CORPORATE GOVERNANCE AND BUSINESS ETHICS

Good corporate governance can benefit investors and other stakeholders, while bad governance can
lead to scandal and ruin.

Corporate governance is the system of rules, practices, and processes by which a company is directed
and controlled. Corporate governance essentially involves balancing the interests of a company's many
stakeholders, which can include shareholders, senior management, customers, suppliers, lenders, the
government, and the community. As such, corporate governance encompasses practically every sphere
of management, from action plans and internal controls to performance measurement and corporate
disclosure.

Governance refers to the set of rules, controls, policies, and resolutions put in place to direct corporate
behavior. A board of directors is pivotal in governance, while proxy advisors and shareholders are
important stakeholders who can affect governance.

Communicating a company's corporate governance is a key component of community and investor

relations. Most successful companies strive to have exemplary corporate governance. For many
shareholders, it is not enough for a company to be profitable; it also must demonstrate good corporate
citizenship through environmental awareness, ethical behavior, and other sound corporate governance
practices.

Benefits of Corporate Governance

1. Good corporate governance creates transparent rules and controls, guides leadership, and aligns the
interests of shareholders, directors, management, and employees.

2. It helps build trust with investors, the community, and public officials.

3. Corporate governance can give investors and stakeholders a clear idea of a company's direction and
business integrity.

4. It promotes long-term financial viability, opportunity, and returns.

5. It can facilitate the raising of capital.

6. Good corporate governance can translate to rising share prices.

7. It can reduce the potential for financial loss, waste, risks, and corruption.

8.It is a game plan for resilience and long-term success.

The Principles of Corporate Governance:-

While there can be as many principles as a company believes make sense, some of the most common
ones are:

Fairness: The board of directors must treat shareholders, employees, vendors, and communities fairly
and with equal consideration.

Transparency: The board should provide timely, accurate, and clear information about such things as
financial performance, conflicts of interest, and risks to shareholders and other stakeholders.

Risk Management: The board and management must determine risks of all kinds and how best to
control them. They must act on those recommendations to manage risks and inform all relevant parties
about the existence and status of risks.

Responsibility: The board is responsible for the oversight of corporate matters and management
activities. It must be aware of and support the successful, ongoing performance of the company. Part of
its responsibility is to recruit and hire a chief executive officer (CEO). It must act in the best interests of a
company and its investors.

Accountability: The board must explain the purpose of a company's activities and the results of its
conduct. It and company leadership are accountable for the assessment of a company's capacity,
potential, and performance. It must communicate issues of importance to shareholders.

What Are the 4 Ps of Corporate Governance?

The four P's of corporate governance are people, process, performance, and purpose.

Why Is Corporate Governance Important?

Corporate governance is important because it creates a system of rules and practices that determines
how a company operates and how it aligns with the interest of all its stakeholders. Good corporate
governance fosters ethical business practices, which lead to financial viability.

What Is Business Ethics?

Business ethics is the moral principles, policies, and values that govern the way companies and
individuals engage in business activity. It goes beyond legal requirements to establish a code of conduct
that drives employee behavior at all levels and helps build trust between a business and its customers.

Business ethics ensure that a certain basic level of trust exists between consumers and various forms of
market participants with businesses. For example, a portfolio manager must give the same consideration
to the portfolios of family members and small individual investors as they do to wealthier clients. These
kinds of practices ensure the public receives fair treatment.

Business ethics ensure a certain level of trust between consumers and corporations, guaranteeing the
public fair and equal treatment.

The concept of business ethics began in the 1960s as corporations became more aware of a rising
consumer-based society that showed concerns regarding the environment, social causes, and corporate
responsibility. The increased focus on "social issues" was a hallmark of the decade.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behavior and how a lack
of these moral principles contributes to the downfall of many otherwise intelligent, talented people and
the businesses they represent.

There are generally 12 business ethics principles:

Leadership: The conscious effort to adopt, integrate, and emulate the other 11 principles to guide
decisions and behavior in all aspects of professional and personal life.

Accountability: Holding yourself and others responsible for their actions. Commitment to following
ethical practices and ensuring others follow ethics guidelines.

Integrity: Incorporates other principles—honesty, trustworthiness, and reliability. Someone with

integrity consistently does the right thing and strives to hold themselves to a higher standard.

Respect for others: To foster ethical behavior and environments in the workplace, respecting others is a
critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.

Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths, omissions, and under or
overstating don't help a business improve its performance. Bad news should be communicated and
received in the same manner as good news so that solutions can be developed.

Respect for laws: Ethical leadership should include enforcing all local, state, and federal laws. If there is a
legal grey area, leaders should err on the side of legality rather than exploiting a gap.

Responsibility: Promote ownership within an organization, allow employees to be responsible for their
work, and be accountable for yours.

Transparency: Stakeholders are people with an interest in a business, such as shareholders, employees,
the community a firm operates in, and the family members of the employees. Without divulging trade
secrets, companies should ensure information about their financials, price changes, hiring and firing
practices, wages and salaries, and promotions are available to those interested in the business's success.

Compassion: Employees, the community surrounding a business, business partners, and customers
should all be treated with concern for their well-being.

Fairness: Everyone should have the same opportunities and be treated the same. If a practice or
behavior would make you feel uncomfortable or place personal or corporate benefit in front of equality,
common courtesy, and respect, it is likely not fair.

Loyalty: Leadership should demonstrate confidentially and commitment to their employees and the
company. Inspiring loyalty in employees and management ensures that they are committed to best
practices.

Environmental concern: In a world where resources are limited, ecosystems have been damaged by past
practices, and the climate is changing, it is of utmost importance to be aware of and concerned about
the environmental impacts a business has.

Why Is Business Ethics Important?

There are several reasons business ethics are essential for success in modern business. Most
importantly, defined ethics programs establish a code of conduct that drives employee behavior—from
executives to middle management to the newest and youngest employees. When all employees make
ethical decisions, the company establishes a reputation for ethical behavior. Its reputation grows, and it
begins to experience the benefits a moral establishment reaps:

Brand recognition and growth

Increased ability to negotiate

Increased trust in products and services

Customer retention and growth

Attracts talent

Attracts investors.

How to Implement Good Business Ethics:-

Fostering an environment of ethical behavior and decision-making takes time and effort—it always
starts at the top. Most companies need to create a code of conduct/ethics, guiding principles, reporting
procedures, and training programs to enforce ethical behavior.

Once conduct is defined and programs implemented, continuous communication with employees
becomes vital. Leaders should constantly encourage employees to report concern behavior—
additionally, there should be assurances that if whistle-blowers will not face adversarial actions.

Corporate Governance and the Board of Directors:-

The board of directors is the primary direct stakeholder influencing corporate governance. Directors are
elected by shareholders or appointed by other board members and charged with representing the
interests of the company's shareholders.

The board is tasked with making important decisions, such as corporate officer appointments, executive
compensation, and dividend policy. In some instances, board obligations stretch beyond financial
optimization, as when shareholder resolutions call for certain social or environmental concerns to be
prioritized.

Boards are often made up of a mix of insiders and independent members. Insiders are generally major
shareholders, founders, and executives. Independent directors do not share the ties that insiders have.
They are typically chosen for their experience managing or directing other large companies.
Independents are considered helpful for governance because they dilute the concentration of power
and help align shareholder interests with those of the insiders.

The board of directors must ensure that the company's corporate governance policies incorporate
corporate strategy, risk management, accountability, transparency, and ethical business practices.

A board of directors should consist of a diverse group of individuals, including those with matching
business knowledge and skills, and others who can bring a fresh perspective from outside the company
and industry.

Corporate Governance Models:-

Different corporate governance models may be found throughout the world. Here are a few of them.
1. The Anglo-American Model

This model can take various forms, such as the Shareholder, Stewardship, and Political Models. The
Shareholder Model is the principal model at present.

The Shareholder Model is designed so that the board of directors and shareholders are in control.
Stakeholders such as vendors and employees, though acknowledged, lack control.

Management is tasked with running the company in a way that maximizes shareholder interest.
Importantly, proper incentives should be made available to align management behavior with the goals
of shareholders/owners.

The model accounts for the fact that shareholders provide the company with funds and may withdraw
that support if dissatisfied. This is supposed to keep management working effectively.

The board will usually consist of both insiders and independent members. Although traditionally, the
board chairperson and the CEO can be the same, this model seeks to have two different people hold
those roles.

The success of this corporate governance model depends on ongoing communications among the board,
company management, and the shareholders. Important issues are brought to shareholders' attention.
Important decisions that need to be made are put to shareholders for a vote.

U.S. regulatory authorities tend to support shareholders over boards and executive management.

2. The Continental Model

Two groups represent the controlling authority under the Continental Model. They are the supervisory
board and the management board.
In this two-tiered system, the management board is composed of company insiders, such as its
executives. The supervisory board is made up of outsiders, such as shareholders and union
representatives. Banks with stakes in a company also could have representatives on the supervisory
board.

The two boards remain entirely separate. The size of the supervisory board is determined by a country's
laws and can't be changed by shareholders.

National interests have a strong influence on corporations with this model of corporate governance.
Companies can be expected to align with government objectives.

This model also greatly values the engagement of stakeholders, as they can support and strengthen a
company's continued operations.

3. The Japanese Model

The key players in the Japanese Model of corporate governance are banks, affiliated entities, major
shareholders called Keiretsu (who may be invested in common companies or have trading relationships),
management, and the government. Smaller, independent, individual shareholders have no role or voice.
Together, these key players establish and control corporate governance.

The board of directors is usually made up of insiders, including company executives. Keiretsu may
remove directors from the board if profits wane.

The government affects the activities of corporate management via its regulations and policies.

In this model, corporate transparency is less likely because of the concentration of power and the focus
on the interests of those with that power.

ETHICAL CHALLENGES FACING MODERN BUSINESSES:-

1. Discrimination

One of the biggest ethical issues affecting the business world in 2020 is discrimination. In the last few
months, many corporations have come under fire for lacking a diverse workforce, which is often down
to discrimination. However, discrimination can occur at businesses of all sizes. It applies to any action
that causes an employee to receive unequal treatment.

Discrimination is not just unethical; in many cases, it is also illegal. There are statutes to protect
employees from discrimination based on age, gender, race, religion, disability, and more. Nonetheless,
the gender and race pay gaps show that discrimination is still rampant. Other common instances of
discrimination include firing employees when they reach a certain age or giving fewer promotions to
people of ethnic minorities.

2. Harassment

The second major ethical issue businesses face is harassment, which is often related to racism or sexism.
This can come in the form of verbal abuse, sexual abuse, teasing, racial slurs, or bullying. Harassment
can come from anyone in the company, as well as from customers. In particular, it is an ethical issue for
the business if a supervisor is aware of harassment from a client and takes no action to prevent it.

In addition to causing a toxic workplace, harassment can cause employees to leave the company
prematurely — a second reason why some businesses lack diversity. Harassment can have a long-term
impact on employees: psychologically, in terms of earnings, and even impacting a person’s entire career
path.

3. Unethical Accounting

Publicly-traded companies may engage in unethical accounting to appear more profitable than they
actually are. In other cases, an accountant or bookkeeper may change records to skim off the top.

4. Health and Safety

Another type of ethical issue that is often protected by law is health and safety. Companies may decide
to cut corners to reduce costs or perform tasks faster. As well as injuries, failing to take workers’ safety
into account can lead to psychosocial risks (like job insecurity or lack of autonomy), which can cause
work-related stress.
5. Abuse of Leadership Authority

Abuse of power often manifests as harassment or discrimination. However, those in a leadership role
can also use their authority to pressure employees to skip over some aspects of proper procedure to
save time (potentially putting the employee at risk), punish workers who are unable to meet
unreasonable goals, or ask for inappropriate favors.

In addition, abuse of authority can extend beyond the workforce. Managers can use their position to
change reports, give themselves credit for the work of a subordinate, misuse expenses, and accept gifts
from suppliers or clients.

6. Nepotism and Favoritism

Nepotism is when a company hires someone for being a family member. Favoritism occurs when a
manager treats an employee better than other workers for personal reasons.

Not only are nepotism and favoritism unfair, they are also disheartening to employees. Workers often
find they have to work much harder to receive a promotion or other rewards.

7. Privacy

Employees have recently found that the distinction between work life and personal life has become less
clear. This is mainly due to the advances in technology.

For one thing, employers may punish for posts on social media, particularly if they complain about work
conditions or the company as a whole. Employers may even fire workers who post controversial
statements that go against company values.

Another ethical issue surrounds the use of devices belonging to the company. Employers can now
monitor all worker activity on laptops and cellphones. Whereas this is supposed to check that
employees are sticking to work-related activities during the business day, some employers take it
further, tracking keystrokes and reading emails. The question is where to draw the line between
monitoring and spying.
8. Corporate Espionage

The opposite to the above can also happen: workers can misuse company data. An employee may steal
intellectual property or provide a competitor with information about a client. Usually, this is for
monetary purposes, but it can also help an employee secure a position at another firm.

How to Avoid Ethical Issues in Businesses:-

1. Create Company Policies

Make sure employees read company policies when they start working at your business. Include both a
privacy policy and a social media policy. The first should tell workers what computer activity and other
information you will be able to access; the second should lay out how you expect employees to behave
publicly on social media.

2. Monitor Only Pertinent Information on Laptops and Other Devices

It may be necessary to track employee activity to some extent (particularly if you are concerned that
workers are spending too much work time on personal activities — which, in itself, can be an unethical
behavior). However, you don’t want to go overboard and create a culture of distrust.

3. Provide Ongoing Training

This should cover aspects like harassment prevention. It’s worthwhile seeking outside support for this
from a reputable agency or professional, as low-quality training can even make the problem worse.

4. Require Employees to Sign a Nondisclosure Agreement

Employees should sign a nondisclosure agreement before they start working with any sensitive
information. To create an effective deterrent, specify that violating agreements will result in severe
penalties.

5. Create a Meritocracy

Strive to create a meritocracy where you reward employees according to performance.

6. Take an Active Role in Daily Activities

Become as involved as you are able in the day-to-day activities at your company. This could help you
detect harassment in its early stages and prevent theft, whether monetary or of company materials.

7. Double Check Your Books on a Regular Basis

By checking your books regularly, you’ll notice if anyone is stealing from you. In the case you do detect
theft, you’ll need to decide whether firing the employee is enough or if it’s also necessary to report the
crime to the law enforcement.

STRATEGIES FOR PROMOTING SUSTAINABLE AND RESPONSIBLE BUSINESS PRACTICES:

1. No Industry Left Behind

Sustainable practices are often (though not always) synonymous with good ESG performance.
Companies that prioritize sustainability are more likely to score well on ESG assessments, and investors
are increasingly recognizing that aligning their portfolios with ESG principles can mitigate risks and
enhance returns. For businesses already committed to sustainability, there is good evidence that
environmental and social responsibility correlates with financial success. But what incentivizes
companies in industries with larger environmental impact to reform when there are only sticks and no
carrots?

2. Perfect Is the Enemy of the Good

Incrementalism recognizes that profound change often begins with small, manageable steps. It
acknowledges that transformation — especially in industries rooted in tradition and with steep
structural barriers to reform — may be a gradual process. In the context of sustainability and ESG,
support for innovation and a nuanced approach to government incentives are crucial steps in spurring
organizations to take action toward improving environmental, social, and governance outcomes.

3. Eyes on the Prize

Hindsight is always 20/20, so it’s important to recognize that incrementalism isn’t a dirty word when it
comes to large, complex, hard-to-solve problems; it’s critical. These 10 strategies can help mitigate the
perverse outcomes of ESG legislation while maintaining the principles of sustainability and responsible
business practices:

4. Diverse Ideas and Voices

Political polarization and the general societal trend toward prioritizing dogma over mutually beneficial
outcomes harms progress toward a more sustainable future. Conscience makes cowards of us all when
gridlock rules and progress dies on the vine. Be open to a diversity of opinions for the greater good.
5. Robust Reporting and Transparency

One way to address greenwashing is to require companies to provide comprehensive, transparent, and
independently verified ESG reports. These reports should detail specific actions taken to improve
sustainability and address social and governance issues. By holding companies accountable through
accurate reporting, the risk of deceptive practices can be reduced.

6. Customized ESG Standards

Recognize that one-size-fits-all ESG standards may not work for all companies. Tailor ESG requirements
to the size, industry, and specific circumstances of each organization. Smaller businesses and startups,
for example, might need more time and flexibility to meet ESG goals.

7. Incentives for Positive Impact

Rather than solely focusing on penalties for non-compliance, introduce incentives for companies that go
beyond ESG requirements. Governments should consider (and the private sector should lobby for) tax
breaks, grants, or preferential access to government contracts to businesses that demonstrate
significant positive impact in environmental, social, or governance areas.

8. Stakeholder Engagement

Encourage active stakeholder engagement — including industry associations, employees, customers,

and communities — in the ESG decision-making process. This ensures that legislation reflects the
concerns and priorities of those directly affected by a company’s operations.

9. Continuous Improvement

Promote a culture of continuous improvement within organizations. ESG compliance should not be seen
as a static target but as an ongoing journey toward higher standards. Encourage companies to set
ambitious but realistic ESG goals and regularly review and adjust their strategies.

10. Benchmarking

It’s still early in both the public and private responses to ESG. There have already been several missteps,
and no one company, government, or geography has a monopoly on the singular right way. It’s
important to have a wide view of the playing field and to understand what’s happening in other
jurisdictions to affect progressive change.

11. Educational Initiatives

Invest in educational programs and resources to help companies, especially small and medium-sized
enterprises (SMEs), understand and implement ESG practices effectively. This can include providing
access to training, guidelines, and consultancy services.

12. Public-Private Partnerships

Foster collaboration between governments, businesses, and civil society organizations to co-create and
implement ESG legislation. By involving various stakeholders, legislation can become more
comprehensive and balanced.

13. Long-Term Perspective

Recognize that ESG goals may take time to yield tangible results. Encourage investors and regulators to
take a longer-term view when evaluating the impact of ESG legislation rather than expecting immediate
changes. This is a critical message for policymakers as well, with certainty a key driver for private sector
investment in areas such as renewable energy.

14. Looking Forward to Continue Progress

ESG proponents can benefit from reflecting on how lasting political and economic change has been
realized in other realms. Progress is, as ever, a study in grit, negotiation, and compromise along the way.

REGULATORY BODIES AND CORPORATE GOVERNANCE IN NIGERIA.

The Nigerian corporate governance regime is characterised by a combination of a statutory framework

and subsidiary legislation enacted by the relevant regulatory authorities. These laws can be divided into
two categories: general laws and sector-specific laws. While the general laws govern every entity
incorporated in Nigeria, the sector-specific laws govern only companies that operate within their specific
sector or industry.

The general laws are:

the Companies and Allied Matters Act (CAMA):2 the regulatory authority charged with the responsibility
of administering the CAMA is the Corporate Affairs Commission (CAC);3

the Investments and Securities Act 2007 (ISA), which also established the Securities and Exchange
Commission (SEC) as its regulatory authority; and

the Financial Reporting Council of Nigeria Act 2011 (FRCN Act),4 administered by the Financial Reporting
Council of Nigeria (FRCN).

The sector-specific laws include, among others, the Banks and Other Financial Institutions Act (BOFIA)
and the Insurance Act (IA).5

The CAMA is the main statute delimiting the general framework for the Nigerian corporate governance
regime. It lays out the various types and forms of entities that can be incorporated, including private
companies, which may be limited by shares or by guarantee, unlimited companies and public companies
limited by shares. The CAMA also outlines the structure, powers and duties of the various organs of a
corporate entity as well as the systems of governance and management of the company, and
management qualifications. On the other hand, the ISA sets out the statutory framework for the
regulation and operation of the Nigerian securities market. It outlines, among other things, the
operational rules for securities market operators, participants and stakeholders, and liquidity
requirements.

The BOFIA is the principal statute that regulates the banking sector. It recognises the supervisory role of
the Central Bank of Nigeria as enumerated under the Central Bank of Nigeria Act 2007. It states the
conditions for the grant of a banking licence, and for the revocation or variation of the same.
Furthermore, the principal pieces of legislation governing insurance activities are the National Insurance
Commission Act and the IA. The National Insurance Commission is empowered to make regulations and
issue guidelines to insurance companies from time to time, while the IA applies to insurance businesses
and regulates insurers, with the exception of insurance businesses carried on by friendly societies, and
by companies, bodies or persons established outside Nigeria, engaged solely in reinsurance transactions
with an insurer authorised under the IA.

The Nigerian corporate governance space has a number of corporate governance codes applicable to
publicly listed companies and for sector-specific companies. Of particular import in this regard is the
recently published Nigeria Code of Corporate Governance 2018 (NCCG Code). The NCCG Code was
published by the FRCN on 15 January 2019, and seeks to promote public awareness of essential
corporate values and ethical practices by recommending practices and principles that affected
companies are to adhere to. The NCCG Code generally applies to all public companies as well as
regulated private companies,6 and to private companies that are the holding companies of public
companies.

It is interesting to note that the NCCG Code does not abolish the previously existing corporate
governance codes; nor does it contain a superiority provision for circumstances where there is a conflict
between the NCCG Code and the existing codes. It thus seems that companies would be required to
comply with all applicable codes as necessary. The resultant effect of this is that in certain instances
there is over-regulation, depending on the industry in which a company operates.

CASE STUDIES OF CORPORATE GOVERNANCE AND BUSINESS ETHICS:-

1. International Finance Corporation (IFC)

The International Finance Corporation (IFC) is part of the World Bank Group and

was established in 1956 to encourage private sector-led growth in developing countries. It does this by
financing private sector projects, helping companies mobilize

financing in international markets, and providing advisory services and technical assistance to
companies and governments. IFC’s practical experience with structuring

investments, appraising potential investees and nominating corporate directors allows

it to put corporate governance principles into action. IFC’s focus on good corporate

governance practices in client companies helps it both to manage risk and to add value

to firms in emerging markets.

2. Organisation of Economic Co-operation and Development (OECD)

The Organisation of Economic Co-operation and Development (OECD) is a

unique forum where the governments of 30 democracies work together to address the

economic, social and environmental challenges of globalisation, in close co-operation

with many other economies. One of these challenges is corporate governance, a topic

on which the OECD has developed internationally agreed Principles of Corporate

Governance, which have served as a basis for regional policy dialogue programmes

throughout the world. The Latin American Roundtable on Corporate Governance,

which meets annually, is one such initiative, organized by the OECD in partnership

with the IFC/World Bank Group and with the support of the Global Corporate

Governance Forum. In this way, the OECD provides a setting where governments and

other stakeholders can compare experience, seek answers to common problems, identify good practice
and work to co-ordinate domestic and international policies.

3. Global Corporate Governance Forum (GCGF)

Co-founded by the World Bank Group and the Organisation for Economic Cooperation and
Development, the Global Corporate Governance Forum (GCGF) is an

advocate, a supporter, and a disseminator of high standards and practices of corporate

governance in developing countries and transition economies. Through its activities,

the Forum actively supports regional and local initiatives that address corporate governance by
leveraging institutional support for reforms and initiatives that build local

capacity and by making available technical and advisory assistance drawn from its wide

network of international and private sector expertise. The Forum's donors include the

International Finance Corporation, and the governments of Canada, France, etc.