Corporate governance codes are in force—Obazee

By aAdekoya Last updated Sep 19, 2020

The controversies regarding the effectiveness of the recently issued National Codes of Corporate Governance (NCCG) have been laid to rest with the Financial Reporting Council of Nigeria (FRC) stating that the instruments are potent and still being implemented.

The NCCG, issued on October 17 are set of instruments to instill transparency and confidence in the country’s ways of doing business. Two weeks after its launch however, there were speculation of its suspension and that the codes were no longer enforceable.

The codes are in three sets namely the private sector code, the Not-for-Profit sector governance code and the Public sector code.

The private sector code is mandatory and, essentially a blend and refinement of the different sectoral codes on corporate governance in existence in Nigeria prior to the unified code. The Not-for-Profit sector governance code is operated on “Comply or Justify non-compliance basis’’, while that of the Public Sector is yet to be effective.

Both the private sector codes and the Not-for-Profit sector governance codes have come under criticisms as being the cause of, or capable of, creating a recession, impeding the ease of doing business and decreasing foreign direct investments. These added to speculations that the NCCG is in conflict with the FRC Act, 2011 and the Companies and Allied Matters Act, CAP C20, LFN 2004;

These have therefore created confusion among companies and the Non-for-Profit organisations about the effectiveness of the codes.

Speaking last week at the 2016 Annual Corporate Financial Reporting Summit and Dinner hosted by the FRC, the Executive secretary, Jim Obazee noted that the federal government has never suspended the codes which many firms and religious bodies have started to complied with.

At the summit in Lagos, attended by captains of industries and regulatory agencies across different sectors of the economy, Obazee debunked the speculations and highlighted three ways by which federal government announces its policies and actions.

He noted that the purported suspension has not come from any of the approved means.

“If you understand governance in this country, you will know that government speaks through three different means”, he stated.

“If federal government makes a pronouncement, it will put it in gazette. Another is government circular which is sent out as announcement and the third is a memo document which is issued after Federal Executive Council (FEC) meeting to announce such information”.

“Who suspended the codes or have you seen or heard of the suspension of the codes through any of these medium” asked Obazee who said federal government does not do its businesses on the pages of newspapers but through the aforementioned means.

“On the issue about the effectiveness of the codes, they are still active and are running on our website”.

Obazee disclosed that some professional bodies and association like Nigerian Insurers Association (NIA) and the Organised Private Sector’s bodies like Nigerian Employers Consultative Association (NECA) and others have engaged the FRC, seeking clarifications on the codes.

“The thing that is reasonable to do like that of the Nigerian Insurers Association, is engagement of the FRC on soft-landing and we told them that it begins with 2017 financial statements which means that everybody has one year window”.

The FRC boss also debunked the assertion from some quarters that the issuance of the National Code of Corporate Governance (NCCG) has created recession, impeded the ease of doing business and decreasing foreign direct investments.

He said the NCCG was not the cause of recession as he noted that the country got to its current situation because of the failure of those that are to deal with the issues before it gets to this stage.

Obazee said recession is occasioned by multiplicity of influences, which he placed at the feet of monetary authorities in the country.

“Monetary authority(ies) usually raise interest rates if it thinks that the rate at which the economy is growing is capable of raising the level of inflation. This will naturally lead to costlier credit. Costlier credit will eventually force businesses and consumers to curb their spending”.

“In our own experience, interest rates in the financial markets even rose more than bank deposits. As a result, people shifted their money out of their savings accounts and placed them in higher yielding money market funds….even the Deposit Money Banks themselves”.

“As deposits shrank, banks had to curtail lending and items normally bought on credit caused sales to shrink. Companies suddenly found their stock piled up and had to respond by either shutting down production or laying off workers or take both actions. Laid off workers slashed their own spending; thereby multiplying the initial impact. The immediate result is the much talked about Recession”.

The FRC boss drew attention to the earlier warning by JP Morgan of its intention to delist Nigeria from Government Bond Index-Emerging Market in January 2015, with complaints centered on illiquidity, lack of transparency and 2-way market.

On the other hand, he said the codes have the capacity to build the confidence that can assist the economy’s normal recuperative mechanism to bring it out of recession.

Obazee also said the NCCG cannot impede the ease of doing business but rather, complementary to it.

According to him, “Ease of doing business”, in a jurisdiction, is based on some “indicator sets” which according to the World Bank Group, are in the areas of: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Minority Investors, Paying taxes, Trading across Borders, Enforcing Contracts and Resolving Insolvency.

On the other hand, he said Corporate Governance is a means whereby Society can ensure that businesses (particularly corporations) are well governed, not only managed, to which investors and lenders, both domestic and foreign, can safely and confidently commit their funds.

Owing to this, he said Corporate governance creates safeguards against mismanagement and corruption, and promotes fundamental values such as accountability, transparency, fairness, responsibility and non-fluctuating integrity, as distinct from mere reputation. of a market economy in a democratic setting.

Good corporate governance, he said, has values that are attractive to investors as it protects and grows their investments.

He noted that capital is attracted by safety and adequate returns and does not go to any governance environment that does not guarantee these two loyalties. “This is because; capital does not focus on the “product” but on the “experience”.

Third, the FRC boss said that the NCCG enhances foreign direct investment as Investors, today prefers jurisdiction where they would be entitled to keep the reward thereafter.

This requires transparent laws, impartial courts, property rights and non-fluctuating adherence to international best practice in financial reporting, corporate governance, standards and codes.

The Nigerian economy would no doubt benefit extensively from the NCCG through its demand for enhanced transparency and accountability in financial reporting (resulting from better disclosures in financial statements) and mandatory corporate codes that speaks to how covenants are taken seriously in Nigeria.