude of corporate scandals associated with mismanagement in various countries, one may be forgiven for thinking that it has failed in its function as a forum of legality.(See Peter T. Muchlinski, Enron and Beyond: Multinational Corporate Groups and the Internationalization of Governance and Disclosure Regimes, Hein Online 37 Connecticut Law Review, Vol.37:725, 20052005 p.725).

5 In setting up a business, one of the first fundamental decisions the founders must make is the legal form it will take. The initial legal form of business may however be modified by the founders or board of directors to reflect new and changing circumstances. Most time, the modification may touch on issues such as: the capital structure, determining how the business will be financed initially (See John L. Colley, JR; Jacqueline L., George W. Logan and Wallace Stettinius, Corporate Governance, McGraw-Hill Companies, 2003 p149.

6 See Agom. A.R, Shareholders Activism in Corporate Governance, Modern Journal of Finance and Investment, Vol. 4 No.4, 2000 p.252. A case in point is the manner in which the Nigeria government has pursued a number of policies after independence in the 1960s to date. The government embarked on nationalization of the economy as expressed in the National Rolling Plan and the Companies Decrees (Act of 1968) as the major plank for providing an enabling economic environment for corporations to thrive. By the 1970s, the economic policy thrust was indigenization anchored by various Nigerian Enterprises Promotion Decrees (No. 4 of 1972, No.3 of 1977 and No.54 of 1989). The 1980s was the era of commercialization and privatization of State Owned Enterprises through the Privatization and Commercialization Decree (No. 25, 1988). The follow up to this was the introduction of the Structural Adjustment Programme based on the provisions of the National Economic Powers Decree, No.22, 1988 of the era. In joining the global trend in the 1990s, economic policy was geared towards deregulation and liberalization of virtually all the economic sectors in Nigeria. To achieve this, the Exchange Control Decree, No 18, 1995 and the Nigerian Enterprises Promotion (Repeal) Decree No. 7, 1995 were repealed to pave the way for a new economic order. Further reform required promulgation of Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree No. 17 of 1995 and the Nigerian Investment Promotion Decree and the Investment and Securities Decree all in a bid to attract both direct and portfolio investments into the country. In summary, the author is of the view that Companies provide the ready milieu for the realization of the goals of these policies, be it local investment, foreign direct investment of foreign portfolio investment.

7 Berle and Means through their seminal work The Modern Corporation and Private Property, Transaction Publishers, 1991 ed. P.8) had observed the trends of corporate activities way back in 1932 and concluded that, the rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with modern state-economic power versus political power, each strong in its own field. The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid regulation… The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization. This position was also reechoed by James D. Wolfenson, (former President of the World Bank) sixty seven years later (See Financial Times, June 21, 1999). Some commentators, looking at companies operating globally, have commented that there are corporate entities that are now often larger than the states in which they operate. The profits of a company such as Microsoft or Exxon Mobil, they point out, are greater than the GDP of many of the countries in which they operate (See Bob Tricker, op cit p. 390).

8 Corporate governance as a concept can be viewed from at least two perspectives: a narrow one in which it is viewed merely as being concerned with the structures within which a corporate entity or enterprise receives its basic orientation and direction (see Rwegasira, K, Corporate Governance in Emerging Capital Markets: Wither Africa? Empirical Research-Based Papers, Vol. 8 No.3 July 2000, pp.258-268); and a broad perspective in which it is regarded as being the heart of both a market economy and a democratic society (see Sullivan J.D, Corporate Governance: Transparency Between Government and Business, paper presented to the Mediterranean Development Forum 3, World Bank Meeting, Cairo, Egypt, March 2000). The narrow view perceives corporate governance in terms of issues relating to shareholders protection, management control and the popular principal-agency problems of economic theory. In contrast, Sullivan, who is a proponent of the broader perspective used the examples of resultant problems of the privatization crusade that swept through developing countries since the 1980s and the transition economies of the former communist countries in the 1990s to arrive at the conclusion that issues of institutional, legal and capacity building as well as the rule of law, are at the very heart of corporate Governance (See Ademola Oyejide and Adetoyin Soyibo, Corporate Governance in Nigeria", (a paper presented at the Conference on Corporate Governance, Accra, Ghana, 29-30, January, 2001 p.4).

9 See the Preamble to the OECD Principles of Corporate Governance, 2004 p.11.

10 This concern is founded on the form of relationships between corporate ownership structure and firms performance. The agency theory of firms sees the shareholders as the owners of the business and are regarded as the principal while the managers are regarded as the agents. This principal/agency theory tends to suggest that hired managers will not have the same objectives as profit-oriented private owners; rather they will use firms’ specific rents to satisfy their own needs. The main issue in the principal/agency literature is centered on asymmetric information because outside owners do not have access to full information on corporate performance or the reasons for under-performance. The separation of ownership and control, which occurs as a result of the introduction of external investors, brings to the fore the agency problem: managers are expected to represent the interest of the external owners. (See Ademola Oyejide T and Adedoyin Soyibo, supra).

11 See the Pan-African Consultative Forum Communiqué on Corporate Governance in Africa, Monday 15 May, 2006.

12 The book shows that the scope of corporate governance has been largely expanded so much that, interests that were in the past not respected have now been given prominence.

13 The statutory provision on this in Nigeria is in Part XI of the Companies and Allied Matters Act (CAMA), Cap. C 20, Laws of the Federation of Nigeria, 2004.

14 Ibid, S. 267, CAMA.

15 Ibid, Ss 233-238, CAMA.

16 This has four levels namely: economic responsibility—first and formost the social responsibility to be profit oriented and market driven; legal responsibility—to adhere to society’s laws and regulations as the price for society’s licence to operate; ethical reponsibilities—to honour society’s wider social norms and expectations of behaviour over and above the law in line with the local culture; and discretionary (or philantropic) responsibilities—to undertake voluntary acticities and expenditures which exceed society’s minimum expectations. (See Carroll, Academy of Management Review referred to by Bob Tricker, op cit, p. 350.

17 These have been acknowledged as the main factors that must necessarily be present to help investors decide whether to invest in a particular market or not.

18 Ibid.

19 The report was that, by the summer of 1991, BCCI was just at the brink of financial collapse. Due to systemic fraud that continued for years with the involvement of the senior management, it was evident that the bank would not be able to continue banking operation. (See Robert Wearing, Cases in Corporate Governance, Sage Publications, London, 2005, p. 54).

20 Mirror Group was a UK based publishing company but was unexpectedly declared bankrupt in November, 1991 with indebtedness to the tune of over one billion pounds. The founder of the company, Robert Maxwell was alleged to have stolen over four hundred million pounds from the pension fund of Mirror Group Newspapers. He later disappeared at the sea without trace. (See Robert Wearing, Cases in Corporate Governance, Sage Publications, London, 2005, p. 54).

21 The first major step taken in the UK was to review the financial aspects of corporate governance due to happenings at BCCI and the Mirror Group. The Cadbury Committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession to make recommendations on good corporate governance practice relating to (a)the responsibilities of executive and non-executive directors for reviewing and reporting on performance to shareholders and other financially interested parties; and the frequency, clarity and form in which information should be provided (b) the case for audit committee of the board; (c) the principal responsibilities of auditors and the extent and value of the audit; (d) the link between shareholders, boards, and auditors; (e) any other relevant matters. (See Chapter three for more details on corporate governance reforms in the UK).

22 The 1997 economic crash in Indonesia which resulted in huge loss of investment and flight of capital was attributed majorly to poor corporate governance. The experience has been further analyzed and explained as follows: the financial crisis in the whole of Asia demonstrated that the vital institutional architecture that underpins investor confidence simply did not exist in emerging markets, especially in Asia. These markets offered no security to investors, who were quick to cut their losses and run. The whole house of cards was quick to tumble. The crisis spread like a forest fire to Central and South America and, with disastrous force, to Asia. Currency, bond and equity markets collapsed, and hundreds if not thousand of companies were rendered bankrupt. In Indonesia, nearly one-third of listed companies folded. A key aspect of the crisis was the flight to relative safety of Western capital. The flow of equity into emerging markets which averaged nearly $40billion a year in the mid 1990s, according to the OECD, dived virtually to zero in 1998. The capital flight carried enormous costs, not just for the investors who suffered substantial losses, but to the emerging market themselves. It was the equivalent of a small business having its bank loans recalled at its time of greatest difficulty. The harsh lessons of the 1998 financial crisis at least had the benefit of kick-starting substantial efforts to improve governance standards in developing economies. The crisis exposed how shallow were the foundations on which the Asian economic miracle was based. Firms were hopelessly indebted, accounts presented a barely recognizable picture of companies’ financial status, directors lacked training, regulators and courts lacked power, managers were unaccountable, and, in many markets, the whole corporate edifice was riddled with government interference, corruption and kickbacks. (See Robert A.G Monks and Nell Minow, Corporate Governance, 3rd ed., Blackwell Publishing, Oxford, 2004 p. 305). Another source attributed the Asian financial crisis to the devaluation of Thai baht on 2 July 1997 (See Benny Simon Tabalujan, Why Indonesian Corporate Governance Failed-Conjectures Concerning Legal Culture Columbia Journal of Asian Law, Spring 2002 Issue, p.4).

23 India is reported to have one of the oldest stock exchanges in the developing world with approximately 7,000 listed companies, fractionally more than there are in the UK. Notwithstanding, just only a small proportion of the world’s $300 billion in annual capital flow reaches the country. The main challenge the Indian companies are facing is in the area of how to attract a fair portion of that capital to Indian shores. When analysed critically, the Indian experience can be better understood in the light of the assertion that the effects of a company’s behaviour resonate nationally, but more globally. In the circumstances that a country does not have a reputation for strong corporate governance practice, capital will flow elsewhere; where a country opts for lax accounting and reporting standards, the consequence is that capital will be diverted to save haven. The result will be that, all the companies in that country, regardless of how steadfast an individual company’s practice may be, will suffer from insufficient capital. It is now mandatory that, markets must honour what they perhaps too often have failed to recognize that markets exist by the grace of investors and must therefore know that, no market has a divine right to invetsors’ capital. See Arthur Levitt, (Former Chairman of the United States Securities and Exchange Commission), Corporate Governance in a Global Arena, US SEC Chairman Speech to the American Council on Germany, New York, October 7, 1999, p.1.

24 Ibid.

25 John Sullivan, Corporate Governance: Transparency between Government and Business, (paper presented to the Mediterranean Development Forum, Cairo, Egypt on Tuesday, March 7, 2000) p.1. The paper is also available at http://www.adobe.com/providex/acrobat/readstreap.Html.

26 Paul W. MacAvoy and Ira M. Millstein, The Recurrent Crisis in Corporate Governance, Palgrave Macmillan, 2003, p.6.The drop in the unit price of shares is not peculiar to the United States of America alone. In the case of Nigeria, when the news broke out in December, 2006 that the erstwhile Managing Director and the Director of Finance of Cadbury Nigeria Plc had been implicated in a case of overstating the company’s accounts over a period of three years; many received the news with shock and disbelief. The immediate consequence, of course, is that, the Cadbury Plc shares price crashed on the Nigerian Stock Exchange; the share price dipped from N51.45 to N31.26 when the news of the overstated accounts broke. The price dipped further to N27.90 before closing at less than N25 on the 30th October, 27. 2006. Besides, the Times Online Newspaper of March 12, 2007 reported that Cadbury lost 53 million pounds in earnings, 23 million pounds exceptional charges and 15 million pounds goodwill impairment charge by reason of the scandal. This incidence confirms the observation that where poor corporate governance practices are suspected, a company’s share price will often trade below what should be the real economic value of the enterprise.

27 The most prominent corporations at the center of the original scandals include WorldCom, Tyco, Enron, and Adelphi Communications (See Attorney Michael S. DeLucia, Sarbanes-Oxley and the Impact Upon NH Nonprofit Organizations New Hampshire Bar Association Law Journal, 2002, also available at www.nhbar.org/publications/ . . . /display-journal-issue.asp?=13). From all these incidents, it is observed that, the common thread among these original entities was the alleged financial manipulation and misappropriation of corporate assets on a grand scale by the CEOs and senior executive officers taking the form of looting of shareholder assets for personal gain. A source has observed that, some of the personalities associated with the unethical practices and frauds are: L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick (Tyco), Bernard Ebbers and Scott Sullivan (WorldCom), John J. Rigas (Adelphia Communications), and Kenneth Lay, Andre S. Fastow and Jeffrey Skilling (Enron). It was also reported that the situation was grave and that there was announcement of discovery of financial problems almost every week in 2002. In the case of Nortel Networks, three senior executive directors had their appointment terminated the termination of three senior executive officers. Part of the announcement stated that its CEO’s appointment had been terminated, that its financial statements had to be restated, and that steps were being taken to restore investor confidence in the company leadership and in its financial reporting. A second wave of corporate scandals engulfed the securities industry and raised questions about unfair and illegal treatment of mutual fund investors. The account of the second wave was that, the core elements included late trading, a practice that gives preferential treatment and advantages to favoured clients to the detriment of all other investors. Also unearthed were practices where shares of highly desirable initial public offerings (IPOs) were allocated to clients of firms as rewards for their business or in the expectation of new business. In 2002, Credit Suisse First Boston (CSFB) paid $100 million to settle civil matters relating to these improper allocations. In the usual manner, CSFB neither admitted nor denied wrongdoing. (See New Hampshire Bar Association Law Journal, 2002. On Tyco and L. Dennis Kozlowski, see Andrew Ross Sorkin and Susan Saulny, Former Tyco Chief Faces New Charges, New York Times, June 27, 2002. Also, on Tyco and Kozlowski, see Mark Maremont and Laurie P. Cohen, How Tyco’s CEO Enriched Himself, The Wall Street Journal, August 7, 2002. See also, Matthew Brelis and Jeffrey Krasner, Ex-Official bought home as he was getting Tyco loans to build another, Boston Globe, October 11, 2002. David Leonhardt, A Prime Example of Anything Goes Executive Pay", New York Times, June 4, 2002. On Adelphia Communications and John Rigas, see Andre