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CORPORATE GOVERNANCE AND ITS IMPACT ON THE MANAGEMENT OF AN ORGANIZATION

CORPORATE GOVERNANCE AND ITS IMPACT ON THE MANAGEMENT OF AN ORGANIZATION

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

In today’s global economy, the success of the national economy depends on the crucial role of organisations’ competitiveness, transparency and governance structure which operate within her territory, since organisations are the entities that create economic value (ICAN, 2009). Indeed, the need for trust and transparency in the governance of corporate organizations has been one of concern for standard setters all over the world. This need has obviously spurred renewed interest in the corporate governance practices of modern corporations, particularly in relation to accountability and economic performance (ibid).

The position above could not be separated from prior submission where Nwachukwu (2007) emphasize the growing consensus that good corporate governance has positive link to national economic growth and development. The degree of trust accorded to the managers of companies by its owners is strengthened through corporate governance. Directors without corporate governance mechanism may paint misleading pictures of financial and economic performance of their company to lure unsuspecting investors. Such window dressed accounts raised concern in the U.S.A. with the collapse of the energy corporation ENRON in 2001 which filed for bankruptcy after adjusting its accounts (Demaki, 2011). WORLDCOM, GLOBAL CROSSING AND RANK XEROX are other companies in the U.S.A with similar problem. The increasing incidence of corporate fraud relating to exaggerated and fleeting reports have reinforced the renewed global emphasis on the need for effective corporate governance. CBN (2006) reported that despite the significance of good corporate governance to national economic development and growth, corporate governance was still at rudimentary stage as only 40% of publicly quoted companies, including banks had recognized corporate governance in place. The separation of ownership from the management of business organisations spurs a divergence of interest amongst the parties. The divergence of the interests of the management and its owners has undermined investors’ confidence in the Board. Hence, investors are interested about the level of accountability displayed by the Board of directors. The outcry of investors and other stakeholders as a result of mismanagement and inadequate financial disclosures given by the management has deemed it necessary for the institution of sound corporate governance procedures.

Corporate governance is all about running an organization in a way that guarantees that its owners as stakeholders are receiving a fair return on their investment. It is the process of a virtuous circle that links the shareholders to the board, to the management, to the staff, to the customer and to the community at large (Clarkson and Deck, 1997). They observed that a company is a separate legal entity which no one actually owns. It can therefore be implied that shareholders do not own a company (Ofiafoh and Imoisili, 2010). A typical firm is characterized by numerous owners having no management function and managers with no equity interest in the firm. Shareholders or owners of equity are large in numbers and an average shareholders control a minute proportion of the shares of the firm. This gives rise to shareholders to take no interest in monitoring of managers, who are left to themselves and maybe pursuing interest different from those of the owners of equity. Corporate governance has found a way to address this problem which arises and a number of significant researches have been conducted towards resolving it. For instance, Magdi and Nedareh (2002) emphasize the need for organization managers to act in the interest of the firm, core stakeholders particularly minority shareholders or investors by ensuring that only action that facilitate delivery of optimum returns and other favorable outcome are taken at all times.

1.2     Statement of the Problem

The failure associated with corporate governance has assumed multifarious dimensions with implications, especially for profit oriented business organizations like the banks and has become an issue of global significance. The potential for individuals and organization to behave unethically is limitless. Unfortunately, this potential is too frequently realized. Unfortunately, unethical organizational practices are embarrassingly very common today. It is easy to define such practices as defrauding customers’ funds, overcharging of interest on loans and withdrawals, e.t.c. Yet these and many other unethical practices go on almost routinely in many organizations. Nigerian business encounters a number of challenges. For instance, there are a number of ethical concerns facing Nigerian business-persons. Corruption is a noteworthy challenge. Despite the activities undertaken by volunteers (banks) in the local communities surrounding their operations, there seems to be little or no evidence of any Corporate Social Responsibility (CSR) projects focused on generating jobs and income for community members. Such actions could improve the quality of life within the local community. No CSR projects appear to focus on enhancing the value chain or social actions that could improve corporate competitiveness. Getting employees to do their best in their work, even in trying circumstances, seems to be one of managers’ most enduring and slippery challenges. This study therefore is focused on the impact of corporate governance on organizational performance in the Nigerian banking industry.

1.3     Objective of the Study

The main objective of this research is to study the impact of corporate governance on organizational performance in the Nigerian banking industry. Specifically the study intends to:

1.     Find out the effect of corporate governance practices on firm’s performance in the banking sector

2.     Analyze the impact of corporate governance on management of the Nigeria banking sector.

3.     Investigate the challenges of corporate governance in Nigeria

1.4     Research Question

1.     What is the effect of corporate governance practices on firm’s performance in the banking sector

2.     What are the impact of corporate governance on management of the Nigeria banking sector.

3.     What are the challenges of corporate governance in Nigeria

1.5     Research Hypothesis

Ho: there is no significant impact of corporate governance on management of the Nigeria banking sector.

Hi: there is significant impact of corporate governance on management of the Nigeria banking sector.

1.6     Significance of the Study

This study adds a significant practical importance, because its results support the application of appropriate regulatory agencies such as central, stock exchange as well as Nigeria security and Exchange commission and financial organization in their various policy formulations as regard corporate governance. As such the study will be significant to these organizations and regulatory agencies especially as they utilize the findings of this research in enhancing policy formulation as regard corporate governance in their organization. This study is important as it provides new insights into governance and performance of organization in private sector.

The study will also add to the existing knowledge as well as making an original contribution to the study of corporate governance. The study will also be a reference material for further research on corporate governance. As such, it will be a springboard to students intending to carryout similar research.

1.7     Scope of the Study

Because the researcher could not be able to cover the whole of Nigerian. The researcher narrowed the study down to the one LGA in Ogun state state. This study corporate governance in Nigeria will be carried out GT bank in Ado Odo ota local government area in Ogun state.

1.8     Limitation of the Study

The challenge of finance for the general research work will be a challenge during the course of study.  However, it is believed that these constraints will be worked on by making the best use of the available materials and spending more than the necessary time in the research work. Therefore, it is strongly believed that despite these constraint, its effect on this research report will be minimal, thus, making the objective and significance of the study achievable.

1.9     Definition of terms

Corporate Governance: Corporate governance is the system of rules, practices and processes by which a firm is directed and controlled.

Impact: a marked influence or effect on something or someone

Management: the process of dealing with or controlling things or people.

Organization: an organized group of people with a particular purpose, such as a business or government department.

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