CORPORATE GOVERNANCE PRACTICE IN THE NIGERIAN BANKING SECTOR CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO STUDY
There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high profile collapses of a number of large U.S firms such as Enron Corporation and World Com. the existence of corporate governance is as long as entities exist. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals through mechanisms that try to reduce or eliminate the principal-agent problem. Corporate is derived from the word ‘corporation’ which is defined by the Oxford Advanced Learners’ Dictionary as ‘a group of people having authority to operate in a single unit with a separate legal existence’. However, the corporate body even though it is legally authorized to act, is incapacitated. Consequently, its acts have to be delegated to human beings who could be regarded as governors or managers. Governance is an act of governing. It then follows that corporate governance is concerned with ways in which all parties interested in the well-being of the firm (stakeholders) attempt to ensure that managers take measures or adopt mechanisms that safeguards the interest of the stakeholders.
Corporate governance regulates the contractual relationship between stakeholder groups, in particular, the principal-agent relationship between shareholders and management. In a paper presented at a conference on corporate governance in Accra, Ghana, Oyejide and Sayibo (2001) opined that managers in some unforeseen circumstances assume contingent control that produce them with potentials to operate against investors best interest and as such conceal some pieces of information from external investors. This therefore calls for corporate governance in order to align the interest of the managers with that of the stakeholders. As reported by the Central Bank of Nigeria in code of Corporate Governance for Banks in Nigeria (2006: 1), “specifically for financial sector, poor corporate governance was identified as one of the major factors in virtually all known instances of a financial institution’s distress in the country”. Banking in Nigeria cannot function as well if there is no sound corporate governance practice, consequently, this research is done in order to assist the banking sector in promoting the adoption of sound corporate governance in Nigeria. Recognizing that different structural approaches to corporate governance exists across countries, this research encourage practices, which can strengthen corporate governance under diverse structures.
1.2 STATEMENT OF THE PROBLEM
Banking supervision cannot function as well if sound corporate governance practice is not in place and consequently, banking supervisors have a strong interest in ensuring that there is efficient, transparent and effective corporate governance at every banking sector. There is need for banks to set strategies for their operations and establish accountability for executing these strategies. Corporate governance structure spells out the rules which directly affects the performance of a bank by having effect on the managing and technical effectiveness of the bank. Therefore, through influence on bank decisions and plans with regards to innovations, markets and output, the governance arrangements should have an impact on the performance of banks. Consequently, an attempt is made in this work to proffer solutions to the following research questions: Does corporate governance intend to improve banks efficiency, effectiveness and transparency? Corporate governance practices intend to increase banks investors and stakeholders? Does corporate governance have any link with the performance of banks in Nigeria? Should other stakeholders, such as customers and employees have a say concerning corporate governance?
1.3 OBJECTIVES OF STUDY
Corporate governance of banks would build up the trust and confidence of both local and foreign investors and also attract long-term capital. To benefit maximally from capital markets, globally, good governance practices must be put in place.
However, the basic objectives of this study are:
To determine the extent to which corporate governance practice affects the Nigerian banking sector.
To ascertain to what extent corporate governance practices has helped to reduce risk and promote performance in the Nigerian banking sector.
To determine whether the shareholders or owners of the banking business are informed of corporate governance developments or practices that affect the banking sectors.
To determine the extent to which corporate governance has helped to prevent systemic crisis in the Nigerian banking sector.
To find out if the banking sector is efficiently and effectively managed due to corporate governance practices.
1.4 SCOPE OF STUDY
The scope emphasizes the spread of the study. The study is centered on examining the role of corporate governance practices in the Nigerian banking sector. The study is intended to cover all banks across the country but will however be restricted to 10 banks in Edo State (Benin City) since most prerequisite data needed for the work can be obtained within the area. The banks include:
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