Handsome pay-off of NDIC’s good governance practice

Amy Cuddy, a professor at Harvard Business School, has published a report in the Business Insider of India, based on first impressions. In the study she conducted over 15 years with two colleagues, she discovered patterns in interpersonal interactions. In her new book ‘Presence,’ published last December, Cuddy says people quickly answer two questions when […]

Amy Cuddy, a professor at Harvard Business School, has published a report in the Business Insider of India, based on first impressions. In the study she conducted over 15 years with two colleagues, she discovered patterns in interpersonal interactions. In her new book ‘Presence,’ published last December, Cuddy says people quickly answer two questions when they first meet you: Can I trust this person? Can I respect this person? Psychologists refer to these dimensions as ‘warmth’ and ‘competence,’ and ideally we all want to be perceived as having both.
Interestingly, Cuddy observes that most people, especially in a professional context, believe that competence is the more important factor because they want to prove that they are talented enough to handle your business. But, in fact, she says, warmth or trustworthiness is the most important factor in how people evaluate you. Cuddy gives her reason: “It is more crucial to our survival to know whether a person deserves our trust.” For example, she says, it makes sense when you consider that in cavemen days it was more important to figure out if your fellow man was going to murder you and steal all your possessions than if he was competent enough to build a good fire.
Apply this to corporate organisations and it matches perfectly. When stakeholders deal with corporate organisations they are looking for answers to those two questions about trust and competence. And in the corporate world this realisation – that corporations need to comply to set of codes and framework that will guarantee trustworthiness and competence – came in the hard way. It came in the wake of the collapse of corporations like Enron and WorldCom in the early 2000s and the global financial meltdown of 2008, which were all attributed to enforceable frameworks that guide how corporations are governed. And since then measures in the form of codes have been issued to corporations by the regulators all in an efforts to address the quest for trust and competence in the way corporate organisations are governed. Those measures are today enshrined in the mantra called good corporate governance not only in Nigeria but across the world.
So what is corporate governance? It is variously defined as both the processes and structures by which the business and affairs of an organisation are directed and managed in order to improve long-term shareholder values by enhancing corporate performance and accountability, while taking into account the interests of other stakeholders.
Good corporate governance seeks to address several issues all dealing with the governance of an organisation from the responsibilities of its board to its composition and from the board’s structure to issues to do with risk management, financial disclosure and audit committees, etc.
In Nigeria, the foremost formal corporate governance code could be traced to the Code of Corporate Governance for Banks and Other Financial Institutions in Nigeria which was issued by the Bankers’ Committee in August 2003. This code was the outcome of the work of the Bankers’ Committee’s sub-committee on corporate governance. It was initiated in response to the financial crises in Nigeria in the early 1990s and in the realisation that poor corporate governance was one of the major factors in virtually all known instances of financial sector distress in the country.
But because it was not issued by a regulator — having been issued by a voluntary association of the chief executives of banks in Nigeria, otherwise known as Bankers’ Committee — not much is known about the code. However, today there are a number of regulatory bodies issuing corporate governance codes to organisations in their spheres of influence. They include: Corporate Affairs Commission, the Central Bank of Nigeria, the Security Exchange Commission and Fiscal Responsibility Commission (FRC).
It is the mandate of these regulatory bodies not only to issue the codes but to ensure compliance. In line with this oversight function, we saw how recently the FRC had cause to commend the Nigeria Deposit Insurance Corporation (NDIC) for its compliance with good corporate governance.
Following the submission of its 2014 external audit report of its financial statements and annual report to the FRC, the commission reviewed the report and gave the NDIC high commendation for prompt remittance of sum due to the Consolidated Revenue Account in line with the provisions of the extant law applicable in section 21 – 23 of the Fiscal Responsibility Act (FRA) 2007, especially the submission of audited financial statements and payment of 80 percent of its operating surplus to the federal government.
Remarkably, the FRC had examined the NDIC’s 2014 annual submission of audited financial statements and report where it was declared that the corporation was managed in line with sound corporate governance with its complete and well above average compliance with the sections of the FRA Act of 2007. It further commended the corporation for compliance with all applicable guidelines on the establishment of a General Reserve Fund (GRF) wherein 20 percent of its operating surplus is retained in accordance with the provisions of section 21(1) of the FRA Act.
Such exemplary compliance with good corporate governance by bodies like NDIC that also regulate deposit taking banks will go a long way in assuring its stakeholders that the corporation is both trustworthy and respectful or, to borrow Cuddy’s terms, it is evidence of both ‘warmth’ and ‘competence.’ Every stakeholder will feel safe dealing with NDIC.
Needless to say that the banking business, which NDIC regulates to a large extent, is based on trust and public confidence and, as such, it is important to enthrone good corporate governance practices in the industry; for, as the saying goes, charity always begins at home.
Ensuring compliance with corporate governance is the surest way to winning the war on corruption, which the federal government has embarked upon, as a matter of national priority, to attract foreign direct investment.
If we are to meet the challenge of diversification of our foreign exchange earning sources, there couldn’t be a more urgent imperative.
Hassan is a business and financial analyst based in Abuja.