Corporate Governance Rating Systems as a Means of Targeting Corporate Misconduct in Africa: The Nigerian Example

• Jurisdiction: South Africa
• Published date: 16 August 2019
• Pages: 1-23
• Date: 16 August 2019
• Author: Sope Williams-Elegbe
• Citation: (2017) 4(1) Journal of Comparative Law in Africa 1

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CORPORATE GOVERNANCE RATING

SYSTEMS AS A MEANS OF TARGETING

CORPORATE MISCONDUCT IN AFRICA:

THE NIGERIAN EXAMPLE*

SOPE WILLIAMS-ELEGBE†

Associate Professor, Stellenbosch University, South Africa

In 2013, the Nigerian Stock Exchange, in partnership with the Convention on

Business Integrity, piloted a Corporate Governance Rating System (CGRS) for

Nigeria. A corporate governance rating is a means of assessing a company’s corporate

governance system by examining and evaluating an entity’s corporate governance

procedures and practices. After the pilot’s conclusion, a qualitative evaluation of

the pilot was conducted through a survey of the companies that had participated

in the pilot as well as other stakeholders. The evaluation was done to determine

whether the CGRS as piloted had been useful to improve the corporate governance

practices and policies of participating companies and whether the participants and

stakeholders in the CGRS believed that the CGRS would in the long term

contribute to improving corporate governance in Nigeria. The evaluation also

sought to identify the main challenges and drawbacks of the CGRS as piloted.

This article presents the findings of this evaluation and the lessons drawn from the

pilot, and further considers whether the CGRS will be suitable for other African

countries that may want to adopt a corporate governance rating system.

Résumé: En 2013, la Bourse nigériane, en partenariat avec la Convention

sur l’intégrité des entreprises, a piloté un système de notation de gouvernance

d’entreprise (CGRS) pour le Nigeria. Une notation de gouvernance d’entreprise

est un moyen d’évaluer le système de gouvernance d’une entreprise en examinant

et en évaluant les procédures et pratiques de gouvernance d’une entité d’entreprise.

Après la conclusion du projet pilote, une évaluation qualitative du projet pilote a

été effectuée à travers une enquête menée auprès des entreprises participantes du

projet pilote et d’autres intervenants. L’évaluation a été effectuée pour déterminer

si le CGRS comme pilote a été utile pour améliorer les pratiques et les politiques

de gouvernance des entreprises participantes et si les participants et les intervenants

* This work was produced while the author was a research fellow in 2015 at the Centre for

Comparative Law in Africa (CCLA) under the Olu Akinkugbe Business Law in Africa Fellowship

administered by the CCLA, Faculty of Law, University of Cape Town. The author gratefully

acknowledges the Olu Akinkugbe Fellowship and the Centre for Comparative Law in Africa.

† LLB (Lagos), LLM (London School of Economics), PhD (Nottingham). Senior Lecturer in

Law, Faculty of Law, University of Lagos, Nigeria; Research Fellow, Stellenbosch University, South

Africa. This work was undertaken while the author was a research fellow in November/December

2015 at the Centre for Comparative Law in Africa (CCLA) under the Olu Akinkugbe Business

Law in Africa Fellowship administered by the CCLA, Faculty of Law, University of Cape Town. The

author gratefully acknowledges the Olu Akinkugbe Fellowship and the Centre for Comparative

Law in Africa.

(2017) 4(1) Journal of Comparative Law in Africa 1

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2 JOURNAL OF COMPARATIVE LAW IN AFRICA VOL 4, NO 1, 2017

au CGRS estiment que le CGRS contribue, a à long terme, à améliorer la

gouvernance d’entreprise au Nigeria. L’évaluation a également cherché à dégager

les principaux défis et inconvénients du CGRS comme piloté. Cet article présente

les résultats de cette évaluation et les enseignements tirés du projet pilote et examine

en outre si le CGRS sera approprié pour d’autres pays africains qui envisagent

peut-être d’adopter un système de notation de gouvernance d’entreprise.

Keywords: corporate governance, corporate governance ratings, Nigeria,

South Africa, Africa

Introduction

Corporate governance is an area in which there has been much

academic debate, especially since the failures of “big business” in the

last two decades, such as the failure of Barings Bank in the UK and

Enron Corporation in the USA,1 which manifested in many countries

around the world. Corporate governance may be described as the system

through which corporations are managed, directed and controlled.2 It is

the way in which power is exercised in corporate entities and covers the

activities of the board of directors and its relationship with shareholders,

management, regulators and other legitimate stakeholders.3 Corporate

governance involves balancing the interests of the many stakeholders

in a company, such as shareholders, management, customers, suppliers,

financiers, the government and the community. It may be described as the

framework of rules that ensures accountability, fairness and transparency

in a corporation’s relationship with these stakeholders.4 These rules are

contained in contracts, procedures and a system of checks and balances.

The elements of good corporate governance include “good” board

practices and board commitment;5 control procedures (internal controls

1 Christine A Mallin. 2007. Corporate Governance. 2nd ed. Oxford: Oxford University Press,

chapter 1; Sanjai Bhagat, Brian Bolton & Roberta Romano. 2008. “The promise and perils of

corporate governance indices”. Columbia Law Review, 108(8):1803–1882.

2 Dario Lo Turco & Karina Katrysh. Corporate Governance Rating. Available: http://

www.wiso.uni-hamburg.de/fileadmin/sozialoekonomie/bwl/bassen/Lehre/ECG/Corporate_

Governance_rating-_Dario_Lo_Turco_and_Karina_Katrysh.pdf. (Accessed 30 September 2015).

3 Bob Tricker. 2015. Corporate Governance: Principles, Policies and Practices. 3rd ed. Oxford: Oxford

University Press at 4.

4 OECD. 1999. Principles of Corporate Governance. Paris: OECD; Sir Adrian Cadbury. 1999.

Corporate Governance Overview. World Bank.

5 LAA van den Berghe & Abigail Levrau. 2004. “Evaluating Boards of Directors: What

constitutes a good corporate board?”. Corporate Governance, 12(4):461–478; Edward Walker-Arnott.

2015. “Corporate Governance and Banks: The Role and Composition of the Board”. In I Chiu

& M McKee (eds). 2015. The Law on Corporate Governance in Banks, Cheltenham: Edward Elgar

Publishing at 42–74.

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