Why The Rising Business Failure In Nigeria?

There are many causalities of increasing failures of going concern in Nigeria.  The factors mostly canvassed are infrastructural shortcoming, institutional and structural challenges. The recent survey we conducted revealed that while the harsh operating conditions in the country may be a factor to untimely death of many businesses, one major bane of indigenous businesses and indeed some foreign ones is the absence of “Best Practice Corporate Governance.”

Corporate governance Lapses

Beyond the initial excitement and vision of setting up business entities, corporate governance, which is the principles and values that guide a company in the conduct of its day-to-day business and how stakeholders interrelate among one another, remains key to the survival of any business.

Evidence from our recent survey confirms that corporate governance lapses were significantly responsible for the collapse of over 70% of defunct companies in Nigeria over the last two decades. We found that market share, volume of turnover and asset size is less potent relative to sound corporate governance for the survival of a business.

This perhaps informs the renewed interest in corporate governance practices globally and the clamour is on a record high, given the spate and high profile corporate failures that preceded the global economic and financial crisis between 2008 and 2011.

League of Defunct companies

Revelations from the Nigerian banking sector, insurance and the media in extension confirmed that corporate governance   lapses is capable of pooling down a high profit business irrespective of the age of that entity.

For Instance, Intercontinental Banks, Oceanic Bank, BankPHB, Afribank, Spring Bank, Lion of Africa Insurance, Societe Generale Bank Nigeria, Mtel, Kaduna Textile Mills, Nigeria Airways, Concord Group, HITV, NEXT, and many others recently crumbled on the back of corporate governance questions. Executive management and the board of these institutions were alleged to be reckless with investors funds, neglected due processes and took biased decisions; conducts that negate the principles of corporate governance.

In the case of Oceanic Bank, the former group managing director, Cecilia Ibru, was alleged to have given out depositors’ funds worth over N150 billion as loans to friends and relatives without collateral; including her nanny who got N13 billion loan to cater for personal needs.

Investors and clients are becoming more sensitive to the corporate governance framework of companies. There is also a consensus among experts that strong corporate governance and transparency are necessary for going concern, as this is a major indicator of a well-managed and resilient business.


“Despite all efforts by stakeholders to institute sound corporate governance practices, Nigeria has continuously fared poorly in this regard. “We have observed how the lack of an effective corporate governance framework in Nigeria has been exploited by senior managements of companies at the expense of other stakeholders. More staggering is the recently unravelling of bad corporate governance practices by senior managements of banks. According to him, the decline in the performance of activities at the Nigerian Stock Exchange also brought to fore some of these practises by capital market operators.” Ilori Kayode -an Economist

Full Disclosure is Key

James Akpuyibo –Financial Investment Consultant: “A couple of challenges are militating against corporate governance in Nigeria. According to him, inadequacy in the implementation strategy of corporate governance standard in Nigeria is a major problem. Regulatory institutions in Nigeria, such as the Securities and Exchange Commission (SEC), the Central Bank of Nigeria, the Corporate Affairs Commission, and the Nigerian Deposit Insurance Corporation still have a lot more to do in ensuring that companies entrench sound corporate governance practices in their business operations.”

According to James Akpuyibo, “Transparency, proper disclosure, controls and accountability in the system should be conscientiously encouraged, while there should be sanctions for non-compliance. It would therefore imply that the Code of Corporate Governance Practises should be legally binding on public companies in Nigeria.”
Bisi Alonge -Business Risk Manager: Bisi Alonge believes that having a credible regulator is the surest way of enforcing cooperate governance in business concerns. According to her, “the regulators, themselves, should be above board and should lead by example at all times. They should be firm, fair, equitable and transparent in their dealings, and policy initiation should always be by consensus”. According to her, Effective internal control systems should be put in place by corporate organisations and there should be a system of independent sub-committees of the board, especially the finance, audit, and remuneration committees of companies. “Stakeholders’ interests should be protected by the regulators at all times.”

International best practise

Udoma Udo Udoma –Former SEC Chairman: Last year, the SEC launched a new code of corporate governance for listed companies at the Nigerian Stock Exchange, following some sharp practises noticed in the activities of some quoted firms. According to Udoma Udo Udoma, the former Chairman of SEC, corporate governance code was reviewed to reflect the international best practise. “In Nigeria it became particularly important because of some of the unethical practise that was revealed in the administration of some companies.”

The new code was formulated to guide corporate companies in the conduct of their affairs. While the application of the new code is limited to public companies, other companies are encouraged to use the principles set out in the code to guide their own activities. The code sets out best practices and it allows companies to determine which option best suits them.
Christopher Kolade, former Ambassador of Nigeria to the United Kingdom : Every company must bring up to its board a kind of competence that is required to run a successful business. The Board of every company must communication with various organs in their organisations. “Communication, not just giving accurate information in good times, but also in giving accurate information in times that are not so good because that is the way to be transparent.”With the progress being recorded so far in the banking sector following the introduction of the new code of corporate governance, beaming the search lights across other sectors of the economy will be a welcomed idea for many as Nigeria continues her chase to be part of the 20 most industrialised nations by 2020.