CORPORATE GOVERNANCE: A TOOL FOR DIRECTING AND MANAGING BUSINESS EFFICIENCY AND SURVIVAL (A CASE STUDY OF GUINNESS NIG. PLC)

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

Corporate governance has been defined as the way and manner in which the affairs of companies are conducted by those charged with the responsibility. It is a system that ensures optimal utilization of resources for the benefits of shareholders while meeting societal expectations. Given the high correlation between corporate governance and investor decisions, the government of Nigerian is keen to position the country to take advantage of the opportunities in the global market by adhering to principle of good governance, thus, Securities and Exchange Commission (SEC) and the Corporate Affairs Commission (CAC) came out with seventeen (17) member committee and drafted the code of best practices for corporate governance in Nigeria.

Depending of the jurisdiction, different bodies may have responsibility of corporate governance, board of Directors, Audit Committee and other supervision committees. International Standards on Auditing (ISA) 260, requires the auditor to determine those persons charged with corporate governance. The most direct of corporate governance is to shareholders. However, the ultimate benefit is the more efficient allocation of capital to its most productive uses. In the real sense, no governance system, no matter how well designed, will fully prevent greedy and dishonest people from putting their personal interests ahead of the interests of the companies they manage. Many steps can be taken to improve corporate governance and thereby reduce opportunities for accounting fraud. This is where the role of auditing (through proper audit reports) comes into play.

The auditor does not have a direct corporate governance responsibility, but rather provides a check on the information aspects of the governance system. The role of auditors in corporate governance involves reporting, decision making, accountability and monitoring. Decision requires relevant and reliable information, accountability involves measuring, reporting and transparency, and monitoring includes system and feedback. Auditor’s primary role is to check whether the financial information given to investors is reliable, i.e. if its expressed the true and image of the organization. The objective of an audit is to express an expert opinion on the fairness with which the financial statement are prepared and presented, in all material aspects a company’s financial position, results of operations, and cash flow in conformity with GAAP to be able to express such an opinion. This must be done using sound auditing techniques.

People rely on financial statements to make economic decision, especially the shareholders, that is, an enterprise outside the organization. With the help of audit work by the external auditor, risk and uncertainty are reduced. Error and fraud can cause irregularity in the case of financial report or statement of any organization. It is the responsibility of the auditor to verify the cause of any irregularity of the auditor to verify the cause of any irregularities in the financial statement. One perception to corporate failures has been to focus on public companies internal controls. Sarbanes-Oxley Act (2002) (SOX) requires a separate report on the effectiveness of internal controls. Recent changes to ISAs place a much higher focus on the auditors understanding internal controls as a part of the audit.

Corporate governance is nothing more than how a corporation is administered or controlled. Corporate governance takes into consideration company stakeholders as governmental participants, the principle participating being shareholders, company management, and the board of directors. Adjunct participant may include employees and suppliers, partners, customers, governmental and professional organization regulators and the community in which the corporation has a presence.

There are so many interested parties, its inefficient to allow them to control the company directly. Instead, the corporation operates under a system of regulations that allow stakeholders to have a voice in the corporation commensurate with their stake, yet allow the corporation to continue operating in an efficient manner. Corporate governance also takes into account audit procedures, in order to monitor outcomes and how closely they adhere to goals, and to motivate the organization as a whole to work toward corporate goals, by using corporate governance procedures widely and sharing results, a corporate can motivate all stakeholders to work toward the corporation goals by demonstrating the benefits to stakeholders of the corporation success.

According to Alfaki (2005), corporate governance are the rules and practices that govern the relationship between managers and shareholders contributes not only to the growth and financial stability of corporate enterprise but also promotes financial intensity and economic efficiencies.

1.2   Statement of Problem

In Nigeria like most countries, the failure of companies can be due to internal or external factors or in rare cases, the combination of both which basically has to do with poor corporate governance.

The researcher intends to focus on reforms as aspect of corporate governance and indicators of business failure as well as the linkage between the two concepts.

The study also intends to raise the consciousness and institutionalize good corporate governance and business sustainability.

For effective corporate governance reduces “control rights” shareholders and creditors confer on managers, increasing the probability that managers invest in positive net present value projects

1.3   Research Questions

In the study the following research questions are asked in order to achieve the objectives of the studies

i.      Does corporate governance affects vital issue of firm’s performance?

ii.     Is corporate governance essential in achieving public confidence in corporate entities?

iii.    Is company failure a result of non existence of corporate governance?

1.4   Objectives of the Study

The primary objectives of this study are:

i.      To find out if corporate governance affects vital issue of firm’s performance.

ii.     To ascertain if corporate governance is essential in achieving public confidence in corporate entities.

iii.    To determine if company failure is as a result of non existence of corporate governance.

1.5   Research Hypotheses

Hypothesis One

H_O:   Corporate governance affects vital issue of firm’s performance

H_I:    There is no significant relationship between corporate governance and firm performance.

Hypothesis Two

Ho:  The effect of corporate governance is not essential in achieving public confidence in corporate entities

H_I:    The effect of corporate governance is essential in achieving public confidence in corporate entities.

1.6   Significance of the Study

In regards to the relevance of the study it covers areas which are useful to the board of directors as regard to their mission, vision, objectives and strategy of a company. It is relevance to shareholders by booming their confidence to invest in a particular business which involves protecting their rights.

Companies will benefit as it ensures, the financial availability business. It also indicates that the way in which companies are directed and controlled through governance principles of disclosure and accountability of a company. It is also relevant to the public sector. Public sector will benefit as it will ultimately improve economic growth and functional position of the country on a global level. It is also used as a determinant in developing policy, social economic analysis and poverty resolute issue.

1.7   Scope of the Study

This study examines corporate governance and firm’s performance using Guinness Nigeria Plc as a case study. This research essentially focuses on the process and structure in which firm performance and corporate governance are directed, manage and controlled. A time frame of 5 years was used which range from 2010 to 2015. For effective correlation, a sample size of 100 was used.

1.8   Limitations of the Study

The study certainly suffers from a number of limitations prominent among them includes:

1.      Primary data collected by previous researcher could have been manipulated hence, altering good conclusion in that could have been drawn from them.

2.      Sizeable quality of information obtained from papers were in pigmentation and sometimes complex.

3.      Reduction of the respondent to full the Questionnaire

4.      Limited literature in this area of study

a.       Sizeable quantity of information obtained from papers were in fragmentations and sometimes complex.

b.      Reluctant of the respondent to fill the questionnaires.

1.9   Definition of Terms

Management: Is a distinct process consisting of planning, organization, starring, directing, coordinating, reporting and budgeting, performed to determine and accomplished stated objectives with the effective use or human being and other resources.

Cooperation: Cooperation is a big company or group of companies acting together as a single organization for a particular purpose with a legal entity distinct from its owners.

Strategic Planning: Strategic planning is a process of determining the major objective of an organization and the policies and strategies that will govern the acquisition, use disposition of reassures to achieve set objectives.

Planning: Planning is the establishing of objectives and the formulation, evaluation and selection of policies strategies, faction and actions required to achieve set objective.

Efficiency: A level of performance that describe a process that uses the lowest amount of inputs to create the greater amount of outputs.

Business: An economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth.

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