Corporate Governance & Its Importance

The eight key effective corporate governance practices – Ref:PwC (2020) Click Here to download

What is Corporate Governance?

We have a broad and global approach to corporate governance. Hence, the Institute defines corporate governance as a system by which corporate entities are directed and controlled so as to ensure corporate value creation through equitable, accountable, responsible and transparent generation, distribution and protection of the rights, interests and wealth of stakeholders and the corporate entity. The corporate governance structure specifies the distribution of rights and responsibilities among different stakeholders in a business concern such as the board of directors, management, shareholders (investors), employees, regulators, suppliers, partners, customers and the general community. A sound corporate governance structure promotes fairness, transparency and accountability – it is about commitment to values, about ethical business conduct and about making a distinction between personal and corporate interest in the management of firms and national economies. The reward for good corporate governance framework is prosperity of businesses – firms and national economies

The Importance of Corporate Governance

“The issuance of National Code of Corporate Governance is a very important deliverable that can be used to enhance our national competitiveness and address some socio-economic issues including corruption and lack of independence.” — CEO Financial Reporting Council of Nigeria (FRCN)

Corporate governance can often be overlooked, however, it is about how a company / organisation is governed and it is designed to ensure: effective boards; transparency around roles and responsibilities; accountability to, and engagement with, stakeholders, and driving sustainable business practices. To achieve this, there has to be a sound corporate governance framework which is the bedrock of corporate governance global best standards and practices.

Corporate governance framework in the 21st century

Backhouse, K. & Wickham, M. (2020). Corporate governance, boards of directors and corporate social responsibility: The Australian context.

The importance of corporate has been highlighted by different world leaders as you can see below.

According to one-time World Bank President, James D. Wolfesohn, ‘the proper governance of companies will become as crucial to world economy as the proper governance of countries.’

This assertion was supported by Chief Emeka Anyaoku, former Commonwealth Secretary General, when he rightly captured the imperativeness of sound governance of companies and national economies. He said, “CORPORATE GOVERNANCE and enterprise culture have become important for the survival of companies and indeed 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’’.

“The enthronement of corporate governance in the Nigerian Banking system is a sine qua non given the rapid growth of Nigerian banks in the past two and half years.” – Central Bank of Nigeria (CBN).

Sound corporate governance was further defended by the former President of United States of America, Barack Obama when he said, ‘‘I think there is a direct correlation between governance and prosperity. Countries (including firms) that are governed well, that are stable, where the leadership recognizes that they are accountable to the people and that institutions are stronger than any one person have a track record of producing results for people….’’

The following assertions made by important global corporate leaders, personalities and institutions underscore the critical role played by corporate governance in the economic survival of corporations and nations.

Sound corporate governance standards and practices will ensure:

  • Increased access to financing. It attracts investors.
  • Higher firm valuation and reduced cost of capital.
  • Better operational performance and efficiency of firms through more efficient management.
  • Reduced risk of financial crisis.
  • Better relationship with other stakeholders.
  • Promotion of sustainable growth and development.
  • Reduced poverty in the society.
  • Improvement of the standards of lending.
  • Strengthening of corporate reputation, the enhancement of the image of the organization and raises the level of investors and clients trust.
  • Strengthening of the capital markets.
  • Developing and encouraging adherence to corporate governance standards and practices
  • Provision of a network of experts, professionals, corporate leaders, managers, regulators, academics, government functionaries, investors, policy makers, legislators, professionals in the judiciary and other stakeholders for the exchange of views on corporate governance.
  • Promotion of sound economic and democratic governance.
  • Development and maintenance of the highest professional standards.
  • Promotion of legislations that will promote good corporate governance and sound business ethics.