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THE EFFECT OF GOOD CORPORATE GOVERNANCE

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND TO THE STUDY     

Corporate Governance can be defined as the system by which companies are directed and controlled. Statuary control of corporate governance has been with us for a long time and has increased overtime. Corporate Governance is the system by which companies are directed and managed in the best interest of the owners and investors. It refers to the role of the board of directors, executives and non executives. Shareholders right and other actions taken by shareholders to influence corporate decisions.

Corporate Governance covers all the general mechanisms by which management are led to act in the best interest of the companies’ owners. According to Piplock (2004) “Corporate governance is the set of rules and practices that government relationship between the managers and shareholders of corporations as well as other stakeholders like employee creditors, tax authorities, trade unions, suppliers and other public authorities.

THE ESSENCE OF GOOD CORPORATE GOVERNANCE                    

1. Corporate governance aims to promote culture in which directors will give privacy to the ethical pursuit of shareholders best interest.

2. Corporate governance allows a review of audit regulation corporate disclosure framework and shareholders participation to improve the accountability and transparency of companies.

3. It ensures that audit committee assist the board of directors in its oversight of the integrity of the financial statement of the company, as well as compliance with legal and regulatory requirement and the performance of the company’s internal audit function.

4. It renders companies to be more credible, domestically and internationally, and ensure managerial system that promote creative and progress entrepreneurship.

5. Corporate governance helps to maximize corporate value by enhancing the transparency and efficiency of corporation for the future.

6. The role of corporate governanceis to prevent expropriation to investors by managers.

7. Good corporate governance would prevent theft and fraud thought mechanisms designed by the board and management.

8. Corporate governance deals with the ways providers of finance to companies assure themselves of getting a return on their investment.                                

STRATEGIC MANAGEMENT IN CORPORATE GOVERNANCE

Strategic management is the process of making and implementing strategic decisions or corporate decision it is about the process of strategic change (Adeleke, Ogundele and Oyenuga 2014). Bowman and Asch (1987) define it as the match an organisation makes between its own resources and threats, risks and opportunities created by the external environment in which it operates. Strategy can be seen as the key link between what an organisation wants to achieve its objectives and policies adopted to guide its activities and plans for achieving those goals stated in a way as to define the business the organisation is engaged or is to be engaged in.

The importance of strategic management within he framework of Corporate Governance are:

(1) The concept of strategy is assumed to be concerned with the organisation as a whole.

(2)  It is concerned with the long-term direction of an organisation.

(3) It is distinguished from operational matters which are concerned with the day-to-day aspects of running an organisation.

(4) The skills of strategic management are considered to be a high order and often assumed to be found at the senior levels within the organisation.

Strategic decisions are concerned with the following issues.

2. The scorp of the organizational activities e.g market to serve and in which areas.

3. How an organisation responds to its external environment.

4. The long-term direction of an organisation rather than the day-to-day issues.

5. Matching the organisation activities with it resources capabilities.

THE PRINCIPLES OF CORPORATE GOVERNANCE             

The following could serve as basic principles of corporate governance to be adopted.

1. Lay solid foundation for management and oversight.

2. Structure the board to add value.

3. Promote ethnical and responsible decision making.

4. Safeguarding the integrity of financial reporting

5. Making continuous, timely and balanced disclosure to Stock Exchange.

6. Respect the right of shareholders.

7. Recognize and manage risk

8. Encourage enhanced performance  evaluation.

9. Remunerate fairly and responsibly.

10. Recognize the legitimate interest of stakeholders.

1.2   STATEMENT OF THE PROBLEM

Due to the high rate of fraudulent practices and financial mismanagement of funds, assets and information in organisation, so many business including banks have gone down or liquidated. This high rate of mismanagement will be the statement of problem.

1.3   OBJECTIVES OF THE RESEARCH WORK                   

The following  are the objectives of the study:

a.  To appraise the impact of good corporate governance on banks and banks profitability.

b. To appraise the types of decision taken by management towards the profitability of banks.

c. To appraise the principles of good corporate governance system.

d. To appraise the responsibilities of key organs of a company.

e. To make necessary recommendation at the end of the research work.

1.4    HYPOTHESIS                     

In our research work, Ho will be taken as the NULL hypothesis.

Ho: corporate governance does not contribute to the profitability of banks.

Hi: Corporate governance contributes to profitability of banks.

1.5   RESEARCH METHODS     

The research work will involve personal interview conducted in the bank chosen as our case study and the administration of well prepared questionnaires.

1.6  SCOPE OF THE RESEARCH WORK     

Our scope of work will be limited to Zenith Bank Nigeria Plc, Head office Victoria Island.

1.7  DEFINITION OF TERMS

1. AUDIT COMMITTEE: A group of people in an organisation who investigate the financial system and other control system within the organisation.

2. FINANCIAL STATEMENT: A statement of financial information about a business position, profitability and adaptability.      

3. ENTREPRENEURSHIP: Activities that involves starting and running a business and taking financial risks.

4. INTERNAL AUDIT: An act of appraising and evaluating the audit work carried out in an organisation.

5. INVESTOR: A person or a business that puts money into a project or an activities that will yield some benefits in the future.

6. INVESTMENT: An act of putting money into a project or an activity that will bring some future benefits.

7. MANAGEMENT: The way in which a business planned, organized and controlled to achieve objectives.

8. SHAREHOLDERS: These are owners of companies who invest their money in the companies shares.

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