Impact Of Corporate Governance On Organizational Performance

Project and Seminar Material for Business Administration and Management BAM

Impact Of Corporate Governance On Organizational Performance


Abstract


This study is on impact of corporate governance on organizational performance. The total population for the study is 200 staff of selected banks in Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers,accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


Chapter One


Introduction

1.1 Background to the Study

Corporate governance has in recent years become a topical issue both in business and academic circles. The concern in business arose out of the perceived importance that a tradition should be developed that supports moral and ethical conduct in business affairs which will create a general climate (both legal and social environment) that will promote good governance of firms. In the academic world, it is established that business decisions are not made in a vacuum. Business decision makers have objectives outside the firms’ objectives, for example managers are interested in their own personal satisfaction, in their employees’ welfare, as well as in the good of the community (society) at large and these objectives impact on shareholders wealth adversely (Akeem, 2014).

The genesis of Corporate Governance lies in business scams and failures. The Watergate scandal, the junk bond fiasco in USA and the failure of Maxwell, BCCI and Polypeck in UK resulted into setting up of the Treadway committee in USA and the Cadbury committee in UK on corporate governance.

The guiding principle of good corporate governance is “transparency and ethics” should govern corporate world. Increasing strategic importance of professional management probably constitutes the most important aspect of changing profile of corporate governance. Given the global challenges, the only choice left with business and economic enterprises is to follow the corporate governance practices – the path for living, working, surviving, successing and the excelling in the future (Bansal and Bansal, 2014).

Directors without corporate enforcement mechanism may paint misleading pictures of financial performance of their organisations to lure unsuspecting investors. However, the effect of these actions on some corporations is devastating. There is the collapse of the energy corporation Enron in 2001 in US, WorldCom, Global Crossing, and Rank Xerox, most of which filed for bankruptcy after adjusting their accounts. Between 2002 and 2005, several international corporations failed, including Mutual Risk Management Ltd, Equitable Life Assurance Society UK collapsed in year 2000 because directors of the companies unlawfully used money met for guaranteed annuity rate policies to subsidize current annuity rate policies. Lion of Africa Insurance in Nigeria also liquidated because of board crisis it liabilities outweighed the assets and could not recapitalize in 2007 (Momoh and Ukpong, 2013).

The increasing incidence of corporate fraud relating to exaggerated and overstated accounts have informed renewed global emphasis on the need for good corporate governance. According to Nwachukwu (2007), there is a growing consensus that good corporate governance has a positive link to national economic growth and development. Checks and balances in an organization are strengthened through good corporate governance.

By definition, corporate governance is a system or an arrangement that comprises of a wide range of practices (accounting standards, rules concerning financial disclosure, executive compensation, size and composition of corporate boards) and institutions (legal, economic and social) that protect the interest of corporation’s owners.

Furthermore, adherence to good corporate governance is inevitable especially in the Nigerian business climate considering the critical multiplier effects a failed corporate entity would cause to investment decision, unemployment rate and economic growth. Thus, the practice of a good corporate governance system helps to provide a degree of confidence that is necessary for the proper functioning of the market economy and hence organisatiomal performance (Momoh and Ukpong, 2013).

To this end, there is also a widely held view that better corporate governance is associated with better firms’ performance, but the evidence is not sufficiently available in the Nigeria context. As such, providing an additional empirical evidence of the impact of good corporate governance on organizational performance is urgently needed.


1.2 Statement of the Problem

Incorporation may mean that the owners of the organization are not necessarily the managers and this may create agency issues which include managers acting for their own selfish interest at the expense of other stakeholders. Despite tight regulatory framework corporate governance continues to weaken in Nigeria (Momoh and Ukpong, 2013). Many companies have been characterized by scandals. Directors have acted illegally or in bad faith towards their shareholders.

Corporate governance which is hitherto seen as the foundation for good corporate performance has received lack-luster attention from corporate bodies globally for a considerable length of time. This attitude which bordered on neglect of corporate strategies may have eventually led to the recent global high profile corporate failures. Notable among such failed corporate bodies are HIH Insurance and One-Tel both in Australia, Maxwell Communications Corporation, and Bank of Credit and Commerce International (BCCI) both in the United Kingdom; Enron and Worldcom both in the United States and Parmalat in Italy. All these failures have been attributed to poor corporate governance (Tennyson, 2010).

In Nigeria, the story is not different. There has been several corporate failures and large-scale misappropriation of funds in the recent past in Nigeria, involving both public and private organizations such as AVOP Oil, Anambra State Motor Manufacturing Company, African Petroleum Nigeria Limited, and many others.

The consequences of institutional failure (considering the multiplier effect of financial institutional failure on the real sector of the economy) are unacceptably costly to a developing country like Nigeria. This affects the level of confidence the public has in various corporate establishments. The consequences of ineffective governance systems leading to corporate failure will not only affect the shareholders but also, the employees, suppliers, consumers and the nation as a whole. Thus, a good governance system that will promote ethical value, professionalism and transparent application of best practices is desirable.

This study will examine the impact of good corporate governance on organizational performance with a specific reference to First Bank Nig Plc.


1.3 Objectives of the Study

The major objective of the study is to examine the impact of good corporate governance on organizational performance.

Other specific objectives are as follows:

  1. To explore the relationship between corporate governance and organizational performance.
  2. To find out the impact of corporate fraud on organizational survivability
  3. To investigate the effect of corporate dividend policy on shareholders’ interest
  4. To identify the role of Corporate Regulatory Agencies in ensuring transparency and ethics in the Nigerian banking industry.

1.4 Research Hypotheses

The researcher intends to test the following hypotheses;

H0:  There is no significant relationship between corporate governance and organizational performance

H1: There is significant relationship between corporate governance and organizational performance

H02: Corporate fraud is not a significant predictor of organizational survivability

H2: Corporate fraud is a significant predictor of organizational survivability


1.5 Significance of the Study

This study will give a clear insight on impact of corporate governance on organizational performance. It will be beneficial to students, organization and the general public. The study will serve as a reference to other researchers that will embark.


1.6 Scope and Limitation of the Study

The scope of the study covers impact of corporate governance on organizational performance. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.


1.7 Definition of Terms

Corporate Governance:

Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community

Organizational Performance:

Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives).


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain impact of corporate governance on organizational performance. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of impact of corporate governance on organizational performance


5.2 Summary

This study was on impact of corporate governance on organizational performance. Four objectives were raised which included: To explore the relationship between corporate governance and organizational performance, to find out the impact of corporate fraud on organizational survivability, to investigate the effect of corporate dividend policy on shareholders’ interest, to identify the role of Corporate Regulatory Agencies in ensuring transparency and ethics in the Nigerian banking industry. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of selected banks in Enugu state.

The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers,accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.3 Conclusion

This study examines the impact of corporate governance on organizational performance in the Nigerian banking industry. It assesses how corporate ethical behavior, corporate social responsibility and corporate culture affect corporate competitive advantage. On the bases of the discussion above, the study concludes as follows: The study confirmed the overwhelming influence of corporate social responsibility as an indicator of corporate governance on organizational performance. Thus when companies integrate social and environmental responsibility into their brands, an impression of rational and emotional appeal is created that serve as promotional efforts and fosters customer loyalty. The potential importance of ethical conduct as a means of increasing employees’ productivity is revealed in this study. In the banking industry, Corporate ethics is a concern that an organization should reflect the values of its stakeholders, accept the rules and regulations of society within which it operates both in practice and in spirit, and develop a broader consciousness beyond simple delivery of returns to its shareholders. Furthermore, it is also inferred that corporate culture and organizational effectiveness seem to play important roles in engendering positive organizational outcomes. There is a positive relationship between corporate culture and organizational effectiveness as corporate culture encompasses mixture of values, sets, beliefs, communications and explanation of behaviour that provides guidance to people. The competitive advantage of an organization is attained through strong association and establishment of culture, in the competitive banking industry. Given the competitive marketing environment, good corporate governance seems to be a strategic tool that could help modern day financial institutions to gain competitive edge over competitors.


5.4 Recommendation

Operationally this study develops and validates separate measures of corporate governance. In the competitive context managers should determine which dimensions of corporate governance policies are appropriate for their performance and corresponding excellence. Regulatory measures can be improved towards addressing ethical conducts that are capable of improving performance within the organization in the industry. This suggests that regulatory agencies should encourage the kind of healthy competition that will promote good quality service and ethical standards. Speciffically, organizations should intensify efforts to professionally develop booklets of ethical standards, distributed it to all employees, and undertake massive training efforts to express to all employees the importance of ethical behaviour. Banks should consistently undertake social courses that would improve customers’ delight in the organization and services they render. This will go beyond connecting customers to the brand to improvement in stakeholder welfare. Organizational development could also be attained by adhering to organizational set tenets, beliefs and culture this in turn would result in sustainability on basis of effectiveness. The improvement in productivity leads to employee commitment as norms, values and objectives helps in improving culture of an organization


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Frequently Asked Questions


What is the most important aspect of changing profile of corporate governance?

Increasing strategic importance of professional management probably constitutes the most important aspect of changing profile of corporate governance.

Why is corporate governance important for businesses?

Given the global challenges, the only choice left with business and economic enterprises is to follow the corporate governance practices – the path for living, working, surviving, successing and the excelling in the future (Bansal and Bansal, 2014).

What are the consequences of Ineffective Corporate Governance?

This affects the level of confidence the public has in various corporate establishments. The consequences of ineffective governance systems leading to corporate failure will not only affect the shareholders but also, the employees, suppliers, consumers and the nation as a whole.

What are the guiding principles of good corporate governance?

The guiding principle of good corporate governance is “transparency and ethics” should govern corporate world. Increasing strategic importance of professional management probably constitutes the most important aspect of changing profile of corporate governance.

Why is corporate governance so important?

Why Good Corporate Governance is So Important. Ensuring integrity and ethical behavior in the company. Ensuring that all shareholders are treated equitably. Ensuring that the board has sufficient relevant skills and understanding to review and challenge management’s performance and actions and to provide oversight and advice to management.

What is the role of the Board of directors in corporate governance?

Corporate Governance and the Board of Directors. Directors are elected by shareholders or appointed by other board members, and they represent shareholders of the company. The board is tasked with making important decisions, such as corporate officer appointments, executive compensation and dividend policy.

How does corporate governance affect a company’s financial health?

A company’s board of directors is the primary force influencing corporate governance. Bad corporate governance can cast doubt on a company’s reliability, integrity, and transparency—all of which can have implications on its financial health.

What are the elements of good corporate governance?

It is also about the relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders. Open to public Information disclosure, high transparency and accountability are basic important elements of best corporate governance that strives the sustainability of corporations and society.

What are the potential risks of poor corporate governance?

Potential Risks of Poor Corporate Governance. Weaknesses in corporate governance practices and stakeholder management processes expose a company and its stakeholders to several risks. The reverse scenario is that effective corporate governance and stakeholder management practices can create several benefits for a company and its stakeholders.

How does corporate governance affect the financial market?

Corporate governance has far-reaching effects not only for the business itself but for the financial market as a whole. Effective corporate governance can have a positive affect on shareholder confidence by reassuring them that the company is making smart business decisions and is well organized internally.

Do weaknesses in corporate governance practices affect stakeholder management?

Weaknesses in corporate governance practices and stakeholder management processes expose a company and its stakeholders to several risks. The reverse scenario is that effective corporate governance and stakeholder management practices can create several benefits for a company and its stakeholders.

What happens when a company deviates from its corporate governance strategy?

When a company deviates from its corporate governance strategy it sends a signal to its shareholders that it cannot be trusted. This erodes any confidence that the shareholders had in the business and leads them to feel cheated or misled.

What does corporate governance really mean?

The Basics On Corporate Governance – What Does it really Mean? Corporate governance generally refers to the way in which a company is run and controlled; with specific reference to a company’s directors. The principal, furthermore, loosely refers to the documents and regulatory regime in terms of which such control is exercised. 

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