iwe eke chigozie - university of nigeria eke... · 2015. 9. 16. · 5 certification iwe eke...
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IWE EKE CHIGOZIE PG/MBA/05/ 45365
ASSESSING CORPORATE GOVERNANCE OF IMO
TRANSPORT COMPANY
Education
A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF
ENVIRONMENTAL STUDIES, UNIVERSITY OF NIGERIA ENUGU CAMPUS
Webmaster’s Name
Digitally Signed by Webmaster’s Name
DN : CN = Webmaster’s name O= University of Nigeria, Nsukka
OU = Innovation Centre
2008
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ASSESSING CORPORATE GOVERNANCE OF IMO
TRANSPORT COMPANY
BY
IWE EKE CHIGOZIE PG/MBA/05/ 45365
DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS
ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU
CAMPUS
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FEBRUARY, 2008
ASSESSING CORPORATE GOVERNANCE OF IMO TRANSPORT COMPANY
BY
IWE EKE CHIGOZIE PG/MBA/05/ 45365
DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU CAMPUS
IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE AWARD OF MASTERS OF BUSINESS ADMINISTRATION
(MBA)
SUPERVISOR: DR UJF EWURUM
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FEBRUARY, 2008 TITLE PAGE
ASSESSING CORPORATE GOVERNANCE OF IMO TRANSPORT COMPANY
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CERTIFICATION
IWE EKE CHIGOZIE an MBA student of the department of management
with REG-No PG/MBA/05/45365 has satisfactorily completed the requirements
for course and research work for the masters in business management
The work embodied in this project is original and has not been submitted in
part or in full for any other Diploma or Degree of this or any other University
………………………. E.C IWE (student)
…………………………. ……………………… C.O. CHUKWU Dr U J F EWURUM (Head of Department) (Supervisor).
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DEDICATION
To God most high who makes what seems impossible possible.
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ACKNOWLEGEMENT
I thank God for seeing to the end of this project which has been arduous
and underwent a tortuous journey of being written in Owerri, Onitsha, Abuja and
Enugu before completion.
My gratitude also goes to my supervisor DR UJF Ewurum for his patience
and guidance in the course of this project.
I am also grateful to the staff of the library of the department of
management UNEC & IMO State University.
I am grateful to my mother Lolo C.A Iwe for being there for me and
encouraging me to complete this project
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ABSTRACT
Corporate Government issues are receiving greater attention in both
developed and developing countries as a result of the recognition that a firm’s
corporate governance affects both its economic performance and its ability to
access long term, low cost investment capital.
Corporate governance concerns have been widely studied. What
constitutes good and bad corporate governance is an on going debate in politics,
civil society and academia
This research was focused on assessing corporate governance in Imo
Transport Company.
A survey design was adopted for the research, primary data being collected
from respondents using questionnaires. Method of data analyses took the form of
frequency distribution percentages
The study was limited by time and financial constraints.
Findings include, -corporate governance of Imo Transport Company
contributes positively to its profitability.
Frequent change of the board of directors does not contribute to increased
profitability.
` Recommendation were made which includes
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-Appointment of board of directors should not be based on political reasons
alone
- The autonomy of the corporation should be maintained.
TABLE OF CONTENTS
Certification……………………………………………………………………….. i
Dedication…………………………………………………………………………….ii
Acknowledgment…………………………………………………………………….iii
Abstract……………………………………………………………………………….iv
Table of contents…………………………………………………………………….v
CHAPTER ONE
INTRODUCTION
1.1. Background of the study ………………………………………………………1
1.2. Statement of the problem………………………………………………………3
1.3. Objectives of the study…………………………………………………………4
1.4. Hypothesis……………………………………………………………………….4
1.5. Significance of the study…………………………………………………........5
1.6. Scope of the study………………………………………………………………6
1.7. Limitations of the study…………………………………………………………6
1.8. Brief history of Imo Transport Company……………………………………...8
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References……………………………………………………………………13
CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction………………………………………………………………….....14
2.2. History…………………………………………………………………………..16
2.3. Role of Institutional Investors………………………………………………...18
2.4. Parties to corporate governance…………………………………………….20
2.5. Principles…………………………………………………………………….....22
2.6. Mechanisms and control……………………………………………………...24
2.7. Systemic problems of corporate governance………………………………26
2.8. Role of the accountant……………………………………………………......26
2.9. Corporate governance models around the world…………………….........27
2.10. Corporate governance and firm performance………………………........30
2.11. Attention to corporate governance…………………………………………31
2.12. The board of directors……………………………………………………….32
2.12.1. Classification of board of director………………………………………..33
2.12.2. History……………………………………………………………………....34
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2.12.3. Appointment / Election removal………………………………………….35
2.12.4. Exercise of powers………………………………………………………...37
2.12.5. Criteria for the selection of board members……………………............38
2.12.6. Duties of the board of directors…………………………………………..41
2.12.7. The Future………………………………………………………………….45
2.12.8. Problems with the board of directors………………………………........46
2.12.9. Failures……………………………………………………………………..47
2.13. The way forward in an organization………………………………………..48
2.14. Managing board meetings…………………………………………………..51
References …………………………………………………………………..52
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Introduction………………………………………………………………….....54
3.2. Research design………………………………………………………………54
3.3. Population of study / sample size determination…………………………..54
3.4. Sources of data………………………………………………………………..55
3.5. Data collection Instrument……………………………………………………56
3.6. Questionnaire design and administration…………………………………...56
3.7. Method of data analyses……………………………………………………...56
References……………………………………………………………………58
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CHAPTER FOUR
PRESENTATION AND ANALYSES OF DATA
4.1. Introduction………………………………………………………………….....59
4.2. Analyses of response to questionnaire……………………………………..59
4.3. Test of hypothesis………………………………………………………….....67
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION
5.1. Summary of findings…………………………………………………………..71
5.2. Recommendation……………………………………………………………...72
5.3. Conclusion……………………………………………………………………..73
5.4. Area for further study………………….……………………………………...73
Bibliography…………………………………………………………………..74
Appendix……………………………………………………………………...76
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CHAPTER ONE
1.0. INTRODUCTION
1.1. BACKGROUND OF THE STUDY:
Corporate governance is the set of processes, policies, laws and
institutions affecting the way in which a corporation is directed, administered or
controlled. McGraw-Hill (2004). Corporate governance also includes the
relationship among the many players involved (the stake holders) and the goals
for which the corporation is governed. The principal players are the share
holders, management and the board of directors.
Other stake holders include employees, suppliers, customers, banks and
other lenders, regulators, the environment and the community at large.
An important theme of corporate governance deals with issues of
accountability and fiduciary duty, essentially advocating the implementation of
guidelines and mechanisms to ensure good behavior and protect shareholders.
Monks and Robert S.N (1991)
Another key focus is the economic efficiency view, through which the
corporate governance system should aim to optimize economic results, with a
strong emphasis on share holders’ welfare. There are yet other aspects of to the
corporate governance subject, such as stakeholder view, which call for more
attention and accountability to payers other than the shareholders, e.g. the
employees or the environment.
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Recently there has been considerable interest in the corporate governance
practices of modern corporations, particularly since the high-profile collapses of a
number of large US firms such as Enron corporation and world com.
Board members are those with a responsibility for corporate governance,
are increasingly using the services of external providers to conduct anti-
corruption auditing, due diligence and training.
The board of directors is the highest decision making body of a
company which is responsible for general policies, concerning finance,
appointment of managers, control etc. It is often headed by a chairman who is
elected by the directors themselves. The chairman presides over the meetings of
the board.
Theoretically the control of a company is divided between two bodies; the
board of directors and the shareholders in general meeting.
In practice, the amount of power exercised by the board varies with the
type of company. In small private companies, the directors and the share holders
will normally be the same people and thus there is no real division of power. In
large public companies, the board tends to exercise more of a supervisory role.
Individual responsibility and management tends to be delegated downward to
individual professional directors (such as finance or marketing director) who deal
with particular areas of the company’s affairs.
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1.2. STATEMENT OF THE PROBLEM
A well governed company is one that has mostly outside directors, who has
no management ties, undertakes formal evaluation of its directors and is
responsive to investors requests for information on governance issues.
McKinsey2 (2002)
The Relationship between specific corporate governance controls and firm
performance has been mixed and often weak.
Frequency of board meetings does not necessarily lead to more profitability
and some researchers have found a negative relationship between the proportion
of external directors and firm performance while others found no relationship
between external board membership and performance.
Bagahat and Black (2007) is of the opinion that companies with more
independent boards do not perform better than other companies and board
composition does not likely have a direct impact on firm performance.
Imperfections in the financial reporting process have invariably caused
imperfections in the effectiveness of corporate governance.
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1.3. OBJECTIVES OF THE STUDY
The study will aim to
1. Assess the corporate governance of Imo Transport Company and relate it to
the profitability of the company.
2. Determine whether the autonomy of Imo Transport Company, a
government owned Business Company is related to the profitability of the
company.
3. Ascertain whether the composition of the board of directors has a direct
impact on the performance of the company.
4. Ascertain whether frequency of board meetings leads to increased
profitability of the company
1.4.HYPOTHESIS
1. The autonomy enjoyed by the ITC, has a positive relationship to its
profitability.
2. The composition of the board of directors in ITC has a positive effect on the
performance of the company.
3. Frequent board meetings do not contribute to increased performance in
ITC.
1. Ho the autonomy enjoyed by ITC has no positive relationship to its
profitability.
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Hi, the autonomy enjoyed by ITC has a positive relationship to its
profitability
2. Ho, the composition of the board of directors of ITC has no positive impact
on the performance of the company.
Hi the composition of the board of directors of ITC has a positive impact on
the performance of the company.
3. Ho frequent board meeting do not contribute to increased performance of
the company.
Hi frequent board meeting contribute to increased performance of the
company.
1.5. SIGNIFICANCE OF THE STUDY
Corporate governance issues are receiving greater attention in both
developed and developing countries as a result of the recognition that a firm’s
corporate governance affects both its economic performance and its ability to
access long term, low-cost investment capital
Recently there has been considerable interest in the corporate governance
practices of modern corporations, particularly since the high profile collapse of
firms such as Enron and WorldCom.
More over, all parties to corporate governance have an interest whether
direct or indirect in the effective performance of the organization; directors,
workers, management, share holder.
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Therefore this research will benefit
1. Governments, especially state governments that will wish to establish
Companies, especially Mass transit companies, on the desirable corporate
governance practices to incorporate
2.Board of directors of companies both private and government owned, who
will be enlightened on the best corporate governance strategies to adopt.
3. Share holders/stake holders in firms, in terms of their expectation from their
management.
4. Researchers and people with interests in corporate governance because of
the recent materials sourced in this study.
1.6. SCOPE OF THE STUDY
The main focus of this study is assessing corporate governance in IMO
Transport Company. The scope of the research work covers only the
headquarters of Imo transport company located in Owerri
1.7. LIMITATIONS OF THE STUDY
This research work will point out the difficulties a researcher encounters
during his research.
These problems will make some contributions to the slow rate of progress
of this activity:
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1. TIME: This has to point out the delays a researcher will encounter during
research work. It might be as a result of work which affected this project
adversely, bad roads, traffic jam, accident and breakdown of vehicles. This
causes delays in gathering information from the right source
LACK OF RESEARCH FUNDS - Here a researcher lacks funds to carry out his
research work. This discourages research at all levels.
Government, institution and organizations do not quite appreciate the
contributions of research finding to economic development and therefore do not
provide sufficient funds for research of all types.
CO-OPERATION OF RESPONDENTS: a researcher may be delayed, refused
information from the right source, thinking that the researcher has come to spy
on their organization.
LACK OF FACILITIES AND RESEARCH EQUIPMENT: - This is where a
research work, lacks some vital equipment to help him carry out his work
effectively
SCANTY INFORMATION BASE: - This is the narrowing down of the quantity
and quality of literature available to a researcher.
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ILLITERACY: - This has to do with the uneducated individuals who hamper the
appreciation of the value of research findings.
1.8. BRIEF HISTORY OF IMO TRANSPORT COMPANY
The Imo State transport Company came into being as a result of the federal
government directive on mass transit. The company (ITC) started operations in
August 1989 with 20 Vehicles, outside this, the federal government also provided
spare parts, workshops and organized a nation wide training programmed for
operators. The state government also contributed in providing office
accommodation, Vehicle terminals and manpower.
The Imo transport company offers a number of services which include
1. Intracity services
2. Intercity services
3. Vehicle contract hire services
4. Vehicle recovery services
5. commercial maintenance services
6. Inter-state services.
According to Obi (1998) these services are provided to ensure that buses
cover the intricate areas of the state and beyond. They also serve to alleviate
and help other commuters whose Vehicles are broken down.
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The Imo transport company has come a long way since its inception. It is one
of the few government owned enterprises that are consistently breaking even
and posting profits. It was voted the best mass transit company in 2005.
BUS OPERATIONS
The Imo Transport Company operates a near centralized system of bus
operations. The company has over 35 routes.
The allocation of buses to depots is done at the headquarters in Owerri.
The actual route allocation of buses is drawn at the headquarters and this is
done on weekly basis. The implication of this is that no vehicle has a permanent
route. Each of the depots is managed by a terminal supervisor whose function is
co-coordinated by the assistant general manager.
CORPORATE MANAGEMENT/ORGANIZATIONAL STRUCTURE- ITC is a
limited liability company.
The General Manager is the chief executive officer and is appointed by the
state government.
The executive officers under the manager are the Assistant general
manager Administration, Assistant general manager finance, assistant general
manager engineering and assistant general manager operations.
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Each of these managers has a number of staff reporting to them. The
general manager Admin controls the secretary, public relations officer, insurance,
labour, security. The internal Auditor payroll section, stores unit, revenue
collectors and conductors all report to the assistant general manager finance.
The Assistant general manager engineering has under his care, the head
maintenances, auto electrician, panel beaters, Vulcanizers and mechanics. The
Assistant general manager operation is in charge of the monitoring unit, drivers
and the terminal supervisors.
All the Assistant general managers report and take orders from the general
manager who in turn briefs the director, civil engineering service, state ministry of
works, transport and aviation.
BOARD OF DIRECTORS:-
The boards of directors as well as the chairman of the board are political
appointees of the state government. Presently, as at the time of writing this
project, the board of directors is dissolved. The dissolution was by the new
governor of the state. However the last board had six members.
AUDITORS: - The auditors are external and are appointed by the
government.
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SOURCES OF REVENUE AND FLEET
The ITC is autonomous, with its sources of revenue and pays its workers without
recourse to the government
The ITC since its inception has identified the bus as a cost as well as a
revenue centre. In this respect, the operating costs and revenues for each are
calculated on a regular monthly basis in order to determine the contribution of the
bus unit to the total profit or loss account of the company. This exercise helps the
ITC to identify lapses in fleet utilization and trace same to either the bus crew or
maintenance personnel or other sources.
General Manager
The management of the company has seen the importance in meeting pwith the
challenges of the increase in demand of their services.
Assistant General Manager Administration
Assistant General Manager Engineering
Assistant General Managing Engineering
Assistant General Managing Operations
Insurance
Labour Public relations
Internal auditors
Stores unit
Revenue collectors
Conductors Head Maintenance
Panel beaters vulcanizers
mechanics Monitoring
unit
Drivers
Assistant
AGM
Operations
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There is the establishment of the franchise system where by private individuals
and other corporate bodies give out their vehicles to ITC management who in
turn manages the operations of these vehicles and at the end of the month the
revenue collected is shared between the owners of these buses and ITC. This
scheme has thus increased the initial numbers of buses and other vehicles of the
company.
The vehicles include luxury buses, 911 lorry buses, 1414 buses, 504
wagon, Mitsubishi buses etc.
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REFERENCES
1. Bhagat and Black: “The uncertain relationship between board composition and firm performance “54, business lawyer.
2. Marie-Caroline V.W: How to run a company, Crown business, New York. & Dennis C.C. 3. http://en. Wikipedia. Org /wiki/ corporate governance. 4. Ojigbani J.C. (2003) “Importance of board of directors in enhancing
effectiveness and efficiency in organizations “A study of selected companies in Abia State.
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CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
The term corporate governance has come to mean two things
a. The process by which companies are directed and controlled.
b. A field in economics, which studies the many issues arising from the
separation of ownership and control. (Black well 2007)
Relevant rules include applicable laws of the land as well as internal rules of
a corporation. Relationships include those between all related parties, the most
important of which are the owners, managers, directors of the board, regulatory
authorities and to a lesser extent employees and the community at large.
Systems and processes deal with matters such as delegation of authority.
The corporate governance structure specifies the rules and procedures for
making decision on corporate affairs.
It also provides the structures through which the company objectives are set,
as well as the means of attaining and monitoring the performance of those
objectives.
Corporate governance is used to monitor whether out comes are in
accordance with plans and to motivate the organization to be more fully informed
in order to maintain or alter organizational activity. Corporate governance is the
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mechanism by which individuals are motivated to align their actual behaviors with
the overall participants.
In “A board culture of corporate Governance” business author
O’Donovan(2007) defines corporate governance as ‘an internal system
encompassing policies, processes and people, which serves the needs of share
holders and other stakeholder, by directing and controlling management activities
with good businesses savvy, objectivity and integrity. Sound corporate
governance is reliant on external market place commitment and legislation plus a
healthy board culture which safeguards policies and processes.
O’Donovan .G. goes on to say that ‘the perceived quality of a company’s
corporate governance can influence its share price as well as the cost of raising
capital. Quality is determined by the financial markets, legislation and other
external market forces plus the international organizational environment, how
polices and processes are implemented and how people are led. External
forces are, to large extent, outside the circle of control of any board. The
internal environment is quite a different matter, and offers companies the
opportunity to differentiate from competitors through their board culture.
Corporate governance international journal (2003) say to date, too much of
corporate governance debate has centered on legislative policy, to deter
fraudulent activities and transparent policy which misleads executives to treat
symptoms and not the cause.
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2.2. HISTORY
In the 19th century, state corporation law enhanced the rights of corporate
board to govern without unanimous consent of share holders in exchange for
statutory benefits likes appraisal rights, to make corporate governance more
efficient. Since that time and because most large publicly traded corporations in
the US are incorporated under corporate administration friendly Delaware law,
and because the US’s wealth has been increasingly securitized into various
corporate entities and institutions, the right of individual owners and share holder
have become increasingly derivative and dissipated.
The concerns of share holder over administration pay and stock losses
periodically has led to more frequent calls for corporate governance reforms.
In the 20th century in the immediate aftermath of the Wall Street crash of
1929, legal scholars such as Adolf Augustus Berle, Edwin Dodd and Gardiner C.
Means, pondered on the changing role of the modern corporation in society.
Berle and Mean’s monograph, “the modern corporation and private property”
(1932 Macmillan) continues to have a profound influence on the conception of
corporate governance in scholarly debates today.
From the Chicago school of economics, Ronald coase’s Nature of the firm
(1937) shows the notion of transaction costs to the understanding of why firms
are founded and how they continue to behave. Fifty years later, Eugene fama
and Michael Jensen’s “the separation of ownership and control” (1983, Journal of
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law and economics) firmly established agency theory as a way of understanding
corporate governance: the firm is seen as was highlighted in a 1989 article by
Kathleen Eisenhardt (Academy of management Review).
United States expansion after World War II through the emergence of
multinational corporations saw the establishment of the managerial class.
Accordingly, the following Harvard Business school management professors
published influential monographs studying their prominence: Myles mace
(entrepreneurship), Alfred D chandler (business history) Jay lorsch
(organizational behaviour) and Elizabeth maclver (organizational behaviour).
According to lorsch and maclver, “Many large corporations have dominant control
over business affairs without sufficient accountability or monitoring by their board
of directors.
Current preoccupation with corporate governance can be pinpointed at two
events: the East Asian crises of 1997 saw the economies of Thailand, Indonesia
South Korea, Malaysia and the Philippines severely affected by the exit of foreign
capital after property assets collapsed.
The lack of corporate governance mechanisms in these countries highlights
the weaknesses of the institutions in their economics. The second event was the
US corporate crises of which saw the collapse of two big corporations: Enron and
WorldCom, and the ensuing scandals and collapses in other organizations such
as Arthur Anderson, Global crossing and TYCO.
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2.3. ROLE OF INSTITUTIONAL INVESTORS
Many years ago, worldwide, buyers and sellers of corporation stocks were
individual investors, such as wealthy businessmen overtime, markets have
become more institutionalized; buyers and sellers are largely institutions (e.g.
pension funds, insurance companies,, mutual funds, hedge funds, investor
groups, and banks). The rise of the institutional investor has brought with it some
increase of professional diligence which has tended to improve regulation of the
stock market. (But not necessarily in the interest of the small investor or even of
the naïve institutions of which there are many).
Unfortunately, there has been a concurrent lapse in the oversight of large
corporations, which are now almost all owned by large institutions. The board of
directors of large corporations used to be chosen by the principal share holders
who usually had an emotional as well as monetary investment in the company,
and the board diligently kept an eye on the company and its principal executives
(they usually hired and fired the president or chief executive officer – CEO).
Nowadays if the owning institutions don’t like what the president/CEO is doing
and they feel that firing them will be costly and/or time consuming, they will
simply sell out their interest. Also in recent times, the board is mostly chosen by
the president/CEO and may be made up primarily of their cronies or at least,
officers of the corporation, who owe their job to him or fellow CEO’s from other
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corporation. Since the (institutional) share holders rarely object, the
president/CEO generally takes the chair of the board himself, which makes it
more difficult for the institutional owners to fire them.
Since the marked rise in the use of internet transaction from the 1990s,
both individual and professional stock investors around the world have emerged
as a potential new kind of major (short term) force in the ownership of
corporations and in the markets: casual participant. Even as the purchase of
individual investors diminishes, the sale of derivatives e.g. exchange traded
funds (ETFs) stock market index options has soared (http://invest-
fag.com/articles ideriv-oprians-basics. html). So, interests of most investors are
now increasingly rarely tied to the fortunes of individual corporations.
But, the ownership of stocks in markets around the world varies; for
example, the majority of the shares in the Japanese market are held by financial
companies and industrial corporations.
(http://www.asianresarch.org/articles/1397.html) whereas stock in the USA or the
UK and Europe are much more broadly owned, often still by large individual
investors.
In the latter half of the 1990s, during the Asian financial crises, a lot of
attention fell upon the corporate governance systems of the developing world,
which tend to be heavily into cronyism and nepotism.
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In the first half of the 1990s, the issue of corporate governance in the US
received considerable press attention due to the wave of, (belated?) CEO
dismissals (e.g. IBM, Kodak, Honey well) by their boards. CALPERS led a wave
of institutional shareholder activism (something only very rarely seen before) as a
way of ensuring that corporate value would not be destroyed by the now
traditionally cozy relationships between the CEO and the board of directors.
In the early 2000s, the massive bankruptcies (and criminal malfeasance) of
Enron and world com, as well as lesser corporate debacles, such as Adelphina
Communications (http:www.washingtonpost.com/wp-dyn/articles/A39143-2004jul
9.html), AOl, Arthur Andersen, Global crossing, Tyco and more recently Freddie
Mac and led to increased share holder and government interest in corporate
governance culminating in the passage of the Sarbanes-Oxley Act of 2002
(http://www.nhbar.org/publications/archives/display-journal-issue.asp?id=13).
Since then the stock market has greatly recovered, and shareholder zeal has
waned accordingly.
2.4. PARTIES TO CORPORATE GOVERNANCE
Parties involved in corporate governance include the regulatory body (e.g.
the chief executive officer, the board of directors, management and shareholder.)
other stakeholders who take part include suppliers, employees, creditors,
customers and the community at large.
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In corporations, the share holder delegates decision rights to the manager
to act in the principals best interests. The separation of ownership from control
implies a loss of effective control by share holders over managerial decisions.
Partly as a result of this separation between the two parties, a system of
corporate governance controls is implemented to assist in aligning the incentives
of managers with those of shareholders. With the significant increase in equity
holdings of investors, there has been an opportunity for a reversal of the
separation of ownership and control problems because ownership is not so
diffuse.
A board of directors often plays a key role in corporate governance. It is
their responsibility to endorse the organization’s strategy, develop directional
policy, appoint, supervise and remunerate senior executives and to ensure
accountability of the organization to its owners and authorities. All parties to
corporate governance have an interest, whether direct or indirect in the effective
performance of the organization- Directors, workers and management receives
salaries, benefits and reputation, while shareholder receives capital return.
Customers receive goods and services, suppliers receive compensation for their
goods and services. In return these individuals provide value in the form of
natural, human, social and other forms of capital
A key factor in an individuals decision to participate in an organization e.g.
through providing financial capital and trust that they will receive fair share of the
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organisational returns. If some parties are receiving more than their fair return,
then participants may choose to not continue participating, leading to
organizational collapse.
2.5. PRINCIPLES
(OECD (2004) outlines key elements of good corporate governance
principals to include honesty, trust and integrity, openness, performance
orientation, responsibility and accountability, mutual respect and commitment to
the organization.
Of importance is how directors and management develop model of
governance that aligns the values of the corporate participants and then evaluate
this model periodically for its effectiveness. In particular, senior executives should
conduct themselves honestly and ethically, especially concerning actual or
apparent conflicts of interest, and disclosure in financial reports
Commonly accepted principles of corporate governance include
a. Rights and equitable treatment of shareholders:- organizations should
respect the rights of shareholders and help shareholders to exercise those
right. They can help share holders exercise their rights by effectively
communicating information that is understandable and accessible and
encouraging shareholders to participate in general meetings.
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b. Interest of other stakeholders. Organizations should recognize that they
have legal and other obligations to all legitimate stake holders.
c. Role and responsibility of the board: the board needs a range of skills and
understanding to be able to deal with various business issues and have the
ability to review and challenge management performance. It needs to be of
sufficient size and have an appropriate mix of executive and non-executive
directors. The key roles of chair person and CEO should not be held by the
same person
d. Integrity and ethical behaviour: organization should develop a code of
conduct for their directors and executive that promote ethical and
responsible decision making. It is important to understand though that
systemic reliance on integrity and ethics is bound to eventual failure.
Because of this, many organizations establish compliance and ethics
programs to minimize the risk that the firm steps outside of ethical and legal
boundaries.
e. Disclosure and transparency: organizations should clarify and make
publicly known the roles and responsibility of board and management to
provide shareholders with a level of accountability. They should also
implement procedures to independently verify and safeguard the integrity of
the company financial reporting. Disclosure of material matters concerning
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the organisation should be timely and balanced to ensure that all investors
have access to clear factual information.
Issues involving corporate governance principles include
- Oversight of the preparation of the entity’s financial statements
- Internal controls and the independence of the entity’s auditors
- Review of the compensation arrangements for the chief executive officer and
other senior executives
- The way in which individuals are nominated for positions on the board
- The resources made available to directors in carrying out their duties
- Oversight and management of risk
- Dividend policy.
2.6. MECHANISMS AND CONTROLS
Becht. .A. etal (2002) says corporate governance mechanisms & controls
are designed to reduce the inefficiencies that arise from moral hazard and
adverse selection. E.g. to monitor managers behaviour, an independent third
party (the auditor) attests the accuracy of information provided by management
to investors. An ideal control system should regulate both motivation and ability.
Internal corporate governance controls; includes
- Monitoring by the board of directors
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- Remuneration – performance based remuneration is designed to relate
some proportion of salary to individual performance. Such incentive
schemes however are reactive in the sense that they provide no
mechanism for preventing mistakes or opportunistic behaviour, and can
elicit myopic behaviour.
- Disclosure – Detailed annual report
- Audit committees
- Proxy fights
- Financial structure: leverage.
External corporate governance controls:-
This encompasses the controls external stakeholders exercise over the
organisation. Examples include;
- Debt covenants
- Government regulations
- Media pressure
- Takeovers
- Competition
- Managerial labour market
- Telephone tapping.
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2.7. SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE
A. supply of accounting information: - financial accounts form a crucial link in
enabling providers of finance to monitor directors’ imperfections in the financial
reporting process will cause imperfections in the effectiveness of corporate
governance. This should ideally be corrected by the working of the external
auditing process
B. Demand for information- A barrier to shareholders using good information is
the cost of processing it, especially to a small shareholder. The traditional answer
to this problem is the efficient market hypothesis, which suggests that the
shareholder will free ride on the judgments of larger professional investors.
c. Monitoring costs: in order to influence the directors, the shareholders must
combine with others to form a significant voting group which can pose a real
threat of carrying resolutions or appointing directors at a general meeting.
2.8. ROLE OF THE ACCOUNTANT
Whittington. G (1993) says financial reporting is a crucial element
necessary for the corporate governance system to function effectively.
Accountants and auditors are the primary providers of information to capital
market participants. The directors of the company should be entitled to expect
that management prepare the financial information in compliance with statutory
and ethical obligations and rely on auditors competence
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Current accounting practice allows a degree of choice of method in
determining the method of measurement, criteria for recognition and even the
definition of the accounting entity. The exercise of this choice to improve
apparent performance (popularly known as creative accounting) imposes extra
information costs on users. In the extreme, it can involve non-disclosure of
information.
One area of concern is whether the accounting firm is both the independent
auditor and management consultant to the firm they are auditing. This may result
in a conflict of interest which places the integrity of financial reports in doubt due
to client pressure to appease management.
The Enron collapse is an example of misleading financial reporting. Enron
concealed huge losses by creating illusions that a third party was contractually
obliged to pay the amount of any loss. However the third party was an entity in
which Enron had a substantial economic stake.
However, good financial reporting is not a sufficient condition for the
effectiveness of corporate governance if users do not process it or if the informed
user is unable to exercise a monitoring role due to high cost.
2.9. CORPORATE GOVERNANCE MODELS AROUND THE WORLD.
ANGLO- AMERICAN MODEL There are many different models of corporate
governance around the world. According to Clarke Thomas (2004) these differ
according to the variety of capitalism in which they are embedded.
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The liberal model that is common in Anglo-American countries tends to
give priority to the interests of the shareholders. The coordinated model that one
finds in continental Europe and Japan also recognizes the interests of workers,
managers, suppliers, customers and the community.
Both models have distinct competitive advantages but in different ways, the
liberal model of corporate governance encourages radical innovation and cost
competition, whereas the coordinated model of corporate governance facilitates
incremental innovation and quality competition.
They rule. net(2004) says that in the United States, a corporation is governed by
a board of directors, which has the power to choose an executive officer usually
known as the chief executive officer. The CEO has broad powers to manage the
corporation on a daily basis, but needs to get board approval for certain major
actions. The UK has pioneered a flexible model of regulation of corporate
governance known as the “comply or explain” code of governance. This principle
based code that lists a dozen of recommended practices such as the separation
of the CEO and chairman of the board, the introduction of a time limit for CEO’
contracts, the introduction of a minimum number of non executive directors, of
independent directors, the designation of a senior non executive director, the
formation and composition of remuneration, audit, and nomination committees.
Publicly listed companies in the UK have to either apply those principles or if they
choose not to, to explain in a designated part of their annual reports why they
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decided not to do so. The monitoring of those explanations is left to shareholders
themselves. The code has been in place since 1993 and has had drastic effects
on the way firms are governed in the UK.
NON ANGLO-AMERICAN MODELS
In East Asian countries, family owned companies dominate. A study by
Claessens Djankov and Lange(2000) investigated the top 15 families in East
Asian countries and found that they dominated listed corporate assets. In
Countries such as Pakistan, Indonesia and the Philippines, the top 15 families
controlled over 50% of publicly owned corporations through a system of family
cross-holdings, thus dominating the capital markets. Family owned companies
also dominate the Latin model of corporate governance, that is companies in
Mexico Italy Spain France (to a certain extent) Brazil Argentina and other
companies in south America.
Europe and Asia exemplify the Insider system with share holder and stake
holder, a small number of listed Companies, an illiquid capital market where
ownership and control are not frequently traded, high concentration shareholding
in the hands of corporations, institutions, families or government. The insider
model uses a system of interlocking networks and committees.
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2.10. CORPORATE GOVERNANCE AND FIRM PERFORMANCE
In its Investor opinion survey of over 200 Institutional Investor first undertaken in
200 and updated in 2002 MC Kinsey found that 80% of the respondents would
pay a premium for well governed companies. They defined a well governed
company as one that had mostly outside director, who had no management ties,
undertook formal evaluation of its directors and was responsive to investors
requests for information on governance issues. The size of the premium varies
by market from 11% for Canadian companies to around 40% for companies
where regulatory backdrop was least certain (those in Morocco, Egypt and
Russia.
Other studies have limited broad perceptions of the quality of companies to
superior share price performance. In a study of five year cumulative returns of
fortune magazine survey of most admired firms, Antunovich etal found that those
“most admired” had an average return 125% whilst the least admired firms
returned 80%. In a separate study Business week enlisted institutional investors
and experts to assist in differentiating between boards with good and bad
governance and found that companies with the highest rankings had the highest
financial returns.
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On the other hand, research in to the relationship between specific
corporate governance controls and firm performance has been mixed and often
weak.
In board composition some researches have found support for the
relationship between frequency of meetings and profitability. Others have found
a negative relationship between the proportion of external directors and firm
performance, while others found no relationship between external board
membership and performance. In a recent paper, Bagahat B and Black B (2007)
found that Companies with more independent boards do not perform better than
other companies. It is unlikely that board composition has a direct impact on firm
performance.
2.11. ATTENTION TO CORPORATE GOVERNANCE
Corporate governance issues are receiving greater attention in both developed
and developing countries as a result of the increasing recognition that a firms’
performance and its ability to access long-term low cost investment capital. In
response to OECD ministers a reversed version of its “principles of corporate
governance”was produced in 2004.
Numerous high profile cases of corporate governance failure have focused
the minds of governments companies and the general public on the threat posed
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to the integrity of financial markets although it is not clear that any system will or
should prevent business failures, or that it is possible to provide a guarantee
against fraud.
2.12. THE BOARD OF DIRECTORS
A potent theoretical justification for the existence of board of directors is
that they are established by law and the boards are indispensable to all
government parastatals, Koonts (1973) observed that the corporation is an
artificial entity, established by a sovereign power through contract with a group of
owners and therefore must have real persons responsible for managing.
The instrument establishing government owned companies requires them
to have a board of directors to manage their affairs.
The government usually appoints the members of these boards. In many
cases, particularly where appointments are based on merit, board members
posses qualification and experience from a variety of backgrounds or areas
relevant to the operations of an enterprise.
This multiplicity of experiences and expertise are brought to bear on the
functioning of an enterprise with a resultant increase in effectiveness and
efficiency.
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2.12.1. CLASSIFICATION OF BOARD OF DIRECTOR
Directors are traditionally divided into executive directors and non-
executive directors broadly; executive directors tend to be persons who are
dedicated full time to their role in relation to the management of the company.
Non-executive directors tend to be ‘outsiders’ brought in for their expertise and to
lend a more impartial view in relation to strategic decisions. Many corporate
reforms in the late 1990s and early 2000s were focused on increasing the
number and role of non-executive directorships in public companies in the belief
that an impartial view was more likely to restrain corporate excess and egos and
reduce the likelihood of another major corporate scandal.
In practice, executive directors tend to dominate board meetings simply by
virtue of their much greater familiarity with the company and its internal workings.
Some countries also classify persons who are not actually directors as
either defacto directors, or ‘shadow’ directors. A defacto director is a person who
is not actually appointed as a director, but acts as if he were (often because he
wrongly believes that he has been properly appointed as a director). A ‘shadow’
director is also not a director at all, but seeks to control the direction and
management of the company without putting himself forward as being able to do
so.
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2.12.2. HISTORY
The development of a separate board of directors to manage the company
has occurred incrementally and indefinitely over legal history until the end of the
nineteenth century, it seems to have been generally assumed that the general
meeting was the supreme organ of the company, and the board of directors was
merely an agent of the company subject to the control of the share holders in
general meetings.
By 1906 however, the English court of appeal had made it clear in the
decision of automatic self cleansing filter syndicate co v Cunningham (1906) 2 ch
34 that the division of powers between the board and share holders in general
meeting, depended upon the construction of the articles of association and that
where the powers of management were vested in the board, the general meeting
could not interfere with their lawful exercise. The articles were held to constitute a
contract by which the members had agreed that “the directors and the directors
alone shall manage.
The new approach did not secure immediate approval, but it was endorsed
by the house of lords in Quin & Artens v salmon (1909) Ac 442 and has since
received general acceptance under English law, successive versions of Table A
have reinforced the norm that unless the directors are acting contrary to the law
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of provisions of the articles, the powers of conducting the management and
affairs of the company are vested in them.
The modern doctrine was expressed in Shaw & Sons (Sal ford) Ltd v Shaw
(1953) 2 KB 113 by Greer LJ as follows “A company is an entity distinct alike
from its share holders and its directors. Some of its powers may, according to its
articles, be exercised by directors; certain other powers may be reserved for its
share holders in general meeting. If powers of management are vested in the
directors, they and they alone can exercise these powers. The only way in which
the general body of share holders can control the exercise of powers by the
articles in the directors is by altering the articles or if opportunity arises under the
articles, by refusing to reflect the directors of whose actions they disapprove.
They cannot usurp the powers which by the articles are vested in the directors
any more than the directors can usurp the powers vested by the articles in the
general body of share holders.
It has been remarked that this development in the law was somewhat
surprising at he time as the relevant provisions seemed to contradict this
approach rather than to endorse it.
2.12.3. APPOINTMENT/ELECTION AND REMOVAL
Maccor M (1958), noted that in the case of semi-state companies, the
share holders is the state minister who carries the responsibility for the relevant
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department of state. He holds all the shares either through nominees under the
companies’ acts or where the corporation is formed by status, the total share
capital is held directly by the minister; in both instance the minister acts for the
government or state as the controlling shareholder and therefore he or the
government on his advice appoints the member of the board.
In the private sector, it used to be customary for the board to be elected by
the shareholders. Ideally this is desirable, however, the shareholders are not
known to be very analytical or evaluational body to examine the credentials of the
candidates and make rational elections. Therefore, there is an increasingly
tendency today for the chief executive officer to select members for the board
and recommend ratification of his action by the shareholders. Alternatively it is
also common for some firms to use a board committee which is charged with the
responsibility of selecting and screening potentials candidates for
recommendation to the share holders who approves or disapprove as the case
may be. Even more recently, there are many firms, in which the board of
directors is given the responsibility of selecting new directors and in effect,
perpetuating itself.
It is not yet known which method is more effective since effectiveness is
influenced by many other variables that are independent of the selection process.
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A case can be made however that powers to select or elect directors are lawful
representatives of the shareholders.
Directors according to Wikipedia (2007) may leave office if voted upon by
share holders in a general meeting as is obtained in most legal systems as well
as by resignation or death. In some legal systems, the directors may also be
removed by a resolution of the remaining directors.
In practice, it is quite difficult to remove a director by a resolution in general
meeting. In many legal systems, the director has the right to receive special
notice of any resolution to remove him; the company must often supply a copy of
the proposal to the director, who is usually entitled to be heard by the meeting.
The director may require the company to circulate any representations that he
wishes to make. Further more, the directors contract of service will usually entitle
him to compensation if he is removed and may often include a generous “golden
parachute” which also acts as a deterrent to removal.
2.12.4. EXERCISE OF POWERS
The exercise by the board of directors of its powers usually occurs in
meetings, most legal systems provide that sufficient notice has to be given to all
directors of these meetings and a quorum must be present before any business
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may be conducted. Usually a meeting which is held without notice having been
given is still valid so long as all the directors attend, but it has been held that a
failure to give notice may negotiate resolutions passed at a meeting, as a
persuasive oratory of a minority of directors might persuade the majority to
change their minds and vote otherwise.
In most common law countries, the powers pf the board are vested in the
board as whole and not in the individual directors. However, in instances an
individual director may still bind the company by his acts by virtue of his
ostensible authority.
2.12.5. CRITERIA FOR THE SELECTION OF BOARD MEMBERS (BOARD
MEMBERS SPECIFICATION)
Ojigbani J.C (2003) listed some of the criteria that have been used for the
selection of members to include the following:
A. SKILLS AND EXPERTISE
This should be those that are needed by the company. The skill therefore
will vary from company to company and from industry to industry. The wealth of
the skills and expertise will be profitable to operating managers as they make
crucial decisions for company’s survival.
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B.EXPERIENCE AND GENERAL COMPETITIONS
Directors should understand the total operation of the company and
industry. This helps directors in the use of the systems approach to solving the
problems of the corporation. The directors should be concerned with the total
system survival.
C.OBJECTIVITY
Directors should be able to analyse or evaluate the performances of
corporate management without any biases. Objectivity prepares the ground for
constructive criticism.
D. RISK ATTITUDE
The potential director’s attitude towards risk should be evaluated. Very
conservative directors, kill creativity and innovations while directors with too
liberal attitude tend to lead the company to very risky ventures that almost
approach gambling.
E. TIME AVAILABLE
Directors should comprise people who have the time not VIPs, who are
already over loaded with other professional responsibilities.
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F. CIVIC INVOLVEMENT
Directors are supposed to be socially visible and as it were, they ought to
act as the public relations officials for the firm. This improves company’s image.
G. ELEMENTS FOR BOARD DIVERSITY
The directors should represent different spheres of opinion.
H. REPRESENTATION OF PUBLIC SERVED BY THE CORPORATION
This suggests that directors should be fully representative of all the public
which have some interest in the organization.
It ought to be noted that after the board is selected and constituted, the
directors can be grouped into various committees and sub-committee of the firms
operation. This committee report periodically to the full board. The size and
composition of boards vary with the size of the firm itself, industry practice,
number of share holders, nature of company operation etc.
In evaluating the composition of board of directors, some of factors ought to
be considered, Milton F.H (1978) lists some of these factors as:
1 The size diversity and geographical scope of the organization’s
operation (local regional national and international)
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2 Complexity of the organizations production process and products,
services and operations (technical/non-technical)
3 Nature of company’s market (industrial/consumer) or the public
agency’s clientless
4 Dominance of a particular organizational function (such as
research and development, manufacturing, marketing and
consultative skills)
5 Stability of the organization (rapid growth through internal
development acquisition/level of decline of sales volume
relationship of economic cycle to public expenditure
6 Needs for new or additional financing (frequency size and nature)
7 Degree of concentration of ownership incorporation or
representation among constituent groups on government board
8 Importance of the boards in building and maintaining external
relationships (companies image, trade relationship, government
relation etc)
2.12.6. DUTIES OF THE BOARDS OF DIRECTORS
Because directors exercise control and management over the company,
the law imposes strict duties on directors in relationship to the exercise of their
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duties. The duties imposed upon directors are fiduciary duties similar to those
that the law imposes on those in similar position of trust: agents and trustee.
1. ACTING IN GOOD FAITH
Directors must act honestly and in good faith. The directors must act “bona
fide” in what they consider- not what the court may consider is in the interest of
the company. However the directors may still be held to have failed in this duty
where they fail to direct their minds to the question of whether in fact a
transaction was in the best interest of the company.
Difficult questions can arise when treating the company too much in the
abstract. For example it may be for the benefit of a corporate group as a whole
for a company to guarantee debt of ‘sister’ company even though there is no
ostensible ‘benefit’ to the company giving the guarantee. Similarly, conceptually
at least, there is no benefit to a company in returning profit to share holders by
way of dividends.
Lemon etal (2006) illustrates a more pragmatic approach that directors are
not required by the law to live in an unreal region of detached altruism and to act
vague mood of ideal abstraction from obvious facts which must be present to the
mind of any honest and intelligent man when he exercises his power as a
director.
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2. PROPER PURPOSE
Directors must exercise their powers for a proper purpose. Whilst in many
instances an improper purpose is readily evident, such as a director looking to
feather his or her own nest or divert an investment opportunity to a relative, such
breaches usually involve a breach of the directors duty to act in good faith, is
serving a purpose that is not regarded by the law as proper
2. UNFETTERED DISCRETION
Directors cannot, without the consent of the company, fetter their discretion
in relation to the exercise of their powers and cannot bind themselves to
vote in a particular way at future board meetings. This is so even if there is
no improper motive or purpose and no personal advantage to the director
This does not mean however that the board cannot agree to the company
entering into a contract which binds the company to a certain course, even if
certain actions in that course will require further board approval.
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The company remains bounds, but the directors retain the discretion to
vote against taking the future actions (although that may involve a breach by the
company of the contract that the board previously approved.
4. “CONFLICT OF DUTY AND INTEREST”.
As fiduciaries, the directors may not put themselves in a position where
their interest and duties arein conflict with the duties that they owe the company.
The law takes the view that good faith must not only be done but must be
manifestly seen to be done and zealously patrols the conduct of directors in this
regard and will not allow directors to escape liability by asserting that his decision
was infact well founded.
Conflicts of duty and interest has three sub categories
a. Transactions with the company
By definition where a director enters into a transaction with a company there is a
conflict between the directors interest (to do well for himself out of the
transaction) and his duty to the company(to ensure that the company gets as
much as it can out of the transaction) This rule is so strictly enforced that even
where the conflict of interest or conflict of duty is purely hypothetical the directors
can be forced to disgorge all personal gains arising from it.
b. Use of corporate property, opportunity or information.
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Directors must not without the formal consent of the company, use for their own
profit the companies assets, opportunities or information. This prohibition is much
less flexible than the prohibition against transaction with the company
c. Competing with the company
Directors cannot clearly compete directly with the company without a conflict of
interests arising. Similarly they should not act as directors of competing
companies as their duties to each company would then conflict with each other.
2.12.7. THE FUTURE
Historically director’s duties have been owed almost exclusively to the company
and it members and the board was expected to exercise its powers for the financial
benefit of the company.However more recently there have been attempt to soften the
position and provide for more scope of directors to act as good corporate citizen. For
example in the united kingdom the companies act 2006, not yet in force will require a
UK company “ to promote the success of the company for the benefit of its members
as a whole”, but sets out six factors to which a director must have regards in fulfilling
the duty to promote success. These are
1 The likely consequences of any decision in long term.
2 The interest of the company’s employees
3 The need to foster the company’s business relationships with suppliers,
customers and others
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4 The impact of the company’s operations on the community and the
environment
5 The desirability of the company maintaining a reputation for high
standard of business conduct
6 The need to act fairly as between members of a company
2.2.8. PROBLEMS WITH THE BOARD OF DIRECTORS
Ojigbani (ibid) highlighted that one of the greatest problems with board of
directors is that they are not sufficiently rewarded/motivated for their job to really give
it an effort.
The average director gets a token payment or allowance for his time and this
eventually is reflected in his performance. Most outside directors have other
business interest that must take preference. Because of these reasons it is often
very difficult to get complete attendance from any board.
To this must be added that in order to make any intelligent contribution, the
directors must be informed and educated on the issues and this takes a
considerable amount of time. What is worse, management often does not provide
this information and therefore the directors are not given the opportunity to render
effective service. In some organization, the board of directors seldom meets
frequently enough to be of any real value to the organization. This may be because
the management does not like the board to look over its shoulder and question the
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operating decisions of the enterprise. As it turns out quite often, the level of
utilization of the board of directors rests solely with top management upon whose
recommendations the board members were selected.
2.12.9. FAILURES
While the primary responsibility of the boards is to ensure that the corporation’s
management is performing its job correctly, actually achieving this in practice
can be difficult. In a number of “corporate scandals’ of the 1990s, one notable
feature revealed in subsequent investigations is that board were not aware of
the activities of the managers that they hired, and the true financial state of the
corporation. A number of factors may be involved in this tendency.
a. most boards largely rely on management to report information to them thus
allowing management to place the desired ‘spin’ on information or even
conceal or lie about the true state of a company
b. Board of directors are part-time bodies whose members meet only
occasionally and may not know each other particularly well.
This unfamiliarity can make it difficult for board members to question
management.
c. CEOs tend to be rather forceful personalities.
In some cases CEOs are accused of exercising too much influence over
the company’s board.
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d. Directors may not have the time or the skill required to understand the
details of corporate business allowing management to obscure problems.
e. The same directors who appoint the present CEO oversee his or her
performance. This makes it difficult for some directors to dispassionately
evaluate the CEO’s performance.
f. Directors often feel that a judgment of a manager particularly one who has
performed well in the past should be respected. This can be quite legitimate
but poses problems if the managers judgment in indeed flawed.
g. All of the above may contribute to a culture of not rocking the boat” at board
meetings.
2.13. THE WAY FORWARD IN AN ORGANIZATION
There are some essential principles which when applied by managers,
superiors and board of directors of an organization would sustain productivity
and high quality management
The principles are as follows
a. Accept your mistake, don’t try to blame others for your mistakes, admit it
when you are wrong and always use it as a learning opportunity.
b. Avoid gossiping and unconstructive criticisms especially in the office or in a
public place.
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c. Consider everyone important. In any organization everybody is important
from the lowest officers to the chief executive officers.
d. Avoid unnecessary complaints. It is useful to appraise situation from
various perspectives before finding faults.
e. Competence and commitment: competence means being adequately
equipped with the knowledge and skills needed for the performance of specific
duties while commitments imply the willingness to perform.
f. Courtesy: visitors and callers deserve some courtesy from every officer in
any organization.
g. Effective and efficient communication: this is one of the keys towards the
achievement of the organizational goals and objectives.
h. Firmness and fairness: this implies ensuring that all are treated equally
without favoritism
j. Manpower development: this involves training and retraining of staff. This
may be through in service or educational programmes.
Any organization that desires to achieve its goals and objectives should not
overlook the need to develop its manpower.
k. Positive self image: this entails self confidence and having high self esteem
of oneself. It helps one to adjust very well to his environment, encourage good
relationship with others, ability to face problems positively and shape his
environment when it is possible and necessary.
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l. Respect for authority: Any officer worthy of his professional calling needs to
be very sensitive to people’s feelings, situation, happiness and miseries. If the
staff is sensitive he will contribute meaningfully to any given circumstance. All
officers should respect the rules and regulation of the organization.
m. Staff motivation: Everyone that is worthy of incentive should be duly given,
for the staff to put in their best towards the attainment of organization
objectives and goals.
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2.14. MANAGING BOARD MEETINGS
Marie .c.etal (2003) posits that getting the maximum out of each board
meeting takes considerable work. Successful board meetings do not just happen.
It requires
1. PREPARATION – A board meeting is not meant to be a spontaneous
interaction. It has to be planned. Chief executive officers should prepare for each
board meeting as they would for a major-customer sales pitch.
2. ORGANISATION – it is important to think through the agenda carefully before
hand and segment the items based on what is actually required from the board.
3. APPROPRIATE STYLE OF MEETING MANAGEMENT.-. A board meeting is
not just another meeting. A CEO must consciously think about how to conduct it.
It is important to think about the format – should it be formal or informal? It is
important to think of the length- should be a half day or a full day, should it be
kicked off with a pre meeting dinner? It is not necessary or even desirable to
continue the style employed by the former CEO. In fact, it makes sense to
deliberately change some aspect of the way the meeting is conducted to
establish that it is not just continuation of the same process and a routine.
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4. Corporate Governance International Journal “ A board culture of corporate
Governance” vol 6 issue 3 2003. 5. Drucker P (1968) “Practice of management, London: pan books limited. 6. Hanson A.E.D. (1968) “Organizational and Administration of public enterprises
New York. 7. Higson C.J. (1986), Public enterprise and economic development, the Korean
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11. Koontz O.D.W. (1980) “Management” Japan MC Grawhill.
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12. Marie- Caroline V.W: How to run a company, Crown business, New York.
& Dennis C.C. 13. OECD (2004) “Principles of Corporate Governance” Paris OECD. 14. Ojigbani JC (2003): Important of board of Directors in enhancing
effectiveness and efficiency in organizations “ A study of selected companies in Abia State.
15. They rule, net (http: // they rule. Net/) 16. Whiltington. G “ Corporate Governance and the Reputation of financial
reporting Accounting and business research, Vol.21993, Corporate Governance special issue pp 311-319.
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CHAPTER THREE
RESEACH METHOLOGY
3.1. INTRODUCTION
This chapter deals with the research methodology adopted for this study.
Issues to be discussed include the research design, population of study. Sources
of data for the study, the design of the questionnaire and its administration,
method of data analyses.
3.2. RESEARCH DESIGN
Any research study must be based on specific research design as to guide
the researcher in collecting and analyzing data for a given study and also
determine the relationship among variables and making an inference about the
variable so determined.
Abadella and Divine (1979) shows that research design is like a guide in
collecting and analyzing data for study.
In this study, the survey design was adopted. Data was collected from the
respondents using questionnaires
3.3. POPULATION OF STUDY/SAMPLE SIZE DETERMINATION
The population for this study comprises the staff of Imo Transport
Company; about 100 questionnaires were issued considering the small
number of middle and senior staff of the company
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The sampling size answers the questions of how many people are to be
surveyed. The sampling size of a population is important except when the size of
the population is small.
There is no fixed number that could be considered satisfactorily, the size
can be determined in so many ways
An example is the formula propounded by Yare Yamens (1973)
n = N
Where n = sample size
N = population size
e = margin of error
i = constant
3.4. SOURES OF DATA
The researcher made use of primary and secondary data
Primary source of data: this refers to the statistical materials which the
investigator originates for the purpose of inquiry in hand. The primary data used
here was collected through questionnaires administered.
Secondary source of data: these are all other data used in this project which was
not collected through any of the means previously mentioned. This was obtained
through extensive research and involves various studies, articles, books and
journals.
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3.5. DATA COLLECTION INSTRUMENT
The questionnaires were used to collect primary data; the questionnaires were
administered to the respondents through their sectioned heads. The library and
the internet served as the main resource centre for secondary data.
3.6. QUESTIONNAIRES DESIGN AND ADMINISTRATION
The questionnaire used contained close ended questions. The respondents
were required to tick the appropriate response. The objective was to make the
completion of the questionnaire as simple as possible for the respondents. And
also it was envisaged that it will make for easy classification and analysis of data.
Questionnaires were administered through the chief administrative officer, via
their sectional heads. The completed questionnaires were collected back through
the same route
3.7. METHOD OF DATA ANALYSIS
Data collected through the questionnaires were first classified and arranged in
frequency tables.
The analysis of questionnaires was done using the percentage method of analyses found by A% = a x 100 N
A%=percentage of responses to one option over the total responses to the
item.
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A = Number of responses to one option of each item of the
questionnaire
N = Total number of responses to an item.
The chi-square (x2) was also applied, in analyzing the hypothesis.
The chi-square measures the difference between the expected
frequencies and the observed frequencies. It is calculated by the formula
x2 = E (0 – E)2 E
Where O = Observed frequency
E = the expected frequency
0.1 is the level of significance.
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REFERENCES
1. Aham A. (2000), Research Methodology in business and social science, Owerri, Canon Publishers Nigeria Limited.
2. EG BUJOR A.A. (2006), An analyses of the impact of Internal control system on the effectiveness and efficiency of a business organization, a case study of Rancco Food and Packaging Company Limited Enugu, Department of Management University of Nigeria.
3. Ojigbani J.C. (2003), Importance of board of directors in enhancing effectiveness and efficiency in organizations, a study of selected Companies in Abia State. Department of Management, Imo State University Owerri.
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CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1. INTRODUCTION
This chapter deals with the presentation, interpretation and analyses of the
various data collected using appropriate analytical tool. Firstly the data collected by
means of questionnaires were tallies and presented in frequency tables.
The analyses of the data in respect of a particular question are immediately
followed by the presentation. This allows for clarity and simplicity.
The resulting hypothesis is also tested to show the result obtained.
4.2. ANALYSES OF RESPONSE TO QUESTIONNAIRE
The staff strength of the Administration unit of ITC is rather small. 100
questionnaires were distributed and all were returned.
TABLE 1
SEX NUMBER PERCENTAGE
Male 34 34
Female 60 66
Total 100 100
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From the above table, 66 percentage of the respondents are females and
34% males.
TABLE 2
AGE (YRS) NUMBER PERCENTAGE
Below 21 18 18
21-30 52 52
31-40 20 20
41-50 10 10
51 and above 0 0
Total 100 100
From the above table 18 of the respondents are below 21 years of age,
52 percent are between 21, 30 years, 20% is between 31-40 years, and
10 percent is between 41-50 years while there was no respondent above
51 years.
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TABLE 3
MARITAL STATUS NUMBER PERCENTAGE
Single 48 48
Married 52 52
Divorced / Separated 0 0
Widowed 0 0
Total 100 100
From the above table, 48 percent of the respondents are single, while 52 percent
are married. None of the respondents were divorced / separated nor widowed.
TABLE 4
LEVEL OF EDUCATION NUMBER PERCENTAGE
Primary 0 0
Secondary 62 62
Tertiary 26 26
Postgraduate 12 12
Total 100 100
From the above table, 62 percent of the respondents have secondary
school education, 26% tertiary and 12% postgraduate education.
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TABLE 5
STAFF CATEGORY NUMBER PERCENTAGE
Senor 16 16
Middle 28 28
Junior 56 56
Total 100 100
From the above table 60 percent of the respondents are senior staff, 28
percent middle level staff and 56 percent junior staff.
TABLE 6
LENGTH OF SERVICE (YRS) NUMBER PERCENTAGE
1-5 62 62
6-10 24 24
11-15 8 8
Above 15 6 6
Total 100 100
From the above table 62 percent of the respondents have put in between
1-5 years of service, 24 percent 6-10 years 8 percent 11-15 years and 6%
above 15 years.
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SECTION B
RESPONSE TO QUESTIONNAIRES
QUESTION 7
HAVE YOU HEARD ABOUT CORPORATE GOVERNANCE
RESPONSE NUMBER PERCENTAGE
YES 78 78
NO 22 22
TOTAL 100 100
From the above table, 78 percent of the respondents have heard about
corporate governance, While 22 percent have not heard of it.
QUESTION 9
DO YOU FEEL THE COOPERATE GOVERNANCE OF ITC CONTRIBUTES
POSITIVELY TO ITS PROFITABILITY
TABLE 8
RESPONDENT NUMBER PERCENTAGE
Yes 86 86
No 24 24
TOTAL 100 100
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QUESTION 10
DO YOU BELIEVE THAT THE WAY THE BOARD OF DIRECTORS ARE
APPOINTED (POLITICAL) IS GOOD FOR THE PROFITABILITY OF THE
COMPANY
TABLE 9
RESPONDENT NUMBER PERCENTAGE
YES 38 38
No 62 62
TOTAL 100 100
QUESTION 11
DO YOU AGREE THAT FREQUENT BOARD MEETINGS CONTRIBUTE
POSITIVELY TO THE PROFITABILITY OF THE COMPANY
TABLE 10
RESPONSE NUMBER PERCENTAGE
Yes 48 48
No 52 52
TOTAL 100 100
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QUESTION 12
DO YOU AGREE THAT FREQUENT CHANGE OF THE BOARD OF
DIRECTORS CONTRIBUTE POSITIVELY TO THE PROFITABILITY OF THE
COMPANY
TABLE 11
RESPONSE NUMBER PERCENTAGE
YES 48 48
No 52 52
TOTA