Nigerian Bank Nigeria CBN Central Bank Of Nigeria – Code Of Corporate Governance – Wake Up Call For Insurance Industry

Source allAfrica.com: Leo Aligwo, 12 January 2010.

The concept of corporate governance is primarily concerned with the process of Customs, policies, system, laws and procedures that govern institutions and the manner these rules and regulations are applied and controlled.

According to the Organisation for Economic Cooperation and Development (OECD), Corporate Governance structure specifies the distribution of rights and responsibilities among different participants in the corporation such as the shareholders, boards, managers and other stakeholders and also spells out the rules and procedures for making decisions on corporate affairs.

Corporate Governance includes corporate discipline, transparency, independence, accountability, fairness and social responsibility. Timely and accurate disclosure of all material matters regarding a company, including the financial situation, performance, ownership and governance arrangements.
It also include compliance with Legal and regulatory requirements. The Corporate governance framework recognizes and protects rights of all interested parties.

The experts succinctly put it thus, “since ownership has entrusted the power o decision making to the Board of Directors, Corporate Governance therefore deals with the structures and persons duly appointed by the owners to direct and manage the business; in such a manner that the company operates profitably within the framework of the enabling rules under which it was incorporated and ensure enhanced shareholders value.

It is pertinent to trace the evolution of corporate governance in the western nations, to the collapse of the Bank of Credit and Commerce International (BCCI) in 1991 facilitated by BCCI, boards and customers involved fraudulent unethical practices through money laundering and support terrorism.

The development compelled the United States of America (USA) Government in 2002 to enact the Sahanese-Osley Act with the intention of cleaning-up corporate behaviours after Enron scandal. In fact Enron saga was sustained substantially by institutionalized, systemic and creatively planned accounting fraud. The unexpected collapse of Enron evoked questions from the concerned publics including the press because it was viewed as a company too big to fail. One unavoidable and mind bugging question raised by the stakeholders and financial experts was; “how could this have happened?” Interestingly, the saga led to the conviction of the Auditor, Arthur Anderson for felony.

The Worldcom Telecommunication firm stunned the business world with its disclosure that it had initiated its reported profits by $9 billion during the previous three years. It subsequently went into bankruptcy thereafter.

Similarly in Canada following the dissatisfaction among Canadian investors and other interested parties with regard to the performance of Board of Directors, the Dey report in 1994 was actually tagged “where are the Directors?” report.

At the home front, the development of corporate governance started in the early 1990’s following the collapse of some banks.

Mr. Sam Ordu is the National Insurance Commission (NAICOM) Director in charge of Finance and Accounts. Speaking at an interactive workshop organized for Insurance Correspondents in the last quarter of 2009 in Benin, capital of Edo State, he pointed out that the collapse of the banks were largely attributed to poor corporate governance practices and insiders-related credit, weak internal controls, inadequate disclosure of material facts.

Other contributory factors include, concentration of ownership and control on few individuals, ineffective conflict of interest, lack of accountability, passive shareholders, differences between the board and management giving rise to board squabbles and most importantly, failure of board and management in their responsibilities.

The Central Bank Governor, Mallam Lamido Sanusi had at the heat of the banking industry crisis affirmed that, “there is no one single factor that contributes to institutional problems than the lack of effective corporate governance.” Sanusi made it clear to the stock brokers and investors in the capital market that the absence of code of corporate governance was responsible for the crisis in the banking industry.

The code of corporate governance introduced for the financial institutions in Nigeria, effective March 31, 2009 aids the capital market growth by promoting capital formulation and boom in sales of shares of the various companies quoted on the floor of Nigerian stock exchange.

It is crystal clear that with good risk assessments and management as well as sound corporate governance practices insurance, banks and other financial institutions could weather any unexpected financial storm and make profit.

The case of AIG in the US is a dramatic example of what happens in the absence of supervisory cooperation and lack of corporate governance in periods of acute financial crisis. Apparently, AIG being the largest insurer in the world was badly hit in its derivatives arm as it had to receive bail out sums running into billions of dollars from the American government.

Insurance companies could in particular be subjected to major market developments and less liquidity and credit risks, even if the crisis had shown that they are not immuned to these risks either.

Contributing, the immediate past president of the Nigerian Council of Registered Brokers (NCRIB), Dr. Dede Ijere said the introduction of code of corporate governance for insurance industry and other financial institutions in Nigeria was good and welcome development. He charged insurance practitioners and other stakeholders in the insurance business to adhere strictly to it as it would guide them in the effective running of their respective firms and the industry as a whole. Dr. Ijere said the legal frame work would also tremendously assist in controlling fraudulent practices in the insurance industry.

However, findings by Champion Insurance indicated that the insurance institutions are now strictly adhering to the code of corporate governance introduce by NAICOM to avoid being caught by the law.

Some insurance practitioners who would not want to be quoted were of the view that there would be increased positive professional activities and progress in the insurance sub-sector in 2010 if the operators and regulators conduct their business under the laid down rules and regulations especially the code of corporate governance.

Said one female insurance practitioner, on the condition of anonymity, “What happened in the banking sector is an eye opener. Everybody is serious with his or her work because people do not want to be arraigned before the EFCC or sanctioned by NAICOM over minor issues. We are implementing the code of corporate governance to the latter.”

Financial experts are of the opinion that there is no one model of corporate governance that could apply across a broad range of legal, political and economic environment.

Among the core relevant set of principles of corporate governance practices articulated by OECD include fairness, transparency, accountability and responsibility.Other principles of good corporate governance include, proactive, responsible, accountable and committed board and management, ensuring proper basis for an effective corporate governance frame work which should promote transparency and efficient market consistent with rule of law, responsive and responsible shareholders, the rights of shareholders and key ownership functions that facilitates and protect shareholders rights.

Also listed are factors such as equitable treatment of shareholders, ensuring right of other stakeholders in creating wealth and sound enterprise, good knowledge about the business with requisite expertise and responsibilities of the board to ensure strategic guidance of the company.

NAICOM director of finance, Mr. Ordu further explained that generally, the quality of a company’s governance could affect its ability both to honour financial obligation and to maximize value of equity distribution to shareholders.

Nigerian Bank Nigeria CBN Central Bank Of Nigeria