Review Of CAMA: Issues In Corporate Governance Audit Committee

By Stephen Ubimago

In a survey that was conducted in Japan in the eighties [Aoki,
(1984)] regarding perceptions of ownership and interests,
presidents of major firms, senior executives, and middle managers
were polled regarding their perceptions of ownership.

They were asked: On whose interests should corporations be run?
And to whom do corporations actually belong? The results were
unexpected and most revealing.

The number of respondents mentioning employees as those on whose
interests the firm should be run (80%) was almost as large as those
mentioning stockholders (87%). And most company presidents
indicated that the firm should belong to both groups.

On the question of whose interests were actually being served,
the most common answer was employees, with shareholders coming
second. Again, most of the presidents mentioned both groups, but a
full 20 percent indicated that shareholders’ interests did not
count in running the firm.

The above dramatic paradigm shift of perception in a world that
is becoming more and more a global village summarizes what the
concept of corporate governance is truly about.

Many people have attempted to define corporate governance but we
will work with the basic definition provided by the Organisation
for Economic Cooperation and Development (OECD). It defined it as
a: “…system by which business corporations are directed and
controlled.

The corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the
corporation such as, the board, managers, shareholders and other
stakeholders, and spells out the rules and procedure for making
decisions on corporate affairs.

By doing this, it also provides the structure through which the
company’s objectives are set and the means of attaining those
objectives and monitoring performance”

As with all definitions, the above definition is a good working
definition, but is not comprehensive enough.

It suffers from the fact that it is value neutral consequently
the definition presumes that mere mechanical compliance with the
rules satisfies the requirement for corporate governance even if
the consequence to some sets of stakeholders such as shareholders
or other public officers of the company is unfair or there is lack
of transparency in the conduct of the affairs of the company.

Not surprisingly therefore others have proposed a more value
driven definition of corporate governance.

J. Wolfensohn (1997) defined it as follows: “Corporate
governance is about promoting corporate fairness, transparency and
accountability.”

This value driven definition of corporate governance is in fact
better referred to as good corporate governance. It is not just
about compliance with rules, it is about responsibility to all
stakeholders of the company be they shareholders, staff, customers,
service providers or regulators; a responsibility to be fair,
transparent and accountable.

Why Is Good Corporate Governance Necessary?

The concept of a company or corporate entity is a legal fiction.
It is one of the forms of business associations by which under a
general law upon fulfillment of certain conditions a group of
persons are declared a corporate entity different from its
members.

In Salomon v Salomon & Co., Ltd it was held that: “The
company is at law a different person altogether from the
subscriber.”

I had cause to say the following at another forum: “This is an
important consequence of incorporation. In fact, the entire concept
of registered company or Joint Stock Company was based on the
desire to separate the company from its owners and give the owners
limited liability. It was felt that people will thereby be
encouraged to undertake business risks knowing that their liability
is limited and this will result in prosperity.

Unfortunately, many people have taken advantage of this
consequence of incorporation to commit fraud. The history of
company law has been simply a struggle between encouraging business
activities and preventing fraud.”

It follows that the concept of good corporate governance is a
way or system of ensuring that the fiction of separate corporate
entity continues to provide a vehicle for investors to undertake
business risk and create wealth and economic development without
perpetrating fraud or other forms of abuse on the investors and the
general public.

The corporate and accounting scandals of Enron, Tyco
International, Peregrine Systems and Worldcom in the United States
between the year 2000 and 2002 and the failure of major companies
around the world like recent Parmalat bankruptcy in Italy in 2004
has brought home need to go behind mere structures in corporate
governance to content of financial reporting as well as value
content output of those structures.

In reaction to the decline of public trust in accounting and
reporting practices, the US enacted the Sarbanes-Oxley Act of 2002
(also known as the Public Company Accounting Reform and Investor
Protection Act of 2002 and commonly called SOX or Sarbox) which
imposed stricter regulation on governance.

Hopefully we would have time to do a comparison of the US law
and the provisions of our law so as to determine where we are and
where we need to be. Suffice to say that in Nigeria we have had our
fair share of corporate governance failures.

Some of them include the AP Plc accounting scandal that led to
AP Commission of Enquiry, The Bokanlans Share scandal and the
recent Cadbury Plc Audit scandal which is currently subject of SEC
APC proceedings with litigation spin off.

Review Of Regulatory Provisions On Corporate
Governance

The Nigerian statutory framework on corporate governance is
expectedly multifaceted and is being continually beefed up.

The basic law on corporate governance in Nigeria is the
Companies and Allied Matters Act 1990 (CAMA). This law which
provides for the formation of corporate entities in the first
place, also sets the time and structures for corporate governance.
It provides that every corporate entity must have a Memorandum and
Articles of Association which is the Constitution. (See section 35
of CAMA).

This is the document setting up the structures of governance of
the entity. The document is also regarded as a contract between the
members of the company (See section 41 of CAMA) and the cases of
Hickman v Kent or Romney Mars Sheep Breeders Association (1915) 1
Ch. 1881, 113 L.T. 159; AG Lagos state v Eko Hotels Ltd (2001) FWLR
Pt 82, 1996 and obikoya v Ezenwa (1964) 2ANLR, 133).

Chief Anthony Idigbe (SAN), Senior Partner at Punuka Attorneys
and Solicitors, delivered this as paper at the Nigerian Accounting
Standards Board 4th Annual Corporate Financial Reporting Summit in
Lagos…

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