Cadbury, AP, Dangote….Time to Up Our Corporate Governance Game

The ex Director General of the Nigerian Securities and Exchange Commission (SEC), Al-Faki announced last month that a new corporate governance code for quoted companies would soon be released; and not a moment too soon. Considering that the Cadbury scandal happened in 2005, it is a disquieting that regulators did not do more to put a stronger corporate governance structure in place for Nigerian companies and their investors. Not long after the Enron and Worldcom scandals the United States enacted the Sarbanes-Oxley Act in 2002 to block the loopholes in company reporting standards and improve corporate governance by amongst other things, enhancing conflict of interest provisions for directors and managers and asking directors, officers and 10% owners to report transactions within two days.
However, here we are, embroiled in another corporate scandal with the alleged manipulation of the AP share price and the Independent Shareholders Association of Nigeria screaming blue murder because according to it “the management of the truth of the AP insiders trading by both SEC and NSE calls to question the moral latitude and commitment of the, board/council to the overall interest of more than10 million shareholders in the Nigerian Capital market who have been and continue to be short-changed”.
Maybe a more robust corporate governance framework would have helped in mitigating the losses being incurred by the shareholders of AP and possibly other shareholders we are not aware of. Ideally, the share price of Dangote Flour and Sugar should fall too considering the shenanigans of its chairman who has fingers and toes in too many pies.
Prior to 2003, the standards of corporate governance for public companies in Nigeria were set by SEC which is charged with monitoring and controlling the issuance of securities in Nigeria under the Investment and Securities Act 1999; the Corporate Affairs Commission (CAC) which regulates all companies incorporated under the Companies and Allied Matters Act 1990; and the Nigerian Stock Exchange, which regulates and monitors the trading of securities in the Nigerian capital markets.

Publicly listed banks have additional requirements being under the supervision of the Central Bank of Nigeria by virtue of the CBN Act 1991 and the Banks and other Financial Institutions Act 1991. Informally, the board of directors of banks are also monitored and regulated to a lesser extent by the Nigerian Institute of Directors.

In 2003, one more layer of corporate governance compliance was added when the Code of Corporate Governance was published: a joint initiative of SEC and CAC to improve corporate governance practices because they realized ‘the need to align with corporate governance international best practices’.
With all this regulation, investors in publicly quoted companies should be safe from the kind of manipulations Cadbury and AP have undergone. With Cadbury, it was only after an internal review by the Cadbury parent group showed that its Nigerian subsidiary had overstated its account by 13.25 billion naira that an official enquiry by SEC was launched. And with AP, it was allegedly not until Otedola took out full page ads warning shareholders of stock manipulations by his close friend Dangote that the NSE realised that something fishy was going on. Maybe this cluelessness is not unrelated to the fact that Dangote is also the first Vice President of the Council of the NSE. With our reputation for corruption, who thinks it makes good sense to have majority owners of public companies also regulating the stock market?
Obviously there were a lot of weaknesses with the 2003 Code which is why a mere five years later, a committee was inaugurated to review it. One major weakness which the new Code will hopefully address is on the composition of the board. While international best practice is to have more non executive (independent) directors on a board, our 2003 Code did not mention this but merely recommended a mix of executive and non executive directors.
For instance, South Africa’s 2001 King Report on Corporate Governance which companies listed on the Johannesburg Stock Exchange must comply with, states that ‘the board should comprise a majority of non-executive directors, preferably comprising a majority of non-executive directors”. Unfortunately neither the Investment and Securities Act, nor the listing requirements of the NSE and CAMA have anything enjoining a board to have majority non-executive directors. On the composition of the board, CAMA restricts itself to excluding those who are under 18, insane and bankrupt and, without making any distinction between public and private companies, recommends that boards have at least two directors.
The contents of the new code of corporate governance have not been released, so until then Nigerian companies continue to be held to the existing watery standards of corporate governance. It is interesting that although corporate governance has been a global buzz word within business circles, our public companies (and of course private companies) seem totally oblivious of the need to incorporate best practices. When Oando Plc was listed on the Johannesburg Stock Exchange in 2005, I thought it meant Nigerian companies would start paying more attention to corporate governance because of the high standards set by other stock exchanges. Sadly this has not been the case. While in terms of business aggression and sharp tactics there would be little to differentiate Nigerians from Indians and vice versa, global companies like Infosys at least pay lip service to corporate governance best practice by providing information which proves they have more non-executive directors to ensure the independence of their board and details about their remuneration. The results of a random search of some corporate websites show that Dangote Group, Zenith Bank, and Access Bank provide no information about their corporate governance framework. GT Bank had a little more than the others but did not go far enough. Why? Is it because Nigerian shareholders are passive about enforcing their rights or because we do not have a culture of holding those in authority accountable? Between January 2005 to August 2005, the same year Cadbury’s fraud was exposed, Nigerians invested approximately Two Hundred and Forty Billion Seven Hundred and Seventy Seven Million Six Hundred and Twenty, Five Hundred and Ninety Six Naira (N240,777,620,596) in the capital market by buying shares in publicly quoted companies on the Nigerian Stock Exchange...isn’t it time to ask those we invest so much in to maintain higher standards of transparency and corporate governance?