CORPORATE GOVERNANCE AND IT'S EFFECT ON ORGANIZATIONAL PERFORMANCE

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The institutions of governance provide a framework within which the social and economic life of countries is conducted. Corporate governance concerns the exercise of power in corporate entities. Corporate Governance is the key foundation for firms to be more productive and have a long existing product life cycle. The levels of institutional collapse and firm’s failure worldwide from unforeseen circumstances, there have been new concepts or theories on how an organization should effectively run. Through past researches it has been observed that the Management of firm and survival of companies are associated with the type of Management that is in place and the global competitive environment requires sound corporate governance. This research study will examine the effects of healthy corporate governance in an organization. It looks into the factors necessary to achieve successes in relation to the Board of Directors of an organization; Corporate Ethics; Mechanisms of Corporate Governance; Responsibilities of Shareholders; Structure and Responsibilities of a Board; and Organization of Audit. This research focuses on Corporate Governance in the Nigerian Organizations and it looks into ways in which mechanisms in relation to Corporate Governance can be put into place to achieve proper Management, so as to achieve effective productivity. Nigeria is not left out in the campaign for proper Corporate Governance, especially with recent events of Nigerian Banks closing down or Banks being crippled through unprofessional decisions made by those on the Board. This approach not only narrows the dimensions of corporate governance to a restricted set of interests, as a result it has a very limited view of the dilemmas involved in corporate governance. There are competing corporate governance systems in the market based Anglo-American system; the European relationship based system; and the relationship based system of the Asia Pacific (Clarke 2007). This diversity of corporate governance systems is based on historical cultural and institutional differences that involve different approaches to the values and objectives of business activity. Furthermore the importance of strategic choice in the determination of governance systems “Entrepreneurs, investors and corporations need the flexibility to craft governance arrangements that are responsive to unique business contexts so that corporations can respond to incessant changes in technologies, competition, optimal firm organization and vertical networking patterns…To obtain governance diversity, economic regulations, stock exchange rules and corporate law should support a range of ownership and governance forms”. The OECD provides the most authoritative functional definition of corporate governance:

"Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance." However corporate governance has wider implications and is critical to economic and social well being, firstly in providing the incentives and performance measures to achieve business success, and secondly in providing the accountability and transparency to ensure the equitable distribution of the resulting wealth. The significance of corporate governance for the stability and equity of society is captured in the broader definition of the concept offered by Sir Adrian Cadbury (2002): "Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society." It is therefore logical to study the influence of Corporate Governance mechanism on performance of companies.