Nigeria, our beloved mother country, houses millions and billions of commodity and finance-making institutions and organizations, which in their different capacities, altogether make up the country’s capital market. These institutions, regardless of their sizes, have factors affecting their efficiency, either militating against or in favour of their development. The majority of these factors can be summed up as “CORPORATE GOVERNANCE.” Corporate governance is the broad term has to do with the manner in which right and responsibility are shared amongst owners, managers and shareholders of a given institution. Good corporate governance is the rules and practices, norms and values that govern the relationship within the managers and shareholders of corporations, as well as stakeholders such as employees and creditors, which contribute to growth and financial stability by underpinning market confidence, financial market integrity and economic efficiency.
Taking a closer look at the significance of corporate governance and its unavoidable positive impact on development on the Nigerian Capital Market, we cannot help but applaud the numerous ripple effects on quality financial decisions of our capital structures. These advantages include: infusion of better management practices; effective control and accounting systems; stringent monitoring; effective regulatory mechanism; efficient utilization of firms’ resources resulting in improved performance if it is properly and efficiently practised attraction of a good deal of public interest since corporate governance is a tool for socio-economic development; proper and efficient practice in the administration of business entities; reduction in the incidence of corporate failures, poor internal control system, poor corporate structure, indiscipline both on the part of managers and workers and promotion of transparency and accountability. Once corporate governance is employed, all these advantages which promote capital market development are inherent. In essence, any business firm imbibing corporate governance in its modus operandi, is bound to excel ,all things being equal.
Explaining further, the overall activities in such organization will be managed efficiently, alongside the financial and accounting systems being properly and accurately documented, thus, allowing room for no loophole. The monitoring systems are standby, checking out for any slightest error or mismanagement and meting out the agreed/documented punishments on offenders. This serves as a warning for onlookers and other employees who might have the prospect of going against the organization’s etiquettes, in mind. Interestingly, corporate governance forbids embezzlement, in the sense that it gives accurate account of the firm’s resources, budgets and expenditures at any point in time, thus, squeezing out theft or mismanagement of fund in its totality. Investors from far and near are attracted to have business dealings with such firms, thereby yielding much more funds. There also arises a very relaxed working environment between the management and workers, where mutual interaction and friendliness exist, all for the development of the organization. Transparency and accountability are the watchwords of and added advantages to suchlike firms. Beneficially, they do not suffer poor administration and failure. Rather, they maintain a solid business corporate structure. Corporate governance, additionally, helps companies to gain easier access to credit at lower cost since they are able to repay their debt on time.
Contrastingly, a financial firm, or the capital market in a broader sense, without corporate governance can be likened to a building without a firm foundation rooted in the earth, or a human being without a strong skeletal system. In essence, there are inherent adverse effects associated with not imbibing corporate governance in the operational system of any capital market. According to the Nigerian Stock Exchange(NSE) recent study of some firms(2000-2009), it was found out that the recent collapse of major corporate institutions in the USA, South East Asia, Europe and Nigeria, for example: Adelphia, Enron and World Com; using the Panel Data Methodology method was because of the non-existence of corporate governance. It was hereby, noticed that some results of the non-existence of corporate governance include: posing a big risk to the establishment itself, pulling down of capital market, posing a threat to the whole economy and not being able to attain the macro-economic objectives of the firm and country at large. In real sense, the three (3) main capital structures are: use of retained earnings, borrows through debt instruments or issue of new shares (equity), while their relevant capital structure determinants are: board size, board skill and CEO duality. Moreover, tested and effective corporate governance mechanisms include: board size, board composition, chief executive status and audit committee.
In conclusion, the Nigerian capital market like other markets around the world are faced with another rare opportunity to shape a better future in a way to be more accountable, more transparent, promote good corporate governance on a scope and scale unprecedented in our history.
To a very large degree, our sustainable future success will depend on how well we are able to learn from the mistakes made resulting in the capital market crisis in particular and the economic downturn in general. For the most part, we know what needs to be done and we know how to do it. The write-up has made them known to us. Thus, face the following critical choices:
First, whether or not we have the discipline to avoid the mistakes of the past?
Second, whether or not we have the vision to adopt and stick to policies that will produce the optimal results going forward?Third, whether or not we have the patience to stay the course?
Fourth, whether or not we have the courage to enforce our laws, rules and regulations against those who would undermine transparency, accountability, good corporate governance and rule of law?
I, for one am optimistic that the answers to all these questions can be in the affirmative. For that reason, I also believe that a more transparent, accountable, effective and coordinated vision by regulators, and good corporate governance in our capital market is within reach.