“CORPORATE GOVERNANCE PRACTICES: THE IMPACT OF BUDGETARY CONTROL TECHNIQUES IN NIGERIAN ORGANIZATION

ABSTRACT

This  research  work  is  concerned  on  “Corporate Governance Practice: The Impact of Budgetary Control Techniques in the Nigeria Organization”. Specifically, the researcher identified four objectives to be achieved in the course of the research work. The researcher in the course of this research work employed the use of both historical and survey research design. The researcher  divided the

question into two part: the impact and performance measures of corporate governance in Nigeria organization and the second part deal on the area of conflict between the top management and implementation on budgetary control techniques. Moreso, the researcher adopted the stratified random sampling in choosing/selecting the population and sample for the study and however the researcher used extensively review of other people’s literature on the work. Data collected were analyzed and presented with percentage, tables and charts and the researcher made use of researcher questions. In view of the findings made, it is recommended that adequate institutional framework and code of conduct should be put in place where aggrieved parties can seek redress, Board of  Director  should  be  sanctioned  where  the  failed  to display their roles to stakeholders and being transparent and accountability  to stakeholders  and members of the public, information should be properly disseminated to the parties involve in the preparation, analysis and implementation committee to avoid under delay implementation of the budget.

CHAPTER ONE INTRODUCTION

1.1  BACKGROUND OF THE STUDY

“Corporate   governance   is   a   new   system   by   which business corporations are directed and controlled” as defined by the organization of Economic Corporation and development (OCED). In May 1999 ministers representing the 29 governments which comprises OCED members voted unanimously to endorse OCED principles of corporate governance. These principles were negotiated over the course of a year in consultation with the key players in the market. They constitute the chief response by government to the G-7 summit leader’s recognition of corporate governance as an important pillar in the architecture of the 21 century global economy. The principle were welcomed by the G-7 leaders at the cologne summit in June 1999 and are likely to act as signpost for activity in this area by the international monetary fund,   the   world   bank,   the   united   nations   and   other international organizations. In 1991, the OCED and the world bank signed a memorandum of understanding to broaden the global       policy   dialogue   and   corporation   on   corporate

governance  reforms  and  to  respond  the  need  of  individual countries to improve corporate governance.

Corporate governance, as a concept can be viewed from at lest two perspectives; a narrow one in which it is viewed merely as being concerned with the structure within which a corporate entity or enterprise receives its basic orientation and direction (Rivegasira, 2000:268). The narrow view perceives corporate governance in term of issues relating to shareholders protection, management control and the popular principal agency problems of economic theory. In contrast, Sullivan (2000:20), a proponent of the broader perspective, uses the examples  of  the  resultant  problems  of  the  privatization countries since the 1990s, to prove that issues of institutional, legal and capacity building as well as the rule of law are the very heart of corporate governance.Instead of theoretical definition, corporate governance can be stated narrowly as the relationship of a company to its shareholders or more broadly as  its  relationship  to  society.  “Corporate  governance  is  all about promoting corporate fairness, transparency and accountability”   is   another   definitive   expression   by   J.

Wolfensohn, president of the world bank,  as quoted by  an article in financial times, June 21, 1999.

One of the prominent OCED principles saying that “active cooperation between corporation and stakeholders” is essential increasing wealth, employment and financially sound enterprises over time. Good corporate governance is normally recognized as a major contributor to company and government performance. It is in investors interests that corporate governance structures ensure value creation and responsible business  practices  as well as  the accountability of management to shareholders.

However, the modern trend of development corporate governance guidelines and codes of best practices began in early 1990 in the United Kingdom, the United states and Canada in response to problems in the corporate performance of leading companies, the perceived lack of effective board oversight that contributed to those performance problems the pressure of change from institutional investors.

In Nigeria, the issue of corporate governance has been given the front burner status by all sectors of the economy.

For instance, the Securities and Exchange Commission (SEC) set up the peter side committee on corporate governance in public companies. This is in recognition of the critical role of corporate governance in the success or failure of government or companies.

Okechukwu (2000:5) observed that corporate governance refers to the process and structures by which the business and affairs of an institution are directed and managed, in order to improve long term shareholders value by enhancing corporate performance and accountability. Therefore, corporate governance  is  about  building  credibility,  ensuring transparency  and  accountability  as  well as  maintaining  an effective channel of information disclosure that would foster good corporate performance (Del, 2001:156).

According to Osisioma (2005:13) viewed that “corporate governance refers simply to the structures and practices of boards, the overall import being to monitor corporate performance  and  oversee  the  conduct  of  management  on behalf of shareholders and/or other governance has to roots in the legal structure giving companies unique status with an

allocation of powers among owners, managers, customers and society.

Despite  the  above  definitions  of  corporate  governance given   by   various   authors   as   stated   above,   “corporate governance is a topic recently conceived as yet ill-defined and consequently blurred at the edges”. The reason why some commentators  regard the concept is applicable in so many different   disciplines   and   covers   different   phenomenon. Corporate governance is discussed in the field of politics and economies as well as law and corporate governance can at one same time be a concept an objective or a regime to be followed.

However, ill-defined the concept to corporate governance may be, there are in fact, several possible definitions depend on the arena or discipline; for example, one definition of corporate governance is a field of economic that investigate how to secure/motivate efficient management of corporations by the use of incentive mechanisms: such as contrasts organizational   designs   and  legislation.  Another  definition states that corporate governance deals with the ways in which suppliers  of  finance  to  corporation  ensures  themselves  of getting a return on their investment.

One view is that some commentators take two narrow a view,  and  say  it  is  the  fancy  term  for  the  way  in  which directors  and auditors  handle their  responsibilities  towards shareholders. Other uses the expression as if it were synonymous with shareholders democracy. One of the widely known definition is that of the OCED. According to this definition, 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 corporations such as, the board, managers, shareholders, and spells out the rules and procedures for making decisions on corporate affairs. By so doing this it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.

As these definitions show, some commentators and observers view corporate governance very narrowly – for them, it is sufficient of the company or the corporation (and I will use the  word  interchangeably  for  the  purpose  of  this  study) complies with the laws of the land and any regulations, codes of practices and so on based on these laws. Other believes that

the concept of corporate governance although not the same as corporate social responsibilities have public policy elements and, if properly applied does require the company to respond to societal concerns. The company in order ward, must comply with  norms  that  do  not  directly  govern  the  relationships between  the  company,  its  board  management  and shareholders,  norms that are external to the company and which to some extent require the company to be accountable to stakeholders such as employees, creditors, suppliers, customers and the general community as well as shareholders. To achieve this, it is argued the company should be managed in a responsible manner that ensures transparency and accountability in the exercise of its power and patronage.

Looking corporate governance at least in the legal arena of what the concept of corporate governance is all about or is intended to address, it is generally acknowledged that the concept primarily address the concern to ensure that where the managers of a company are separate and distinct from the persons (owners), providing capital for company, the management has the responsibilities to make efficient use of the assets of the company in pursuit of the objectives of the

company. It is also widely accepted that the objective of the company are  best  achieved  if the company respond  to  the concerns of the community in which he operates.

As a working definition for purposes of the present discussion, the writers have chosen to adopt the following.

Corporate governance is most often viewed as both structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants typically shareholders and management is critical. Additional participants include: employees, customers, suppliers and creditors. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community.

1.2  STATEMENT OF THE PROBLEM

Public and private sector organizations in Nigeria have over the past two decades experienced a down turn in their economic and social activities due to inconsistency in the implementations  and  application of  budgetary  control producers  in  their  various  departmental  organizations  or sector by the management and the employees.

Poor corporate governance has been a hydra-headed problem to both public and private sector organizations since the  emergency  of  SAP.  Stakeholders/shareholders  of companies have failed as a result of flawed in their internal controls,  fraudulent  financial  statements/manipulated financial reports, poor institutional shareholders services, lax ethical practices, management incompetence, lack of effective board oversight and lack of proper information flow.

1.3   OBJECTIVES OF THE STUDY

The focus of this research can be spelt out in terms of the following objective:

1.      To    identify    the    role/relationship    between    the shareholders and management during budget implementation control stages.

2.      To x-ray the impact of corporate governance practice in budgetary control techniques.

3.      To find how unethical behaviour affects the corporate structure of the Nigeria organization.

4.      To  evaluate  the  legal  and  regulatory  framework  of Nigeria  organizations  as  it affects  budgetary  control techniques.

5.      To examine the effects of poor corporate governance in budgetary control mechanism in Nigeria organizations.

1.4   RESEARCH QUESTIONS

This study seeks to answer the following question:

1.      How has the impact of corporate governance failure affected  the  stakeholders,  management  and employees?

2.      Has  unethical  disclosure  of  financial  statement  any impact on both Nigeria organizations.

3.      Has  legal  and  regulatory  framework  any  effects  on budgetary central techniques.

4.      What are the impacts of corporate governance practice on the budgetary control techniques?

5.      How  has  unethical  behaviours  affects  the  corporate structure of Nigerian organization?

1.5   SCOPE AND LIMITATIONS OF THE STUDY

The subject matter is very deep and broad topic. The depth  lies  in the  secrecy of the  in the secrecy of the  real account of what actually  happen at the management. This insider alone know the depth. The cases abound of creative account, which is made available to the regulatory bodies and

to the public. This level of mis-reporting conceals the extent of organizational mismanagement which may not be apparent to the whistle blower and to the regulator. Fact finding in this study will not go beyond the published reports on corporate failures on many Nigerian public/private sector organizations.

This study will research and analyze the corporate governance culture in Nigerian public/private sector organizations.

Corporate governance in Nigeria is a contemporary issue in  the  Nigerian  context  and  as  such,  not  much  has  been written about the topic in the Nigerian perspective. Sources of relevant literatures (books) were onerous task.

More thorough analysis of the subject matter will require the availability of undiluted financial and non financial details about the Nigerian public/private sector organizations. In Nigeria case, organization/governments are known for misrepresenting facts and figures so as to conceal abuses and unprofessional   practices   inherit   in   some   organization. Therefore, total reliance in the published facts may limit the chances of optimum result in the research.

Research such as this is very cost intensive and requires good time for more diligent study of the subject matter. Time constraints and financial bottleneck were important limiting factors to this research.

Above  all,  limitations  have  not  any  way  affected  the beauty and relevance of the work.

1.6   SIGNIFICANCE OF THE STUDY

This study has a number of significant dimensions to it. The  issue  of  corporate  governance  in  the  Nigerian public/private sector organizations and other related areas especially  in  the  era  of  domestic  dispension  continued  to attract unabated discussions or an issue which needed to be address urgently or to be shield against persistent systematic failures of organizations. Sound corporate governance is not an end in itself but a means. It is not about strict policing of the managers  who  are the  company agents;  the  button  line  is about superior corporate governance performance based on a reasonable cost. This study celebrates the spirit of corporate governance instead of the letter of corporate governance. When managers  and  board  understand  the  relevance  of  their

positions towards the promotion of corporate governance, the enforcement of the codes becomes easier.

A study such as this will go a long way appraising and consolidating the revised code of corporate governance for both private and public sectors organizations in the current democratic period.

This study will positively change the business or the Nigerian enterprising attitude toward improving the international perception of the Nigerian business environment. The whole width and depth of corporate governance will be x- rayed in this study.

For students, stakeholders, employees, managers, government planners, creditors, customers and researcher will serve as an important palliative for the various social economic and structural ills of corporate governance issues in Nigeria.

1.7   DEFINITIONS OF TERMS

1.     EXECUTIVE   DIRECTOR:   According   to   (King   II,

2005:139) as a director who involved in the day to day management and/or in the full time employment of the company, and or any of its subsidiaries.

2.      NON EXECUTIVE DIRECTOR: A director not involved in the day to day management of the company and not a full time salaried employment of the company or any of its subsidiaries (North, 1994:68).

3.      NON    EXECUTIVE    INDEPENDENT    DIRECTOR: Director who do not represent any particular shareholder interest and hold on special business interest with the organization and are appointed by the organization on merit (CBN, 2006:13).

4.      SHADOW   DIRECTORS:   Individual   who   are   not directors, but who instruct, direct and guide the directors    in    their    decision    making    (Aniemena, 2005:52).

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