According to the CBN Corporate Governance Code, corporate
governance refers to the processes and structures by which the business and
affairs of an institution are directed and managed, in order to improve long
term shareholder value by enhancing corporate performance and accountability,
while taking into account the interest of other stakeholders. Corporate
governance is therefore about building credibility, ensuring transparency and
accountability as well as maintaining an effective channel of information
disclosure that would foster good corporate performance.
The Code of Corporate Governance for Banks and
Other Financial Institutions in Nigeria is explicit in its recommendations on
best practice, including constituting an effective board and identifying the
principal responsibilities of the Board, remuneration of directors, Board
performance assessment and the Audit Committee. The Code also considers factors
relevant to depositor and investor confidence given the importance of these
stakeholders to the stability of the financial sector.
Highlights of the Principles in the Code of
Corporate Governance for Banks and Other Financial Institutions include:
Principle
One: The
Board should exercise responsibility, leadership, enterprise, integrity and judgment
in directing the institution so as to achieve continuing prosperity for the
institution and act in its best interest, in a manner based on transparency,
accountability and equity. Every institution should be headed by an effective
Board that can lead and control the institution.
Principle
Two: The
Board should include a balance of executive and non-executive directors
(including independent non- executives) such that no individual or group of
individuals can dominate the Board’s decision-making process.
Principle
Three: There should
be a clear division of responsibilities at the head of the institution-the
running of the Board and the management of the institution's business- which
will ensure a balance of power and authority, such that no one individual has
unfettered powers of decision making.
Principle
Four: There
should be a formal and transparent procedure for the appointment of new
directors to the Board.
Principle
Five: The
Board should meet regularly and Board members should attend meetings regularly.
Principle
Six (a):
Institutions should establish
a formal and transparent procedure for developing
policies on executive remuneration and for fixing the remuneration packages of individual
directors. No director should be involved in approving his or her own
remuneration.
Principle
Six (b): Levels of remuneration should be sufficient
to attract and retain the directors needed to run the company successfully, but
institutions should avoid paying more than is necessary for this purpose. A
proportion of executive directors’ remuneration should be structured so as to
link rewards to corporate and individual performance.
Principle
Six (c): The
institution's Annual Report should contain a statement on the remuneration
policy.
Principle
Seven: There
should be a formal assessment of the effectiveness of the Board as a whole and
the contribution by each individual director (including the Chairman) to the
effectiveness of the Board.
Principle
Eight: The Board must identify key risk areas and
key performance indicators of the business enterprise and monitor these
factors.
Principle
Nine: There
should be a degree of accountability of directors to shareholders and other
stakeholders of the institution and of the Management to the directors.
Principle
Ten: The
Board should serve the genuine interests of the shareholders of the institution
and account to them fully.
Principle
Eleven: The
Board should establish formal and transparent arrangements for considering how
they should apply the financial reporting and internal control principles and
for maintaining an appropriate relationship with the institution's auditors.
Poor corporate governance has been identified as one of the major factors in
virtually all known instances of
financial sector distress. It is therefore crucial that financial institutions observe a strong corporate governance ethos.
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It
should be emphasised that good corporate governance rests ultimately with the
Board of Directors. In identifying that
good corporate governance hinges on Board competence and integrity, it should
be realised that standards of probity and fiduciary responsibility in the wider
business environment are equally critical.
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