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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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