Click to edit Master title style Corporate Governance, Growth & Sustainability Presented by Tinuade T. Awe General Counsel |Head of Regulation At The EY/GRI/NSE Governance & Sustainability Seminar 16 March 2017
About The NSE 16 March 2017 2
Why This Topic? 16 March 2017 3
Agenda Introduction Corporate Governance Sustainability Res Ipsa Loquitur 16 March 2017 4
Introduction Good corporate governance is not an end in itself. It is a means to support economic efficiency, sustainable growth and financial stability. It facilitates companies' access to capital for long-term investment and helps ensure that shareholders and other stakeholders who contribute to the success of the corporation are treated equitably. 2. Good corporations recognize 1. Equity investments require that the equity contract requires good corporate governance. that they provide credible This is the equity contract. disclosure. 3. Good corporations recognize 4. Both contracts require that that the social contract requires you disclose and that you have that they carry other something to disclose. Keeping stakeholders along. silent is not an option anymore. 5. The absence of credible disclosure by the Issuer will have negative macroeconomic effects: the money and capital market will not support the development of economically significant new industries. 16 March 2017 5
What is Corporate Governance? Corporate governance is a Corporate governance is system of direction, feedback concerned with holding the and control using regulations, balance between economic and performance standards and social goals and between ethical guidelines to hold the individual and communal goals. Corporate Governance involves Board and senior management . . The aim is to align as nearly a set of relationships and the accountable for ensuring ethical as possible the interests of networks between a Company’s behavior – reconciling long- individuals, corporations and Management, its Board of term customer satisfaction with society. directors, its Shareholders and shareholder value – to the Stakeholders. Sir Adrian Cadbury; Corporate Governance benefit of all stakeholders and Overview, 1999 [World Bank Report] USAID society. Philippines SEC’s Code of Corporate Governance for publicly listed companies, 2016 . 16 March 2017 6
Corporate Governance in Nigeria CODE OF CG FOR THE FUTURE OF CG IN FRC Code COMPANIES & ALLIED CODE OF CG FOR BANKS INSURANCE NIGERIA MATTERS ACT, 1990 IN NIGERIA COMPANIES Effective, then In January 2013, the federal Only covering specific activities, such as Issued by the CBN following the bank Suspended government inaugurated a steering insider dealing, fiduciary duties of Issued by NAICOM consolidation exercise of 2005 committee to develop a new code directors, etc. of CG for the nation. <1990 2011 2003 2013 2006 2008 2009 2014 2016 - 17 CG REQUIREMENTS FOR BANKS AND OFIS IN CODE OF CG FOR CODE OF CG FOR NIGERIA PENSION OPERATORS Issued by the PUBLIC COMPANIES Bankers’ committee. Issued by PENCOM following the CODE OF CG FOR (2011) Launch of Corporate Triggered by the reform of the pension sector in 2008 PUBLIC COMPANIES Governance Rating financial crisis of the Update of 2003 code following the System on the NSE early 1990s global financial crisis. Issued by the Bankers’ committee. Financial Reporting Council of Nigeria Originally issued by the SEC Act 2011 16 March 2017 7
Rationale for Good Corporate Governance The collapse in The collapse Bank of Credit the US of major of some Commerce & entities in the companies in Industry Polly Peck Int’l early 2000s the 1980s Barings Bank and 1990s in the UK Promoting economic growth and reducing poverty. Good CG are Creating value, driving growth and now essential business longevity pre-requisites Promoting market efficiency. for: Enhancing financial discipline. Encouraging private financial flow. Rationale for Empirical evidence Lower country risk premiums. Corporate confirm that Lower costs of capital Higher trading strong CG are Governance volumes/liquidity found to be Business sustainability associated with: Companies Experience higher capital costs and risk with weak premiums on their bonds Poor stock performance CG Possible collapse of the organization standards: 16 March 2017 8
Circle of a Healthy Corporate Governance Environment 7 Simple Steps Board and Awareness Management Board of Commitment Directors Executive Management Analysis and Correction Design Tactical Teams Operational Work-force Review Approval Implementation 16 March 2017 9
Principles of Good Corporate Governance Independence : Put procedures and Openness, Honesty and structures in place Transparency: Clear and to minimize or robust information on avoid completely material matters affecting the potential conflicts company in a timely fashion of interest Ethics: Conduct and corporate behavior that is in accordance with a code of ethics and a set of moral values Accountability: Directors Fairness: A principle that are accountable to the company should do shareholders for the equity amongst decisions they make and the shareholders and entity is accountable to stakeholders society 16 March 2017 10
Benefits of Good Corporate Governance 3 1 2 Additional Benefits Risk-mitigation Delineation of Roles Reputational Mitigation of the risk Risk Prevention of of misleading or false Strong reputation domination of financial reporting. and therefore lesser companies by self Improved investor confidence likelihood of serving chief exposure to Higher valuation of the firm executives. reputational risk. Access to cheaper funds 4 5 6 Competitive advantage Business Long-term Confidence Success Shareholders & Growth Enhanced liquidity and tradability Good governance Higher probability of Providing the Better operational performance encourages investors achievement of degree of to hold shares in the Improved financial performance commercial success. confidence that is companies for longer Improved financial Good governance and necessary for the terms as companies performance good leadership in proper often benefit from management often functioning of a having shareholders go together. market economy, who have an interest and has been in the longer-term linked to prospects. organizational growth and 16 March 2017 11 development.
Global Trends in Corporate Governance Public companies globally are faced with the following trends… 16 March 2017 12
Learnings from The Novo Mercado Story I Reduced perception of risk generates a positive effect on share value and liquidity. 2007 - 2015 100 companies (37% of listed companies which make up 65% of Growth Phase market capitalization) 2000 - 2007 Over 81 IPOs Investment drought Over 500,000 individual investors (Novo Low liquidity Mercado) levels Less than Dec 2000 80,000 Bovespa Individual (Brazil’s Stock investors Exchange) 1999 launches Novo Mercado 16 March 2017 13
Learnings from The Novo Mercado Story II Brazilian companies stopped relocating to more shareholder friendly jurisdictions and increased global regulatory competition which saved the economy. The Novo Mercado companies currently outperform those on the BOVESPA index. Foreign investors were attracted, and companies issued more secondary offerings. In October 2007, Bovespa went public; its market capitalization became the largest among all emerging market countries. 16 March 2017 14
What is Sustainability? There is no universally agreed definition of sustainability. The most often quoted definition comes from the UN Bruntland Commission which stated that “sustainable development is that which meets the needs of the present without compromising the ability of future generations to meet their own needs. ” 16 March 2017 15
Sustainability at the NSE The Nigerian Stock Exchange recognizes its crucial role in supporting economic growth by ensuring an efficient and sustainable capital market In 2013, NSE developed a comprehensive Corporate Social Responsibility strategy and commenced the implementation of policies and procedures that will align its business strategy with good corporate citizenship. The NSE has also adopted global best practice principles and frameworks to support this effective mainstreaming. 16 March 2017 16
NSE: Sustainability Initiatives Interestingly, during this period there have been three major sustainability initiatives: The first is the United Nations Sustainable Stock 1 Exchanges (SSE) initiative Model Guidance (MG) on Reporting Environmental, Social, and Governance (ESG) Information to Investors. It was launched in September 2015. The second was the World Federation of 2 Exchanges (WFE) Guidance & Recommendations which was launched in November 2015. Lastly is the Financial Services Regulation Coordinating Committee (FSRCC) which developed The Nigerian Sustainable Finance 3 Principles (NSFP) which are aimed at guiding its members to integrate ESG imperatives in their operations. The NSFP was finalized in May 2016. 16 March 2017 17
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