The Head, Governance and Sustainability, Honeywell Group, Mrs. Yewande Giwa, who is responsible for implementing and managing the governance framework for the group, in a recent interview spoke on the implications of corporate governance on companies. See excerpts of the interview with Dike Onwuamaeze of Thisday below:
What is your view about the state of corporate governance in Nigeria with emphasis on how it affects investment in the economy? In recent years, regulators have implemented several measures aimed at improving corporate governance in the investment sector. For instance, the Financial Reporting Council of Nigeria (FRCN) developed the Nigerian Code of Corporate Governance 2018, which replaced all existing sectoral codes of corporate governance. In addition, the Securities and Exchange Commission developed additional recommended practices via the SEC Corporate Governance Guidelines. Both the code and the guidelines set out principles for entrenching sound corporate governance practices that seek to promote transparency, accountability, and ethical conduct among companies in Nigeria. These regulatory interventions have helped to enhance governance practices in the corporate sector. But there is still a lot of work to be done to ensure that companies operate transparently and accountably. It is, therefore, in organisations’ best interests to adhere to these principles, not only to drive the right corporate culture but also to prevent the financial and reputational risk occasioned by breach.
How does lax corporate governance affect the flow of foreign investments into Nigeria? Laxity in compliance with corporate governance standards would adversely impact investors’ interest in Nigeria because foreign investors are increasingly demanding for higher levels of transparency in doing business. They often opt to invest their funds in companies that satisfy defined governance metrics. Development Finance Institutions also seek out investment partners that meet various criteria, including adherence to ESG principles and stakeholder satisfaction. Therefore, companies that fail to meet these expectations are often viewed as high-risk investments. The implications may include higher borrowing costs, lower valuations, and reduced access to capital markets. All or any of these will negatively impact a company’s financial performance. It is, therefore, crucial that the Nigerian government and relevant regulatory bodies should continue to prioritise the improvement of corporate governance practices to boost confidence in the investment environment, attract foreign investment, and support sustainable economic growth.
The federal government has set up committees to produce governance codes for both the public sector and not-for-profit organisations. What benefits can these bring to the country? The development of governance codes for the public and not-for-profit sectors is a welcome development, as organisations in these sectors have the same duty as those in the private sector to protect the interests of their stakeholders. Their governance codes are expected to bring about several benefits, including improved accountability and increased transparency. This will build public trust and confidence and deter corruption and other forms of misconduct. In addition, governance codes can help public sector and not-for-profit organisations to operate more efficiently by promoting best practices in areas such as financial management, risk management, and performance measurement.
On a general note, how would you assess the implementation of corporate governance in the country, both in public and private sectors? There has been some progress in the implementation of corporate governance in both private and public sectors in the country. Not too long ago, the term ‘corporate governance’ was an unfamiliar concept to many organisations. Thankfully, there has been a shift in this mindset as organisations have become more cognisant of their responsibility to a wider pool of stakeholders and are beginning to entrench sound governance principles in their operations. However, there is still a long way to go, especially in changing our mindset and approach to doing business generally.
What are the unique challenges facing the private sector face in this regard and how can they be fixed? One of the primary challenges is the issue of transparency. Private companies are not subject to the same disclosure obligations as public companies, which makes it difficult for stakeholders to assess their performance and make informed decisions. To address this challenge, private companies should implement a voluntary reporting framework or adopt best practices that promote transparency and disclosure. Another challenge is ensuring accountability. Private companies usually have a more concentrated ownership structure, with a small number of shareholders or family members exercising significant control over the company. This makes it challenging to ensure that the company’s interests are aligned with those of all stakeholders. But these challenges can be addressed by establishing independent boards of directors, implementing performance-based compensation structures, and adopting ethical standards that promote accountability.
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