Development of Corporate Governance in Nigeria

Development of incarnate organisation in NigeriaLiterature ReviewThe code of incarnate presidential term e reallyplace the years, Nigeria has experienced rapid development with regards to bodily brass instrument. This can be tell in the 2003 canon of Corporate Governance ( due south Code), the 2006 mandatory Code of Corporate Governance for Nigerian Banks post con unbendableation (CBN Code) and most importantly the 2007 Code of Conduct for Sh atomic number 18holder connections in Nigeria (SEC Code for stockholders). (now rewrite in 2011) update the dates for the unlike codes. concord to Grienenberger (1995), unified brass can be defined asThe legal and applicatory system for the exercise of power and throw in the conduct of the furrow of a corporation, including in factoricular the relationships amongst the stockholders, the oversight, the be on of the handleors and its committees, and new(prenominal) constituencies.The briny issue with somatic governance is that it is often viewed as the separation amid ownership (stockholders) and control (managers). Jensen and Meckling (1976) resign that managers pull up stakes alone be as incentivized to add value to sh atomic number 18owners in proportion to what they carry to person tot aloneyy gain. Schacht (1995) consequently argues that corporate governance represents the friction that managers and owners of public companies depend in the involvement of the productive level of sh arowners in corporate form _or_ system of disposal and administration.Nigeria was a British colony thitherfore it adopted the corporate governance system of the British and its history of corporate governance stems from the colonial conviction when the private domain was dominated by British companies (Okike 2007, Ahunwan 2002). After she gained her independency in 1960, there was a abundant economic liberation and the government developed domestic ownership and control of the Nigerian private sector (Akpotaire 2005). The framework of corporate governance adopted was still that of the British. For instance, there was the alternate of the Companies Ordinance of 1992 by the 1968 (how can the 68 replace the 92) Companies Act but the biggest persuade was the UK corporate law (Adegbite and Nakajima, 2010). It is not unimaginable that since the corporate governance of Nigeria mirrors that of the British so closely, the long suit would be somewhat guaranteed. Unfortunately this has not been the case. It could be easily explained by the fact that the corporate laws and regulations in the UK ar not complementary, reflective or applicable in the Nigerian agate line contacts (Adegbite and Nakajima, 2010). Okike (2007) verbalizes that though the framework of the corporate governance in Nigeria mirrors that of the UK, the resembling cannot be verbalize in terms of application or inwrought principles. Ultimately, it seems the legal or corporate governance codes governing corporat ions cause not been developed with the peculiarities of Nigeria in mind. The issues that argon specific to the cultural and policy-making environments bedevil also been ignored (Okike, 2007) and these are of utmost importance especially when considering the uncrystallised and informal nature of the Nigerian economy (Yahaya, 1998). In the years that follow, I believe this error was trying to be corrected by qualification codes to reflect Nigeria as a country and her corporate environment. According to Adegbite et. al (2012)The primary statute empowering shareowners in Nigeria to intervene in a caller- knocked out(p)s personal matters is the Company and Allied Matters Act (CAMA) 1990 (as amended).In addition to this as verbalise above was the 2003 Code of Corporate Governance (SEC Code). Adegbite et. al (2012) goes on to enounce that this code has as one of its core focuses to promote the rights and responsibilities of stockholders. It expressly states that the ships compan y or board should not discourage shareowner activism whether institutional or by organised shareholders groups. It further states that the annual oecumenic meetings (AGMs) should be an road sort for shareholder participation in the governance of the company. Further much than, there should be a director who represents the interests of minority shareholders who occupies a seat on the board. Okike (2007) believes that these are all efforts of the Corporate Affairs Commission (CAC) and the Securities and Exchange Commission (SEC) to promote shareholder activism as fountainhead as the rights of minority shareholders in the Nigerian corporate governance code.As a result of all these developments, there fork out now been an emergence of some private initiatives which have been encouraged by the government much(prenominal) as The Independent Shareholders Association of Nigeria (ISAN), the Nigerian Shareholders Solidarity Association (NSSA), the Proactive Shareholders Association of Nigeria (PROSAN), the Association for the Advancement of the Rights of Nigerian Shareholders (AARNS) amongst former(a) shareholder crossties. These have developed mainly to give minority shareholders a venture in a sector that has been dominated by majority shareholders when it comes to trap voting.The issue of Politics and its violation on Shareholder ActivismIn a recent con, Adegbite et. al (2012) state that an environment of unhealthy and vast politicking is created when shareholder activism is employ as corporate governance mechanism in Nigeria. It is believed that this is as a result of the countrys brand of political relation, in other words expressing that this is a challenge that is quite peculiar to Nigeria. It denotes that though shareholder activism is somewhat a universal practice, certain characteristics of diverse regions warrant an conceiveing before said practice can be carried out correctly. Most literature on shareholder activism is ground on the Anglo-Sa xon construction of markets as preceding to license from the British, the Anglo Saxon-based system of corporate law and regulations was in place in Nigeria (Adegbite and Nakajima, 2010). This is founded on the neo-liberal conception of democratic politics where there is freedom and rights inside legitimate institutional boundaries. Also, under the same umbrella of this ideology is shareholder activism, as it is an essential characteristic to the financial markets (Adegbite et. al 2012). This has led to footling thought be given to the effect that the post-independence stage of political country has on the way in which unalike things are practiced and in particular, shareholder activism. Given these points, lets look further into the democratic political state of Nigeria.Nigeria gained her independence on October 1, 1960. In the 56 years of her independence, she has been vastly ridiculed with the iniquity of corruptedion. This has been evident in the politics of the nation, t he way occupation is conducted both local anaesthetic and international and the general way of life of her people. Unfortunately, we follow this through many years of various scandals such as Cadbury 2014 and infamously Shell 1990 to present. It would be just most obvious that this corruption tremendously affects the business environment and by extension, shareholder activism. This can be evidenced by looking at unconditional corruption indicatores. In appendix 1, we see extracts from various reports from the Transparency world-wide (2013) which is a non-governmental organisation. These reports show Nigeria ranking 136 out of 178 countries (178 being the most corrupt country) in the corruption powerfulness as well as having a score of 26 (100 being corrupt free). More importantly, in the index of corruption by political parties, Nigeria scored 4.7 out of 5 (5 being extremely corrupt).This information is one that cannot be ignored in the abridgment of the political enviro nment of the country having a direct/indirect effect on shareholder activism. Adegbite et al. (2012) also compare the World Bank index which is based on six broad measures (1) voice and accountability, (2) political stability, (3) government effectiveness, (4) restrictive quality, (5) rule of law and (6) control of corruption. Three countries are examined namely Nigeria, Denmark and the coupled state. The latter mentioned countries score very low on the corruption index in the Transparency International reports and so its no surprise that in the World Bank Anti-Corruption and Governance Index, the same results are observed with Nigeria scoring little than 28% in all 6 categories firearm Denmark and the unify Kingdom score higher than 80% across the same categories. These results all highlight the same issue. It is the implications of theCorrupt and greed driven Nigerian politics and political culture on business conduct, corporate governance and shareholder activism in partic ular (Adegbite et. al 2012).In light of all of this, it would be unfair not to mention that there are steps taken to mitigate this issue of corruption especially in the attitude towards corporate governance. Only a few years ago, the Central Bank of Nigeria (CBN) fired the Chief Executive Officers and Executive Directors or eight Nigerian banks on charges of corruption, fraud and bad corporate governance (Adegbite and Nakajima, 2010). These steps are by all odds in the right path to getting the country to where it needinesss to be but the fact still remains that this is a serious status when addressing corporate governance and shareholder activism in Nigeria. As this has been established, the different matters close to shareholders associations and institutional shareholders have been discussed below.institutional shareholders and Non-institutional shareholders (shareholder associations)The Nigerian Stock Exchange (NSE) has been in existence for about 46 years. It has over 260 listed securities including 10 Government Stock, 55 industrial loans (Debenture/Preferences) stocks and 195 equity/ordinary shares of companies with a total capitalisation of about 875.2 one million million million naira. Shareholding in Nigeria has grown rapidly to an estimated 10 million (Amao and Amaeshi, 2008). on that point have been a series of events such as the privatisation programme in Nigeria that has massively impacted the share ownership. In the early stages of the programme, the privatised companies offered over 1.3 billion shares for sale to the public. There was a huge influx of first time buyers as well others metering to over 800,000 shareholders. Between 1989 and 2005, over forty government-owned companies were privatised (Tanko II, 2004). picayune individual shareholders coming together to form shareholders associations and large individual shareholders are categories of Non-institutional shareholders. (Crespi Renneboog, 2010 Poulsen et al., 2010 Song Szew czyk, 2003 Uche, C., Adegbite, E. and can buoy Jones, M. 2016). The way in which shareholder activism is carried out and progress tod by gauzy and large individual shareholders is mainly attribu put off to their shareholdings (Connelly, Tihanyi, Certo Hitt, 2010 Crespi Renneboog, 2010 tushson, Schnatterly, Johnson, Chiu, 2010 Uche et al., 2016). Due to the amount of shareholdings that small individual shareholders possess, they are at a disadvantage in the matter of having influence over management. In establish to combat this, small individual shareholders often combine voting rights with that of other shareholders hence change magnitude their influence when engaging in shareholder activism. By doing so, they bypass the need for large block holding. Coordination by small individual shareholders is then achieved by using organizations such as shareholders associations. While this teamwork doesnt result in the influence of corporate strategy or board nominations, Stricklan d et al. (1996) states that it brings about certain advantages such as successful shareholder-initiated proposals documented in countries such as the join States of America.Shareholders associations are a registered group mainly consisting of small individual shareholders charm Institutional shareholders is a term for entities which pool money to purchase securities, factual property, and other investment assets or originate loans. Institutional shareholders include banks, insurance policy companies, upkeeps, hedge funds, REITs, investment advisors, endowments, and mutual funds. In this section, the relationship amidst these both volition be analyzed as well as the crop their union or otherwise has on shareholder activism. According to Uche, Adegbite and John Jones (2016), prior literature has shown how beneficial collaborations between shareholders associations and institutional shareholders have been in shareholder activism. Examples of this is institutional shareholder s using their proxy votes to support shareholder proposals. However, there has been little work make in this area regarding a development country as well as the effect that activism carried out by shareholders associations has on institutional shareholders (Uche, Adegbite and John Jones, 2016).According to Mulgan (2000) and Uche et al., (2016)Accountability is considered to be an bodily process that requires the accountee to engage in questioning, assessing and criticizing when holding the accountor to account.It is believed to be a two way conversation between accountee and accountor. Uche et al., (2016) notes that the accountability relationship theory isnt discussed in a corporate environment by Mulgan (2000) but similar characteristics have been place in the relationship between the board members and management. These characteristics were identified by Roberts et al., (2005) as questioning, probing, discussing, informing and encouraging. In addition, it is evident that share holder activism share these same features. This is because Institutional shareholders and shareholders associations involve in discussion, probing and questioning management at AGMs and other private meetings (Uche et al., 2016 Roberts et al., 2006 Solomon and Darby, 2005). These conversations with shareholders associations and institutional shareholders also allow companies to gain insight into different issues on social, ethical and environmental issues which in turn aids in promoting corporate matters aimed at the public (Solomon and Darby, 2005 Amao and Amaeshi, 2008 Johed and Catasus, 2015).As mentioned in earlier sections, Nigeria is household to many shareholders associations. There are to a greater extent than thirty organisations unlike other more developed countries such as the United Kingdom which ordinarily has only one association engaging in shareholder activism (Amao Amaeshi, 2008 Adegbite, Amaeshi Amoa, 2012). Uche, Adegbite and John Jones (2016) importantly hig hlights the importance of the structure of shareholders associations in Nigeria. These associations are made up only of small individual shareholders. The reason this is important to note is because of the impact it has on strategies carried out by the organisations. It also indicates the amount of influence or need thereof that these organisations may have on the management of companies and hence shareholder activism.In shareholder activism, the expectation is that the shareholders are able to apply a certain level of influence over management of a company which provide allow them to facilitate change in strategical outcome or managerial decisions (Ryan and Schneider, 2002). This influence is much easier when there is an independence between the activists and management of the company involved. This can be seen in the outline between institutional shareholders, shareholders association and management inwardly the boundary of shareholder activism (Uche et al., 2016 Becht et a l., 2008 Catasus and Johed 2007 Crespi and Renneboog, 2010 Ingley and Van der Walt, 2001 Johed and Catasus 2015). The independence noted in relationships between shareholders associations and managements of companies allow for the association to have an increased influence over management (Uche et al., 2016 Poulsen et al., 2010)A lack of independence is noted in easily pressured institutional shareholders. This causes these type of investors to or else guard the relationships formed with managements of the company involved for their own benefits .This type of mien is usually noted in passive institutional shareholders than active institutional shareholders (Uche et al., 2016 Almazan, Hartzell and Starks, 2005 Brickley, Lease and Smith 1998 Marler and Faugere, 2010). Prior literature has shown that there is a deviance in the way various institutional shareholders carry out shareholder activism. This allows them to benefit in different ways from the way others carry out their activ ist activities (Uche, Adegbite and John Jones, 2016). Active institutional shareholders will benefit from things such as coordinated voting with other institutional shareholders or shareholders associations while the same may not be the case for institutional shareholders that are passive. Passive institutional shareholders as the name suggests, have a more laissez-faire attitude towards shareholder activism. They prefer to avoid any direct activist activities while benefiting from that which active shareholder institutions and shareholders associations have fought for (Brav, Jiang, Partnoy, Thomas, 2008). These passive institutional shareholders in Nigeria are usually hedge funds or pension funds who focus on short-circuit term benefits and dont want to cut out the business relationships built with these companies.It is argued that shareholders associations dont experience this same dynamic between them and management of any company in questions regarding shareholder activism ( Uche et al., 2016 Stratling, 2012). However, according to Uche et al., 2016, Adegbite et al., 2010 and Yakasi, 2001, it has been reported that some shareholders associations in Nigeria develop relationships with management because of financial benefits obtained outside of the business relationship. This then leads to a lack of independence and hinders the shareholders associations from acting as accountees and holding the accountors (management of the company in question) to account.Prior seek notes that different shareholder groups have different agendas that they pursue and though these may be similar in fivefold cases, they can also differ. This is as a result of their interests and time horizons being different (Uche et al., 2016 Goranova Ryan, 2014 Ingley Van der Walt, 2001). Individual shareholders usually invest smaller bet over a short period of time while institutional shareholders such as pension funds will invest massively over a long period of time. Fundamental diff erences such as these cause conflicts between the groups in shareholder activism. For instance, hedge funds prefer short term pay puts thus are more short term oriented (Uche et al., 2016).Ultimately, in Nigeria, institutional shareholders do not enter enough in shareholder activism especially in comparison to shareholders associations. As noted in earlier paragraphs, due to the small holdings of individual shareholders who make up shareholders association they are not able to practice shareholder activism as effectively as they should (Uche et al., 2016 Amao Amaeshi, 2008 Okike, 2007 Yakasai, 2001). Despite this, it has been noted that shareholders associations have been of great help in holding management of companies accountable by resisting the two-faced sale of corporate sales and sacking of poorly performing corporate executives through shareholder activism (Uche et al., 2016 Aderinokun, 2003 Chigbo, 2000). The Nigerian Securities and Exchange Commission (SEC) code (both 20 03 and the revised code in 2011) avidly encourage institutional shareholders and organised shareholders groups to actively engage in shareholder activism so as to improve practices (SEC Code, 2003 SEC Code 2011). While institutional shareholders are not there to affect the role of monitoring agencies, they are in a collapse congeal to pressurise companies to take shareholder accountability and interest more naughtily (Chung Talaulicar, 2010 Roberts et al., 2006). In the face of previous scandals and governance and accountability problems in Nigeria, institutional shareholders now have another opportunity to fight for improved governance practices so as to create better shareholder values (Ahunwan, 2002 Bakre, 2007 CBN, 2006). According to Yakasai (2011) and Ajogwu (2007), Institutional shareholders are in a better strategic come out than small shareholders to engage with corporate managers. Their influence can bridge the spreading of communication between shareholders and rea lly have an impact on corporate governance practices. All of this highlights the importance of both institutional shareholders and shareholders associations to practice shareholder activism (together and independently) independent of management of companies so as to relinquish all forms of virgule in order to improve the effectiveness of shareholder activism in Nigeria. interrogation METHODOLOGYIntroductionThis chapter illustrates the methodology used in this look for to achieve my results. inquiry methodology is crucial to any search as it highlights the conclude behind methods chosen to achieve the aims and objectives of this investigate (Kothari, 2004). The purpose of this paper is to intelligibly state what Shareholder Activism is and take a closer look into sub-Saharan Africa, more specifically Nigeria. It will also highlight three main areas that grossly affect the practice of shareholder activism in Nigeria as well as offer suggestions that could make the experience a much more businesslike and effective one. To achieve this, this chapter has been divided into various sub sections namely, research philosophy, burn down, strategy, time horizons, data collection and data analysis. interrogation PhilosophyResearch philosophy is an over-arching term relating to the development of knowledge and the nature of that knowledge. (Bandaranayake, 2012). According to Saunders, Lewis and Thornhill (2003), research philosophy is dominated by three main views namely incontrovertibleness, Interpretivism ( neighborly Constructionism) and Realism.Positivism as described by Saunders, Lewis and Thornhill (2003), is a view that often adopts the philosophic science of the natural scientist. This research perspective is one of utmost objectivity, all independent from the researcher and unaffected by the research or its results.Interpretivism/Social Constructionism views humanitykind as based on human practices formed by human interactions with others and the worl d in which they live in, developed within a social context (Crotty, 1998). The intent of this come up is to understand the subjectivity of reality of the people being analyzed in order to deduce the compass and reasoning of their motives in a way thats applicable to them. (Ramanathan, 2008).The key differences between Positivism and Interpretivism (Social Constructionism) are highlighted in the table below by (Ramanathan, 2008).Saunders, Lewis and Thornhill (2003) state thatRealism is applied to the study of human subjects, recognizing the importance of understanding peoples socially constructed interpretation and meaning, or subjective reality, within the context of seeking to understand broader social forces, structures or processes that influence, and perhaps constrain, the nature of peoples views and behaviours.According to Saunders, Lewis and Thornhill (2003), it will be misleading to think of any research philosophy as better than the next. Ultimately, all three philosophies serve different purposes depending on the objective of the research. Nonetheless, business situations such as shareholder activism are complex and unique to different individuals circumstances and environment. Shareholder activism in Nigeria cannot be discussed without addressing the corporate governance environment of the country. According to Grienenberger (1995), Corporate governance can be defined as the legal and practical system for the exercise of power and control in the conduct of the businessof a corporation, including in particular the relationships amongst the shareholders, the management, the board of the directors and its committees, and other constituencies.This translation highlights two things that are very important. This is the fact that this is a legal and practical system. Every country has its own legal system that may benefit its origin from many things such as the country which it was colonized by to the general way of life of the people. This in fact is t he same for how business is conducted as well. Therefore, it is without doubt that an understanding of the countrys systems and the way in which things are done is essential for any well informed analysis to be made. This has indeed led me to choose interpretivism/social constructionism as my research philosophy as I believe that the characteristics of this philosophy such as aiming to increase the general understanding of the situation, gathering rich information from which ideas are induced and including stakeholder perspectives are all exactly the approaches I need to undertake in order to countenancely understand all the drivers involved in shaping shareholder activism in a growing country such as Nigeria.Research ApproachWhen considering what research approach to use in research, there are two theories available. These are Deduction (Testing theory) and Induction (Building theory).Deduction approach as the name implies involves the researcher having a proposed theory (usuall y involving two or more variables) which they then collect data against, analyse and draw conclusions in support of or opposing the original thesis (DeGracia et al., 2014).Induction approach on the other hand involves observing different cases or scenarios and then developing a general hypothesis around ones findings (DeGracia et al., 2014). This approach allows for a less rigid methodology and openness to varying explanations of what is going on (Saunders, Lewis and Thornhill, 2003).The table below shows the differences between Deduction and Induction approaches to Research by (Saunders, Lewis and Thornhill, 2003). corner 4.1Major differences between deductive and inductive approaches to researchDeduction emphasisesscientific principlesMoving from theory to dataThe need to explain causal relationships between variablesThe collection of quantitative dataThe application of controls to ensure validity of dataThe operationalisation of concepts to ensure clarity of definitionA highly st ructured approachResearcher independence of what is being researchedThe necessity to select samples of sufficient size of it in order to generalize conclusionsInduction emphasisesGaining an understanding of the meanings humans add to eventsA close understanding of the research contextThe collection of soft dataA more flexible structure to permit changes of research emphasis as the research progressesA realisation that the research is part of the research processLess concern with the need to generaliseThe installment approach will be taken as this research looks into human behaviours and social construct within a certain environment. Furthermore, I will be making use of qualitative data alone to correspond the approach adopted by Saunders, Lewis and Thornhill, (2003). This is because my research is looking into the problems associated with the lack of effectiveness of shareholder activism in Nigeria. This means that I am looking into the issues surrounding application, human beh avior towards corporate governance and shareholder activism. Therefore, the induction approach as well as the use of qualitative data is the silk hat way to get the different stakeholder perspectives and gather the right information within a less rigid structure that will enable the appropriate analysis to be conducted.4.4 Research StrategyAccording to Saunders, Lewis and Thornhill, (2003), there are different research strategies namelyExperimentSurveyCase studyGrounded theoryEthnographyAction researchcross-section(a) and longitudinal studiesExploratory, descriptive and explanatory studies.For the purpose of this research, grounded theory will be used. This is because it is mainly used in the inductive approach and will allow for a more thorough insight into the issues associated with the objectives set in this research by using interviews (Corbin and Strauss, 1990). My source of data will be interviews and archival records as it allows me to confiscate insights into events associ ated with shareholder activism through the personal accounts of individuals experiences (Hendry et all., 2007 Useem et al., 1993). As this research paper is rivet on Nigeria, I have limited access to data as I am currently in the United Kingdom. Therefore, I have conducted telephone interviews with seasoned individuals practicing shareholder activism because it was more cost and time efficient to do so. I believe using these will give me a well-rounded view of the issues that need to be identified.Time HorizonsThere are two types of time horizons focused on by Saunders, Lewis and Thornhill, (2003) namely Cross-sectional studies and longitudinal studies. Cross- sectional studies have to do with research on a particular hypothesis at a particular time, while longitudinal studies involve researching a certain phenomenon over an extended period of time. This research focuses on Shareholder Activism in Nigeria, over the years there has been very little written on this subject matter. My aim is to add to the torso of knowledge which exists in current times. In this case, I will be applying cross-sectional studies and focusing on the periods from the early 2010 to present day 2016. data CollectionThe main research method in this paper will be the interviews conducted with persons that are knowledgeable on the subject. As I am not very conversant with the subject matter, speaking with these people will aid in expanding my knowledge. It is quite expensive to travel to Nigeria from the United Kingdom therefore, telephone interviews will be conducted as it will save time and costs. I also plan on using archival records as I believe this will provide context to my research thus allowing me to form a well-rounded grounded theory.Data AnalysisVarious solid articles and books will be used to aid in my coding and analysis of the intervi