Nigerian Stock Exchange to introduce Corporate Governance Index for listed companies

The Nigerian Stock Excahnge

The Nigerian Stock Exchange

It is now a well settled fact that good corporate governance is instrumental to the overall well-being and productivity of corporate organisations. The global financial crisis provided a classic case of the effect of weak corporate governance in corporate organisations. In Nigeria, some corporate failures exposed the gross deficiencies in the area of Corporate Governance in Public Corporations. For instance, the banking industry was badly hit by a severe crisis post-consolidation in 2009 which led to the collapse of some banking institutions. Among the identified causes of the corporate failures was gross misconduct and maladministration of the said institutions under the regimes of some Chief Executive Officers (CEOs) who have since been prosecuted by the Economic & Financial Crimes Commission (EFCC) for economic crimes and fraud related offences. Although the CEOs were brought to book for embezzlement and gross misappropriation of funds, the shareholders’ value for the affected institutions was virtually wiped out or reduced to an insignificant proportion after major restructuring took place in order to sanitize the industry. In other words, the shareholders eventually bore the loss of the failed institutions.

The CEOs could not have wrecked their various institutions without the complicity of the Board members of the affected institutions. This is because ultimately, the success or failure of a corporate entity depends on the Board of Directors which is the directing mind and will of the company. It is the responsibility of the Board to ensure that the company is headed in the right direction. Against this background, various efforts have been made by regulators to promote good corporate governance in the country. One of such is the planned introduction of a Corporate Governance Index by the NSE in 2014. The index would provide ranking of listed companies based on assessment of corporate governance standards in operation. The purpose of this index is to ensure accountability and transparency while providing a sound investment climate that would boost the Nigerian capital market and maximize investor returns.

Plans are also underway to inaugurate a premium board on the floor of the NSE where companies with the highest standards of corporate governance amongst other criteria would be listed. These steps, if implemented according to plan, would definitely change the game amongst listed companies as there would be competition for improved corporate governance. Furthermore, it will enhance shareholder value and help investors to make informed decisions from an independent source rather than the companies themselves as they would usually report that the corporate governance system is sound even when it is not.

Indeed 2014 will be a year of major restructuring in the corporate governance system of the country as there is already a planned consolidation of corporate governance guidelines which would also provide penalties for infractions. Please see a previous post on this here  https://tennygee.wordpress.com/2013/08/26/the-future-of-corporate-governance-in-nigeria-an-evolution-from-principles-based-to-rules-based-approach/ Speaking from the perspective of a stakeholder, I cannot but look forward to the positive changes the capital market will witness from improved corporate governance mechanisms in the coming years. Indeed the Nigerian economy as whole stands to benefit immensely from the transformational efforts of the regulators in this regard. Please share your thoughts.   Source: The Guardian

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2 thoughts on “Nigerian Stock Exchange to introduce Corporate Governance Index for listed companies

  1. I think it is a good step but I am of the opinion that they should concentrate on the consolidation of the CG guidelines first so that the criteria for ranking on the index is clear to all and sundry. And will the “guidelines” remain guidelines or are they about to become law

    • Thank you for your comment Bolanle. I quite agree that the consolidation of the system of corporate governance in the country should be concluded before the index. I think the index would serve as a tool to ensure compliance with the new corporate governance guideline and as such it is most likely that the index would commence after the new guidelines have been rolled out.

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