ESTUDIO DE MERCADO

Nigeria is the biggest and most populous country in Africa. The country now has the largest economy in Africa (followed by South Africa), with an estimated nominal GDP of $568.5 billion, exceeding South Africa’s $349.8 billion as of 2014 (Barungi, 2014). According to Barungi (2014), Nigeria has sustained its impressive growth over the years with a record growth of 7.4% real GDP in 2013, a rise from 6.7% in 2012. Nigeria’s growth rate is greater than the average of the West African sub-region and far greater than that for sub-Saharan Africa (Barungi, 2014).

Similar to other African countries which had colonial rule, from 1960, which represents the post-colonial era in Nigeria, the country adopted an interventionist development strategy which entailed restrictions on foreign ownership of firms and an active role of the state in strategic sectors of the economy, particularly oil and gas and infrastructure (Ahunwan, 2002). Operating with this type of strategic initiative in a context of weak market institutions (Adegbite, 2012, Adegbite, 2015, Adegbite et al., 2012, Adegbite et al., 2013, Adegbite and Nakajima, 2011, Adegbite and Nakajima, 2012, Adekoya, 2011, Nakpodia and Adegbite, 2017, Nakpodia et al., 2016, Osemeke and Adegbite,

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2016), absence of healthy political democracy according to Ahunwan (2002) did not result in the practice of good corporate governance. Table 2 below shows the historical context and milestones within which CG has emerged in Nigeria.

The Nigerian Stock Exchange (NSX) came into existence immediately after independence in 1960, but became operational with under ten stocks in 1961 (Sanda et al., 2005). As of 31 December, 2013, 53 years after its creation, it had about 210 listed companies with a total market capitalisation of about N12.88 trillion ($80.8 billion). Though a remarkable growth, considering the number at the initial stage, comparatively, this is below the number of listings for other emerging markets such as the Malaysian and South Korean exchanges, with more than 250 listed companies (Sanda et al., 2005). After its creation in 1960, the stock exchange operated without any regulatory body till 1979, when the Securities and Exchange Commission (SEC) was established (Sanda et al., 2010, Sanda et al., 2005). It took a further 20 years for the Securities and Investment Act (1999) to be enacted.

International economic pressures in recent years prompted Nigeria to take on a programme of deregulation and economic liberalisation (Ahunwan, 2002). Supporters of the changes point to the potential not only for accelerating economic growth, but also for enhancing responsible corporate governance (Ahunwan, 2002, Akinkoye and Olasanmi, 2014). As a result, in June 2000 the Nigerian Securities and Exchange Commission (SEC) put together a Committee on Corporate Governance of Public Companies in Nigeria (Okike, 2007). This committee was charged with reviewing corporate governance practices in Nigeria and, thereafter, providing recommendations for a code of best practice to be implemented by public firms listed on the NSX.

The code is to exercise power over the direction of the firm, the supervision of management actions, transparency and accountability in the firm’s governance within the regulatory framework and NSX rules (Okike, 2007, p.173. ). Nigeria also has a common law system which is rooted in the British legal system (Ogbechie, 2010). The corporate governance legal framework in Nigeria is principally guided by the Investments and Securities Act (ISA) No. 29 of 2007, the Securities and Exchange Commission (SEC) rules and regulations pursuant to the ISA, the Companies and Allied

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Matters Act (CAMA) of 1990 and the Trustee Investments Act of 2004 (Akinkoye and Olasanmi, 2014).

Table 2: Historical and Contextual Milestones Leading to the Development of Nigeria’s Corporate Governance Code

1900- 1960

•British colonial rule with a common law system

1960

•Independence of Nigeria

•Continuation of British common law system

1961 •Creation of Nigerian Stock Exchange (NSX)

1962

•Adoption of an interventionist development strategy which entailed restrictions on foreign ownership of firms

•Enactment of Foreign Exchange Control Act of 1962. Promoting indigenous ownership of firms

1968 • Enactment of Companies Act derived largely from English company act of 1948

1972

•Enactment of the Nigerian Enterprises Promotion Decree No. 4 of 1972, prohibiting the creation or transfer of any security or interest in a security in favour of a person resident outside Nigeria

1979 •Creation of the Securities and Exchange Commission (SEC) to regulate stock market

1990 •Enactment of the Companies and Allied Matters Act (CAMA)

2003

•Creation of the first CG code by the SEC which was largely derived from the UK Cadbury report and fit within the Anglo-American CG model

2004 •Enactment of Trustee Investments Act

2011

•Creation of the second CG code by the SEC which was a revision of the 2003 code. The 2011 code included stakeholder provisions to incorporate triple-bottom-line reporting

•The 2011 code blends both the Anglo-American and stakeholder models of CG but incorporates the UK's 'comply or explain' principle. All listed companies are expected to comply with this provision

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In 2003, the SEC inaugurated a code of best practices in corporate governance (Adegbite, 2012, Adegbite, 2015, Adegbite et al., 2013). Later on in 2006, the Central Bank of Nigeria (CBN) implemented another code of corporate governance for Nigerian banks post-consolidation (Akinkoye and Olasanmi, 2014, Adekoya, 2011). These codes were aimed at supplementing the Companies and Allied Matters Act of 1990 implemented during the military administration era to regulate all corporate entities in Nigeria (Akinkoye and Olasanmi, 2014, Adekoya, 2011). The 2003 code was derived largely from the UK Cadbury report; as such, the code was somewhat a mirror of the Anglo-American CG regime. However, a revised code was introduced in 2011 which emphasises responsibilities and the structure of the board of directors (Akinkoye and Olasanmi, 2014, Adekoya, 2011, Okike, 2007). The code stipulates that the BODs are responsible for the operations of the firm in an efficient, effective and lawful manner to ensure that the firm is constantly enhancing its value creation as much as possible (Akinkoye and Olasanmi, 2014, Adekoya, 2011, Okike, 2007). The board is also tasked to ensure that the value created by the firms is shared among the shareholders and employees while meeting the interests of the other stakeholders of the firm (Akinkoye and Olasanmi, 2014, Adekoya, 2011, Okike, 2007). The board is also expected to appraise management’s strategic planning, selection, performance, executive compensation and succession planning among other aspects of the board’s activities (Akinkoye and Olasanmi, 2014, Adekoya, 2011, Okike, 2007).

As in the UK, Nigeria’s public limited companies have a unitary board system. Though the code specifies a minimum number of five directors on the board, it does not specify an upper limit. The code suggests that the constitution of a corporate board should reflect the scale and complexity of a firm, ensuring diversity of experience without undermining integrity, availability, independence and compatibility with the firm’s needs (Okike, 2007). The code also recommends that the board consist of a mix of non- executive and executive directors under the leadership of the chairman who should be a non-executive director (Okike, 2007). The 2011 code requires triple-bottom-line reporting including sustainability issues which are similar to South Africa’s King II report. The code also includes stakeholder CG provisions, shareholder CG provisions and global CG trends, including alternative dispute resolution, shareholder approval of remuneration of non-executive directors, evaluation of directors’ and board performance, risk-based internal auditing, social, ethical, cultural diversity, corruption,

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strategies for HIV/AIDS and other diseases and environmental reporting. At the time of the creation of the 2011 CG code, companies were expected to comply or give reasons for non-compliance. This reflected the UK ‘comply or explain’ orientation. However, in May 2014, the SEC made compliance with the code mandatory, which is line with the US compliance doctrine of ‘comply or else’. Violation of the code attracts a fine of N500,000 ($2,483) in the first instance and N5,000 ($24) for every additional day of non-compliance. See subsection 2.3.6 for a synopsis of institutional context and table 3 below for a summary of Nigeria’s CG provisions.