In today’s business world, sound corporate governance system has become a strong determinant of companies’ economic fortune, operational sustainability and longevity. Globally, corporate governance has acquired a defining role in raising capital especially listed entities and in the pricing of shares of companies. This stems from the fact that companies with high standard of corporate governance are more attractive to investors than those with struggling corporate governance.
Intrinsic to a well-functioning corporate governance system is transparency. The causes of most corporate failures and scandals have, amongst others, been traced to lack of or poor transparency in the operations of these corporates. The focus of transparency, as an essential element of governance, includes disclosures and communication to stakeholders. The importance of transparency in governance has been aptly illustrated in the Cadbury Report, 1992 that: “The lifeblood of markets is information and barriers to the flow of relevant information represent imperfections in the market… The more the activities are transparent, the more accurately will their securities be valued”.
Typically, shareholders are entitled to minimum mandated disclosures, such as financial information in the profit and loss account, balance sheet, auditor’s report and other mandatory disclosures. A gold-standard corporate governance system however transcends the disclosure of the minimum mandated information. It includes also voluntary disclosure of information that is not mandated by the law to shareholders and other stakeholders. Such voluntary disclosures include environmental and social initiatives, management forecasts and those placed on companies’ websites for wide accessibility by the public.
The reason why companies need to engage in voluntary disclosure of information is not far- fetched. In recent times, other stakeholders comprising the creditor groups, employee groups, consumers/clients group, supplier groups, government and the public with no direct financial investments in companies have become keenly interested in the management and operations of companies. They are increasingly interested in the company’s financial, social, environmental and ethical information in order to be fully informed and make critical decisions along their interests in the company.
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For instance, the investor requires the information, especially those on finance, social and environment to make investment decisions. The employee sees himself/herself as an integral structure of the company and requires the information for his or her job satisfaction and fulfilment whilst the consumer wants necessary information to allocate his/ her spending wisely, to know where and how products are made so they are satisfied their resources are not funding child labour or modernday slavery.
Needless to emphasise, directors must therefore ensure that their company is transparent in its operations by disclosing information that are material to all stakeholders. Directors must put in place a system that allows for a high level of financial transparency which would facilitate disclosure and reporting of financial information to all stakeholders. Financial transparency in governance eliminates or reduces the chances of the board pursuing their self-interest at the expense of the company and other stakeholders. Rather, it helps the directors and management to dedicate attention to increasing shareholder’s value and attracting investments into the company.
In ensuring financial transparency, directors should ascertain that the financial statements disclose and report the financial, operational, political and economic risks a company faces. This would give stakeholders interested in the company a full view of the financial position of the company and its ability to meet its future obligations. Disclosing and reporting information on the appointment of directors, competence of directors, frequency of board meetings, remuneration packages, decision making processes and procedures to stakeholders are crucial to governance transparency. This helps to increase investors’ confidence in a company and the overall value of a company.
The burden is on the directors to ensure that all disclosures, communication and reporting are accurate. Most corporate scandals were caused or aggravated by transparency related issues especially inaccurate disclosures in the financial position of the company. Sound corporate transparency also requires that the disclosures must also be easily understood, clear and unambiguous to stakeholders, especially equity owners.
The various Codes of Corporate Governance in Nigeria, especially that of the Financial Reporting Council of Nigeria (FRCN), Securities and Exchange Commission ( SEC), Nigerian Communication Commission, Central Bank of Nigeria (CBN) and the National Insurance Commission all emphasise the importance of corporate transparency. The FRCN Code encourages companies to communicate and interact with stakeholders so as to keep them conversant with the activities of the company and further assist them in making informed decisions. Communication with stakeholders should be timely, accurate, clear, easily understood and posted on the Company’s website.
The Codes, particularly, those released by SEC and CBN encourage companies to engage in increased disclosure beyond statutory requirements. The Codes require full and comprehensive disclosure of all matters material to stakeholders. These include a requirement that the Annual Report of the applicable company must include a corporate governance report that provides clear information on the company’s governance structures, policies and practices, related party relationships and transactions, environmental, social and governance initiatives.
Whilst directors are likely to be sceptical about being excessively transparent by disclosing and communicating information, good and bad, beyond those mandated by law because of the possible criticisms that may attend such disclosure, such scepticism should be discounted given the huge cumulative benefits transparent behaviours confer on the company. Finally, in this age of disruptive technology where a leak of information could have devastating effect on a company, directors have no choice but to ensure that their companies are transparent.
The last fifteen years from 2004 to date, has seen the pension industry grow from negative position to about N10 trillion in assets as the end of October, a significant landmark that makes it’s the highest in accumulation of investible funds in the entire financial services industry.
Now, the biggest challenge confronting the pension industry operators is how to sustain this growth, and perhaps double it in the next fifteen years to N20 trillion, amidst dropping growth in economy, other factors.
Wale Odutola, head, Brand Committee of the Pension Fund Operators of Nigeria (Penop) and managing director/ceo, ARM Pensions Limited reviewing the state of the industry at the groups 2019 Media Retreat in Lagos said “We have had fifteen decent years within the pension space, which has enabled us to pull assets now to almost N10 trillion”.
Odutola noted that the industry was growing at 20 percent in the first 10 years of the operation of the Contributory Pensions Scheme (CPS), nothing that this has continued to drop over a while now.
He raised concern over sustainability of the growth to be able to double the value of assets in the next 15 years.
According to him, the concern is the fact that the micro pensions scheme which should drive uptake is not compulsory, but voluntary in an environment where saving culture is poor, which means a lot needs to be done.
Another concern Odutola raised was the issue of falling spending power of Nigerian’s, drop in employment among other factors.
Ronke Adedeji, president of Penop and managing director/ceo, Leadway Pensure Limited in her own comment said that the CPS so far has been successful to the extent that it has been able to accumulate savings, invested them successfully, such that people who retired are able to get their pensions as and when due.
Adedeji stated further that the challenge is the slowing growth of the scheme, which peaked earlier but now dropping.
