RESEACRH PROPOSAL ON IMPACT OF CORPORATE GOVERNANCE ON ORGANIZATIONAL PERFORMANCE

BACKGROUND OF THE STUDYThe Nigerian banking sector has a history of weak corporate governance and accounting disclosures. Local accounting disclosure requirements had failed to keep pace with increasingly complex group structures and product offerings (particularly pertaining to margin lending), and transparency was poor. This was exacerbated by the staggered yearends of the Nigerian banks, which made meaningful direct comparison difficult.

In order to gain a better understanding of the true financial position of the sector, the CBN conducted a detailed examination of the countrys banks during the latter half of 2009. Following the examination, the CBN reclassified many loans as nonperforming, particularly in the capital markets (margin lending) and downstream oil and gas categories the banks were required to provide for these loans accordingly.

At the conclusion of this process, the CBN declared that 10 banks were undercapitalised, nine of which were adjudged to be in a grave condition. The CBN has injected NGN620bn into these institutions as an interim measure to stabilize them. Since the conclusion of the CBNs special examination, improvements have been made to corporate governance and disclosure requirements in order to enhance transparency. Another outcome of the special examination was to improve the comparability of reporting across the banks sector.

In addition, the process exposed the absence of several significant key risk disclosures that had been preventing investors from assessing the overall level and types of risk in certain institutions. 1

In the words of the Governor of Central Bank of Nigeria, Mallam Sanusi during the, he fervently lamented on this issue:"When you do not have a sound corporate governance frame work, the reliance on the judgment or the views of one person or a small group of persons becomes a very fundamental risk exposure for the bank's survival." 2

Corporate governance has become one of the most commonly used phrases in the current global business vocabulary. This raises the question, is corporate governance a vital component of successful business or is it simply another fad that will fade away over time? The notorious collapse of Enron in 2001, one of Americas largest companies, has focused international attention on company failures and the role that strong corporate governance needs to play to prevent them. The UK has responded by producing the Higgs Report (2003) and the Smith Report (2003), whereas the US produced the SarbanesOxley Act (2002). Nations around the world are instigating far-reaching programmes for corporate governance reform, as evidenced by the proliferation of corporate governance codes and policy documents, voluntary or mandatory, both at the national and supra-national level.3

In Nigeria, various regulatory authorities notable among which are Securities and Exchange Commission in collaboration with Corporate Affairs Commission produced Code of Corporate Governance in Nigeria in the year 2003 and the Central Bank of Nigeria in the same vain produced Code Of Corporate Governance for Banks in Nigeria Post Consolidation in the year 2006.

Meanwhile, down the country bank failures and widespread losses in the recent years have elevated the importance of effective Corporate Governance and Internal control within the formal financial sector worldwide. As a pointer to this fact, the Governor, Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, on assumption of office stressed the need to strengthen regulation and supervision through enhanced disclosures by financial institutions, amongst his four-point agenda. This was sequel to the backdrop of the CBNs regulatory experience as well as the current global financial crisis, which impaired public confidence in the nations financial markets. However, one of the ways by which the menace of the corporate failure could be addressed is through corporate governance.For the financial industry, the retention of public confidence through the enthronement of good corporate governance remains of utmost importance given the role of the industry in the mobilization of funds, the allocation of credit to the needy sectors of the economy, the payment and settlement system and the implementation of monetary policy. In Nigeria, a survey, by the Securities and Exchange Commission (SEC) reported in a publication in April 2003, showed that corporate governance was at a rudimentary stage, as only about 40% of quoted companies, including banks, had recognized codes of corporate governance in place. Specifically for the financial sector, poor corporate governance was identified as one of the major factors in virtually all known instances of a financial institutions distress in the country.4

Corporate governance is no doubt a veritable tool for ensuring corporate survival since business confidence usually suffers each time a corporate entity collapses. Most of the business failures in the recent past are attributed to failure in corporate governance practices, for instance, the collapse of banks in Nigeria in the early 1990s and onwards was as a result of inadequate corporate governance practices such as insider-related credit abuses and poor risk appreciation and internal control system failure. To stem the tide in corporate failure, scholars and practitioners have advocated consistently different approaches to corporate governance. A critical tool in corporate governance is disclosure and transparency. The importance of effective corporate governance to corporate and economic performance cannot be over-emphasized in today's global market place. Companies perceived as adopting international best corporate governance practices are more likely to attract international investors than those whose practices are perceived to be below international standards.

Major problems identified by this study is that despite Code of Corporate Governance put in place by the Central Bank of Nigeria and other stakeholders in the financial sector in ensuring that banks make adequate disclosure on their risk profile and corporate governance, it is still observed there is no uniformity in disclosure of the banks and compliance with corporate governance requirements.SIGNIFICANCE OF STUDYThis study is undertaken to address the alarming rate of the corporate failures in organizations, the root cause of which has been attributed to non-compliance with corporate governance requirements. However, this study is significant in the sense that it will consolidate the database of the various researches and scholastic works in the area of corporate governance, disclosures and organizational performance in the banking sector. It will also expatiate on non-compliance of banks with the code of corporate governance and disclosures requirements issued by the Central Bank of Nigeria and other stakeholders. However, only very few materials, if any, provide empirical evidence to back this fact.In addition, studies have provided the impact of corporate governance on the performance of the organizations. This work will therefore address the vacuum which has been long left unfilled.

Finally, the study will no doubt promote the corporate governance and lessen the effects of corrupt practices in the banking sector. Furthermore, in order to fight the fraud and mismanagement, the study seeks the appropriate application of codes or standards. For such, the corporate governance can be the primary step in delivering the changes towards the promotion of effective management and enhanced performances in the banking sector.1.5RESEARCH QUESTIONS1. Is the management of Oceanic Bank of Nigeria Plc well disposed to Corporate Governance?2. Is the Corporate Governance policy adopted at Oceanic Bank of Nigeria Plc be adequate and in line with government policy?3. How unbiased is Corporate Governance programme at Oceanic Bank Plc?4. Has the bank Corporate Governance been able to protect the interest of its stakeholders?5. What is the level of compliance with the Corporate Governance at Oceanic Bank Plc. By both staffs and management?6. Is there any relationship between Corporate Governance and profitability? RSEARCH HYPOTHESESThe following hypotheses have been formulated for the study

Ho1: There is no significant effect of corporate governance on organizational profitability.

Ho2: Corporate Governance does not protect the interest of the shareholders.

Ho3: There is no significant relationship between corporate governance and reduction in the rate of fraud and sharp practices in organization.

SCOPE OF THE STUDYThe study will be restricted only to corporate governance and organizational performance with reference to banking sector. Specifically, twenty five (25) copies of questionnaire would be administered at random amongst staffs from different cadres of the bank selected as a case study. The study will therefore embrace the staff of the banks as population of the study from which the sample size was determined.

STATEMENT OF THE PROBLEM

At this period of flux and experimentation, management and directors, amongst other stakeholders of organizations are supposed to be the vehicles for bearing and implementing corporate governance in order to protect the interest of the various stakeholders. In the same process, they have the prerogative to ensure compliance with corporate governance mechanisms within their areas of operational jurisdiction. Apart from the fact that most public establishments and banks pay lip service to corporate governance, others invest colossally on corporate governance but hardly obtain returns in term of relevant expectations by way of business failure prevention, frauds prevention and control, risk management amongst other organizational maladies. These maladies may be due to the attitude of management to corporate governance. It may also be possible that employees fail to see any personal benefits from such corporate governance mechanisms. Many establishments implement corporate governance in an adhoc or haphazard way without a systematic objective expected in behavioural terms from employees. This is where the need for effective corporate governance arises.

To achieve the objectives of effective corporate governance, there has to be a proper articulation of staff orientation scheme for all levels of staff and a well designed internal control mechanisms. Quality policy making and value based leadership are major prerequisite for good corporate governance but much inadequacy is apparent in banking sector as established in the recent findings of the Central Bank of Nigeria, when many banks were accused of sharp practices, including Oceanic Bank International Plc. It is against this background the study examines corporate governance vis a viz organizational performance.Summarily, there are two major problems that are stated in the study:First is the challenges militating against the implementation of corporate governance in the banking sector,Second is the impact or changes that the corporate governance can create in the general performances of organizations. RESEARCH AIM AND OBJECTIVESThe main aim of the study is to investigate the impact of corporate governance on organizational performance in Nigeria. However, in order to achieve this aim, there are four objectives that need to be satisfied. First is to determine the importance of corporate governance in the current situation of the country. Second is to determine any policies implemented in the financial sector to fight the problem in corruption and protect the interest of various stakeholders. Third is to identify the benefits or pitfalls in the application of corporate governance in the banking sector. Fourth is to identify various theoretical frameworks for an effective corporate governance. And finally, to establish recommendations by which the corporate governance can be strengthened.

BRIEF LITERATURE REVIEWCorporate governance refers to the set of policies that can influence the decisions of the managers or leaders while setting aside the ideas of ownership, control and personal interest. In the monitoring of the superiors, there is an addressed effectiveness in the operation and corporate control. The corporate governance became an important in most of the organizations not only in businesses but also in governmental sectors, for it is promoting the standards processes in accounting, economics and financial decisions, management, and overall corporate strategy. The structure of corporate governance has an impact in the behavior of a leaders as well as the organizational performance. Based on the past researches, it is difficult to measure the effectiveness of corporate governance unless there is a consistent pattern in the accounting outcome and organizational performance.

According to Larcker, Richardson, Tuna, (2007), corporate governance refers to the set of mechanisms that influence the decisions made by managers when there is a separation of ownership and control. Some of these monitoring mechanisms are the board of directors, institutional shareholders, and operation of the market for corporate control.5 In the application of corporate governance, the institutions such as banks, business organizations, and government sectors will experience the determination in completing or achieving the strategic goals and have an efficient management. Because of the existence of corporate governance, the formation of organizational structure can be applied to secure the goals while creating the appropriate actions to achieve the said goals. In the continuous practice of corporate governance, there is an assurance that the interests are allotted for the shareholders of the corporate (in business organizations) and for the people (banks and government bodies) (Kapital Bank, 2009).

METHODOLOGYThe suggested methods that will be used in the study are the secondary and primary data. By reviewing published annual reports and accounts of the banks as well as relevant information from Central Bank of Nigeria, NDIC amongst other, the study can gather the information regarding the corporate governance implemented in these areas. Research Questionnaires will also be administered among staffs from a cross section of the bank selected as case study for the research.Furthermore, the study will also assess the strategic goals and principles that the institutions achieved through the use of corporate governance.

References:1. Nigeria Special Report Nigerian Banking Sector: Corporate Governance and Disclosure http://fitchratings.com/ (accessed March 23, 2011).

2. The text of a speech delivered by the Governor of Central Bank of Nigeria, Nigeria's Lamido Sanusi Lamido speaks at conference on banking reforms in Nigeria in Lagos, February 11, 2010 titled: Corporate governance, risk management crucial to healthy banks http://234next.com/csp/cms/sites/Next/Money/Business/5528351-146/ (accessed March 23, 2011).

3. Jill Solomon and Aris Solomon( 2004), Corporate Governance and Accountability (John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England) 114. Central Bank of Nigeria, (2006) Code of Corporate Governance For Banks In Nigeria Post Consolidation [Online] Available at: http://kjxy.znufe.edu.cn/ggl/200812/P020081222713561960885.pdf [Accessed 11 February 2011].

5. Larcker, D.F., Richardson, S.A., & Tuna, I., (2007) Corporate Governance, Accounting Outcomes, and Organizational Performance, The Accounting Review, 82(4) [Online] Available at: http://kjxy.znufe.edu.cn/ggl/200812/P020081222713561960885.pdf [Accessed 12 March 2010]1.

6. Osiyemi. A.O., (2006) The Impact of Values-Based Leadership and Corporate Governance on Organizational Performance [Online] Available at: http://esvc000040.wic056u.server-web.com/grad/gradosiy.pdf [Accessed 12 June 2011].