20 Jun Providing Governance When It Matters Most
Corporate folklore is replete with stories of iconic Chairmen/ CEOs whose egos provided their compass, readily overriding common sense and decisions for the common good. Eventually, in most of the cases, such leaders eventually rode their organizations into oblivion, leaving psychological and emotional distress well beyond imagination.
Picture this scenario… the no nonsense CEO walks into the board meeting with the air of a man known for his business prowess. Within thirty minutes, the meeting focuses on discussing the company’s financials. The CEO takes exception to the line of questioning, leans forcefully across the table, threatening to resign if his services are no longer required. Everyone is stunned… The chairman recognizing the looming precipice that the discussions have careened towards puts on his most mellifluous voice in attempt to broach peace and restore rapprochement. The CEO leans back in his chair, recognizing that he has won a crucial psychological battle… However in less than 18 months, word has it, that the company is a shell of its former self… a management memo traced to a week before that fateful meeting had highlighted subtle financial distresses which no one had had the gumption to act on – that is when it would have truly mattered….
This story is not unusual but quite typical of organizations with huge failings in corporate governance. The need for proper checks on executive discretion is critical for the proper governance of any business enterprise. Though Nigeria practices the unitary board system; the two tier board system remains quite common in parts of Europe thus ensuring a clear distinction between management and its supervision. In Nigeria proper advantage must taken of the use of Independent directors and Independent Audit committees – amongst other similar checks in this regard.
Evidence from a Global Investor Opinion Survey conducted by McKinsey & Co. found that over 75% of investors are prepared to pay a premium for the stock of companies exhibiting high governance standards. Premiums average 12-14% for companies in North America and Western Europe, 20-25% in Asia and Latin America, and over 30% in Eastern Europe and Africa. This, to my mind, appears to be a glaring competitive strategy that few companies in Nigeria seem to be deliberately pursuing – if at all.