In a report in Business Insider of India, Amy Cuddy, a professor at Harvard Business School has published a report based on first impressions. In the study she conducted over 15 years with two colleagues, she discovered patterns in interpersonal interactions. In her new book Presence, published last December, Cuddy says people quickly answer two questions when they first meet you: Can I trust this person? Can I respect this person? Psychologists refer to these dimensions as warmth and competence, and ideally we all want to be perceived as having both.
Interestingly, Cuddy observed that most people, especially in a professional context, believe that competence is the more important factor because they want to prove that they are talented enough to handle your business. But, in fact, she says, warmth or trustworthiness is the most important factor in how people evaluate you. Cuddy gives her reason: “it is more crucial to our survival to know whether a person deserves our trust.” For example, she says, it makes sense when you consider that in cavemen days it was more important to figure out if your fellow man was going to murder you and steal all your possessions than if he was competent enough to build a good fire.
Apply this to corporate organizations and it matches perfectly. When Stakeholders deal with corporate organizations they are looking for answers to those two questions about trust and competence. And in the corporate world this realization —that corporations need to comply to set of codes and framework that will guarantee trustworthiness and competence — came in the hard way. It came in the wake of the collapse of corporations like Enron and WorldCom in the early 2000s and the global financial meltdown of the 2008, which were all attributed to enforceable frameworks that guide how corporations are governed. And since then measures in the form of codes have been issued to corporations by the regulators all in an efforts to address the quest for trust and competence in the way corporate organizations are governed. Those measures are today enshrined in the mantra called good Corporate Governance not only in Nigeria but across the world.
A more recent example as contained in the NDIC 2014 Annual Report is that total loans and advances granted by banks across the country climbed from ₦10.04trillion in 2013 to ₦12.63trillion in 2014. The report was, however, quick to point that despite significant improvement in banking industry’s asset quality, the volume of non-performing loans rose from ₦321.66billion in 2013 to ₦354.84bn in 2014. But it allays any fears that the ratio of the bad debts to total loans is within the regulatory threshold of 5percent. Thanks to the constant vigilance of the Corporation in recent times “all the DMBs in the industry had liquidity ratios in excess of the minimum prudential requirement of 30 per cent, as at 31st December 2014, indicating that all DMBs were sufficiently liquid,” the report disclosed.
So what is corporate governance? It is variously defined as both the processes and structures by which the business and affairs of an organization are directed and managed in order to improve long-term shareholder values by enhancing corporate performance and accountability, while taking into account the interests of other stakeholders.
Good corporate governance seeks to address several issues all dealing with the governance of an organization from the responsibilities of its board to its composition and from the board’s structure to issues to do with risk management, financial disclosure and audit committees, etc.
In Nigeria, the foremost formal corporate governance code could be traced to the Code of Corporate Governance for Banks and Other Financial Institutions in Nigeria which was issued by the Bankers’ Committee in August 2003. This Code was the outcome of the work of the Bankers’ Committee’s Sub-Committee on Corporate Governance. It was initiated in response to the financial crises in Nigeria in the early 1990s and in the realization that poor corporate governance was one of the major factors in virtually all known instances of financial sector distress in the country.
But because it was not issued by a regulator — having been issued by a voluntary association of the Chief Executives of the banks in Nigeria, otherwise known as Bankers’ Committee — not much is known about the Code. However, today there a number of regulatory bodies issuing corporate governance codes to organizations in the sphere of influence. They include: Corporate Affairs Commission (CAC), the Central Bank of Nigeria (CBN), the Security Exchange Commission (SEC) and Fiscal Responsibility Commission (FRC).
It is the mandate of these regulatory bodies not only to issue the codes but to ensure compliance. In line with this oversight function, we saw how recently Fiscal Responsibility Commission had cause to commend the Nigeria Deposit Insurance Corporation (NDIC) for its compliance with good corporate governance.
Following the submission of its 2014 External Audit report of its financial statements and annual report to the Fiscal Responsibility Commission (FRC), the Commission reviewed the report and gave the Nigeria Deposit Insurance Corporation (NDIC) high commendation for prompt remittance of sum due to the Consolidated Revenue Account of the Federation in line with the provision of the extant law applicable in Section 21 – 23 of the Fiscal Responsibility Act (FRA) 2007 especially the submission of Audited Financial Statements and payment of 80% of its operating surplus to the Federal Government of Nigeria.
Remarkably, the Financial Reporting Council (FRC) had examined the NDIC’s 2014 Annual submission of Audited Financial Statements and Report where it was declared that the Corporation was managed in line with sound corporate governance with its complete and well above average compliance with the sections of the Fiscal Responsibility Act (FRA) 2007. It further commended the Corporation for compliance with all applicable guidelines on the establishment of a General Reserve Fund (GRF) wherein 20% of its operating surplus is retained in accordance with the provisions of section 21(1) of FRA 2007.
Part of the commendation read as follows: “It is quite commendable that NDIC is one of the few Corporations that have fully adopted IFRS which has greatly improved financial reporting of the activities of the agency.”
It went further to reiterate that “The accounts were generally of high standard and depict compliance with the international best practice. The Corporation’s record keeping is commendable while the integrity of its Financial Reporting is enhanced with the adoption of International Financial Reporting Standards (IFRS)”
The report also declared that the NDIC has also been consistent with the payment of 25% of Gross Revenue to Consolidated Revenue Account of the Federation in line with the Federal Minister of Finance circular to all affected agency of Federal Government of Nigeria (FGN). The FRC reported noted with satisfaction that the contribution of the NDIC has undoubtedly increased the revenue base of the FGN. The FRC report also enjoined the Management to continue to consolidate on its laudable achievements in compliance with section 23(3) of FRA 2007 and in pursuit of high standard in terms of financial discipline, governance.
Such exemplary compliance with good corporate governance by bodies like NDIC that also regulate deposit taking banks will go a long way in assuring its stakeholders that Corporation is both trustworthy and respectful or, to borrow Cuddy’s terms, it is evidence of both warmth and competence. Every stakeholder will feel safe dealing with NDIC.
Needless to say that the banking business, which NDIC regulates to large extent, is based on trust and public confidence and, as such, it is important to enthrone good corporate governance practices in the industry; for, as the saying goes, charity always begins at home.
Thus, effective corporate governance practices are essential in achieving and maintaining public trust and confidence in the banking sector. This is even more so because of its role in the mobilization of funds, the advancing of credits to the various sectors of the economy, the payment and settlement system, and the implementation of monetary and insurance policies.
Ensuring compliance with corporate governance is the surest way to winning the war on corruption, which the federal government has embarked upon, as a matter of national priority, to attract foreign direct investment.
If we are to meet the challenge of diversification of our foreign exchange earning sources, there couldn’t be a more urgent imperative.
Hassan is a financial analyst based in Abuja