Assessment of the Level of Adoption of Corporate Governance in the Financial Sector
– Assessment of the Level of Adoption of Corporate Governance in the Financial Sector –
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INTRODUCTION
Background of the Study
The concept of corporate governance has attracted a good deal of public interest in recent years, because of its apparent importance on the economic health of corporations and society in general.
Basically, corporate governance in the banking sector requires judicious and prudent management of resources and the preservation of resources (assets) of the corporate firm; ensuring ethical and professional standards and the pursuit of corporate objectives, it seeks to ensure customer satisfaction, high employee morale and the maintenance of market discipline, which strengthens and stabilizes the bank.
However, the successful banks accounted for about 93.5% and 97% of the total deposit liabilities and assets of the banking system respectively. (CBN Annual report, 2007: 26).
Before the consolidation exercise, the banking industry had 82 active banks whose overall performance led to sagging of customer’s confidence, as there was lingering distress in the industry.
The supervisory structures were inadequate, as they were cases of official recklessness amongst managers, and the industry was notorious for financial abuses.
However, in November 2005; the CBN blacklisted six officers of banks, including a chairman and a non-executive director, for unethical practices and professional misconduct.
The same year, 110 cases of fraud and forgeries totaling N1.5 billion were reported by various Banks; and fifty-six (56) of the cases amounted to N 1.38 billion, representing 91.8% of the total amount (N1.50B) {CBN annual report, 2006: 64).
Poor corporate governance was identified as one of the major factors in virtually all cases.
Globalization and Information and Communication Technology (ICT) took the world by storm and has reduced the world to a global village.
This has given rise to the continuous integration of the world economy and capital markets which has in turn given rise to an increase in the interdependence of international financial markets. As a result of this, there is increased mobility of capital across the boundaries of the globe.
Therefore, in order to ensure and sustain investors’ confidence in the capital market, the issue of corporate governance has now been brought to the front burner because that is the only way corporate financial reporting can be seen to be transparent (Garuba &Donwa, 2011).
Given this background, this study examines the efficacy of corporate governance with a view to determine its impact on firms’ performance and providing measures to enhance corporate financial performance and sound business practices.
1.2. Statement of the problem
There is no gainsaying that the present economy deserves a sound, stable, and better banking performance following the causative factors, such as unethical and unprofessional practices, poor management quality among others which contributed to the low level of bank performance and sometimes lead to failure of the bank.
The bitter experiences of the Asian financial crisis of the 1990s underscore the importance of effective corporate governance procedures to the survival of the macroeconomy.
This crisis demonstrated in no unmistakable terms that “even strong economies, lacking transparent control, responsible corporate boards and shareholder right can collapse quite quickly as investor’s confidence collapse”.
Sullivan (2000). Banks need payments system infrastructure to exchange claims securely and markets in which to hedge the risks arising from their intermediation activities.
The banking system, therefore, functions more efficiently and effectively when there is a robust and efficient payments systems infrastructure.
The few studies on bank corporate governance normally focused on a single aspect of governance, such as the role of directors or that of shareholders while omitting other factors and interactions that may be important within the governance framework.
Feasible among these few studies is the one by Adams and Mehran (2000) for a sample of US companies, where they examined the effects of board size and composition on value.
REFERENCES
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Lai, O., and Bello, S. (2012): The Concept and Practice of Corporate Governance in Nigeria Need for Public Relations and Effective Corporate Communication. Kamla-RajJ Communication, 3(1).
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