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Research into corporate governance in Nigerian Bank was born out of necessity to investigate the frequent collapse of some banks ever since the post-independence period. Bank failure is so disturbing because it sits at the centre of the economy. Upon further enquiry, this study arrived at the conclusion that central to the causes of bank failure is the poor management in institutions. The first chapter succinctly discussed the issues of bank failure and faults, centralization of management, misreporting, insider abuses and fraud, violation and non-compliance of internal controls put in place, etc. Causes of bank failures is the locus standi of the discussion of corporate governance in chapter one. Several definition of corporate governance coming from different schools of thought was attempted, analyzed and common position identified. Summarily, corporate governance was defined as the way and manner corporate organizations are directed and controlled by the board for the interest of the stakeholders. Wealth distributions to the stakeholders which is one of the poignant issues corporate governance addressed was central to this study. Review of literature historically traced back bank distress in Nigeria from pre-independence to date. Reasons for the recorded failures were also identified. Aims, principles and provisions of corporate governance were discussed in chapter two. Legal perspective was given to the study by the highlighting on the provisions of OECD, Bank for international settlements, peterside’s Committee, Bankers Committee, King’s reports on corporate governance. The procedures adopted in data generations, data collection, measurement criteria, analysis and interpretations were highlighted in chapter three. The empirical approach adopted in the research gave the work a scientific outlook. Sufficient data generated were tabulated so as to aid analysis. Pictorial analytic tools –graphs were employed in analyzing the data.

In data analysis, a comparative study of the values given to various stakeholders of Banks was done so as to determine their fairness or otherwise. Before arriving at a result data of various companies under review as contained in Value added statement in the past five years were carefully spooled and analyzed. The analyzed data presented in graph simplified the analysis. Conclusively, the study criticized the returns given to shareholders of banks and recommended a comparative review.




The increasing number of high profile corporate failures around the world has sparked off a lot of enquiry as to the reasons why well-established and respected companies failed. Corporate failure today is a global issue. On the international scence we saw the overlaps of large companies like Enron, Worldcom, Rank, Xerox, Rarmalat, Bank of Credit and Commerce International (BCCI) and large-scale crisis that rocked the Asian financial institutions. In Nigeria, corporate failure is very rampant in the financial services sector some years back and even at present. Cases of corporate debacle abound in the death of Abacus Merchant Bank Nigeria Limited, Royal Merchant Bank Limited, Rims Merchant Bank Limited, Financial Merchant Bank Nigeria Limited, Progress Bank Plc to mention but a few (Al-Faki;2006). Soludo: 2005 hinted that by 1998 a total of 26 banks have been liquidated and at the time of consolidation in 2005, eleven banks were already dead literally. Outside the banking institution, creative accounts of African petroleum where its concealed debts in excess of N20 billion, over valuation of shares of involving Bonkolans securities and others are signals of impending doom for these companies. What then is the cause of corporate failure in local and international, listed and unlisted, quoted and unquoted, public and private companies?

John Clutterback in Al-Faki (2006) highlighted that companies that failed shares some common characteristics and they are: –

  • Leadership of the company is vested in an individual who combines the office of chairman and chief executive with domineering tendency.
  • Persistent violation and non-compliance with internal control of the company by the chief executive.
  • Optimistic or even distorted rather than prudential financing reporting.
  • Irregular board meetings, often without adequate information given in advance.
  • Minimal disclosure in the accounts of the company.

It is the combination of these factors that undermine the ability of companies to withstand economic downturns turns leading to a collapse.

In the Nigerian Banking-and-finance-project-materials/">Banking Industry, issues such as lack of probity, transparency, integrity and accountability, inflation of balance sheet with unearned income, weak capital base, unskilled and inefficient management also contributed to death of many banks. Uche, 2001 identified the reasons of early indigenous banks failures as mismanagement and accounting incompetence. These are the issues today’s legislation need to combat with since yester years’ provision seemed to be adequate.

What then is adequacy of bank legislation and controlling and regulating the banking practices in the industry? The question is pertinent, because in spite of the existing legislations, a number of failures and distresses have been recorded in the industry. In an attempt to design codes, that will be appropriate to quell these irregularities, a global phenomenon termed “Corporate Governance” came into existence. Today, it has become a contemporary issue, which has dominated the interest of all business, legal and government circles worldwide. In the Nigerian scene, the provisions in the code of Corporate Governance was designed to augment the provisions of Company and Allied Matters Act 1990 (CAMA), Bank and other Financial Institution Act (BOFID) 2004, Failed banks (Recovery of Debts) and financial malpractices in Bank Act 2004, Nigeria Deposit Insurance Corporation Act, 2006, Money Laundering (prohibition) Act 2004, Economic and Financial Crimes Commission (Establishment) Act 2004, Prudential Guidelines and other relevant banking codes and prudential guidelines for Deposit Money Banks in Nigeria.(2010)  


Banks in Nigeria over since the emergence of the early indigenous bank in 1927 have witnessed series of systemic distress and failures. The collapse is quite particular with indigenous owned banks while foreign banks established in the colonial days have all survived the turbulent of Nigerian economy. Examples of these banks of foreign origin are of Bank of British West Africa (BBWA) now First Bank of Nigeria Plc, Barclays Bank (Now Union Bank Plc) and British  and French Bank of Commerce and Industry (Later become United bank for Africa), were established in 1894, 1925 and 1948 respectively (Uche: 2001a).

So why did more indigenous banks fail in spite of the recipes of G. Paton in 1958, SAP induced bank deregulation, BOFIA of 2004 and other related regulated policies. Uche: 2001b summarily insinuated that incidence of fraud and unethical practices were behind the debacle of these banks. Persistent fraud and unethical issues are then the indices of weak corporate governance.

Weak corporate governance has been a hydra-headed problem to the industry ever since the emergence of indigenous bank. Many recipes have also failed to strengthen the integrity and enthrone ethical practices. More still, poor banking cultures, lax ethnical practices, centralized ownership (though practically addressed by consolidation), and incompetence in management culminate into weak corporate governance. Weak corporate governance is the most disturbing issues in the banking industry today. Due to N25billion recapitalization exercises by central bank of Nigeria, new mega banks have emerged thereby more challenges are posed to corporate governance because failure of a large bank could cause systemic problems.

The tension is high because failure of the industry is tantamount to the collapse of the entire economy. This is so because banking-and-finance-project-materials/">banking industry is the driver of the economy. Failures of the industry could mar the perception of the banking by public and international investors.


The objectives of this study include:

  • To determine the fairness of returns given to shareholders of Nigerian banks.
  • To perform a comparative study of how value added is distributed to the various stakeholders.
  • To compare returns given to banks shareholders and share holders of other industries so as to establish fairness.



        The research question for this study is a simple one that   addressed the poignant issues in the wealth distributions to the various stakeholders with particular emphasis on the shareholders.

  • How equitable is the returns given to shareholders of Nigerian banks over the years?
  • How equitable is the value added distributed to various stakeholders?
  • How equitable are the returns given to banks shareholders and shareholders of other industries?

The hypotheses of this study are as follows:

(i) H0Profit earned by the commercial bank is not related to the amount of dividend paid to shareholders

(ii) H0: Value added by the commercial bank is not related to the amount distributed to various stakeholders.

(iii) H0: Returns given to shareholders in commercial banks are not same with shareholders in other industries.



Corporate Governance in Nigerian Banks is a pertinent issue especially in the post-consolidation period where mega banks have emerged and strict compliance to the code is mandatory to shield against persistent systematic distress. 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 bottom line is about superior corporate 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 members understand the relevance of their positions towards the promotion of corporate governance, the enforcement of the code becomes easier.

  • A study such as this will go a long way appraising and consolidating the revised code of corporate governance for banks in the post consolidation period.
  • This study will positively change the banking attitude of Nigerians and improve the international perception of Nigerian banks.
  • The whole width and depth of corporate governance will be x-rayed in this study.



This study will research and analyze into colonial and post-colonial periods and the present time to ascertain the challenges and practices of corporate governance in Nigerian Banks.

The study will draw its conclusion based on five (5) years comparative analysis of sample drawn from Nigerian banks. The criteria for the selection will be discussed in chapter three of this study.

In answering research questions, this study will not employ judgmental approach instead it will adopt a more pragmatic approach of financial and situational analysis.


Corporate governance in the Nigerian is a contemporary issue in the industry and as such, not much has been written about the topic in the Nigerian perspective sourcing of relevant literature was an onerous job.

More thorough analysis of the subject matter will require the availability of undiluted financial and non-financial details about the industry. In the Nigerian case, banks are known for misrepresenting facts and figures so as to conceal abuses and unprofessional practices inherent in some banks. Therefore, total reliance of the published facts may limit the chances of optimism result in the research.

Time constraints and financial bottleneck were important limiting factors to this research.


Executive Director This is a director involved in the day-to-day management and or in the full time employee of the company and or any of its subsidiaries (King 11 of South Africa).

Non-Executive Director A director not involved in the day-to-day management of the company and not a full time salaried employee of the company or any of its subsidiaries.

Non-Executive Independent Directors: Directors who do not represent any particular shareholders interest and hold no special business interest with the bank and are appointed by the bank on merit (CBN: 2006).

Also defined by the Banker’s committee as such directors who have other relationship with management which could materially interfere with the exercise of no significant financial or personal ties to management, is free from any business or his/her independent judgment and receives no compensation from institutions other than directors remuneration or shareholders dividends.

King II defined a Non-executive director as director who is not a representative of a shareholder and who has not been employed by the company in any executive capacity for the preceding three financial years and has no significant contractual relationship or interest in the company or group.

Extended Family: It refers to members of nuclear family comprising the wife and husband, siblings and parents. (CBN: 2006).

Shadow Directors: Individuals who are not directors but who instruct direct and guide the directors in their decision making. They work at the background while the directors are at the forefront (Aniemena: 2005).

The New Code/CBN Code of Corporate Governance: This thesis recognized the recently released code of corporate governance in Nigerian Banks in the post consolidation period by the Central Bank of Nigeria as the new code. 



Al-Faki (2006), Trends in Corporate Governance In Nigeria. The Tide news, January 12.

Aniemena, U. (2005), Good Corporate Governance in the Banking System, A Paper Delivered at the 3rd Pan African from Corporate Governance on Behalf of West African Bankers’ Association.

CBN (2006), Codes of Corporate Governance for Banks in Nigerian Post. Consolidation (Draft).

CBN (2010), Prudential guidelines for Deposit Money Banks in Nigeria

Carse D. (2000), The Importance of Corporate Governance in Banks, A Speech Delivered by Deputy Executive of Hong Kong Monetary Authority at the year 2000 Millennium Dinner of the Association of International Accountants, Hong Kong Branch, Hong Kong Bankers Clubs, Hong, Kong.

King II Code of Corporate Governance, South Africa.

Okagbue and Aliko J. (2005),  Banking Sector Reformed in the Nigeria, International Legal News,

Peterside Report (2003), Code of Corporate Governance In Nigeria.

Soludo, C. (2006) Liquidated Banks, Depositors, Others will get their Memory, an Interview of CBN Governor by South African Broadcasting Corporation (SABC).

Uche, U. C. (2001a), Ethics in Nigerian Banking, the Journal of Money Laundering Control, Vol. 8. No. 3.

Uche, U.C. (2001b), Nigeria: Bank Fraud, Journal of Financial Crme, Vol. 8, No. 3.

Unegbu O. (2005), Corporate Governance in Post Consolidation Banking Industry in Nigeria Issues and Challenges



Corporate Governance is a tropical issue that has gained prominence in United Kingdom towards the end of the last century. Many reports have been issued on this subject matter in UK and around the globe. Some of these reports include Cadbury Committee Report, Greenburg report, the Hampel Report, the Turnell Committee Report, the King’s Report (South Africa), Sarbane – Oxley Act (USA), and OECD Reports (Oki: 2005). Then in Nigeria, we have Peterside Report, Bankers Committee Report and CBN report. Each of these reports came up with different suggestions on the subject matter but shared almost similar definitions. Oki: 2005 noted that Cadbury Report defined Corporate Governance as the system by which companies are directed and controlled. While in 1995 Greenburg Code went beyond Cadbury Report to stipulate that directors’ remuneration and detailed disclosures are to be given in the annual reports. In 1998, Hempel Report made little modification in the areas of duties of executive and non-executive directors, shareholders and AGM, accountability, audit and reporting.

In 1997, Turnbell Report described corporate governance as all the influences affecting the institutional processes, including those for appointing the controllers and/or regulators, involved in organizing the production and sale goods and services. Described in this way, corporate governance includes all types of firms whether or not they are incorporated under civil law.

The OECD principles define corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The presence of an effective corporate governance system within an individual company or group and across an economy as a while helps to provide a degree of confidence that is necessary for the proper functioning of a market economy.

Wofensohn (the former World Bank president) defined corporate governance in terms of what have come to be generally considered as the principles of corporate governance. To him, corporate governance is all about promoting corporate farness, transparency, and accountability (Abey; 2005).

Peterside Committee (2003:1) accepted the definition of the subject matter as “the way and manner in which the affairs of companies are conducted by those charged with the responsibility, and which has a positive link to natural growth and development”. Giving to the peculiarity and fragility in the banking business, a special code of corporate governance for Banks and other financial institutions in Nigeria was drafted by the Bankers’ committee in 2003. The Bankers’ committee defined it as being about “building credibility ensuring transparency and accountability as well as maintaining an effective chain of information disclosure that would foster good corporate performance. This definition followed the definition of J. Wolfensohn as given above.

From the banking industry perspective, corporate governance involves the manner in which the business and affairs of a bank are governed by its board and senior management, including how they;

  • Set the bank’s strategy and objectives;
  • Determine the bank’s risk tolerance/appetite;
  • Operate the bank’s business on a day-to-day basis;
  • Protect the interests of depositors, meet shareholders obligations, and take into account the interests of other recognized stakeholders; and
  • Align corporate activities and behaviour with the expectation that the bank will operate in a safe and sound manner, with integrity and in compliance with applicable laws and regulations.

A critical analysis of these definitions reveals that corporate governance is all about the way and manner the corporate organization is to be directed and controlled – a role which to be performed principally by the board. It seeks to establish and moderate relationship between boards and their shareholders, company regulation and other stakeholders. It also ensures a proper and efficient system of regulating directors so as to restrain them from abusing their powers. What are the implications of corporate governance being a global phenomenon? It implies that the phenomenon was developed out of the necessity arising from increasing number of high profile corporate failures around the globe, and that each jurisdiction is at liberty to design its  own code to suit its situation. In United States for example, the Sarbanes Oxley Act 2002 deals specially with core issues of transparency, integrity and oversight of financial market. Also in South Africa, King II addressed all ethical issues, transparency and integrity in the management of publicly owned companies. The same initiative addressed same subject matter in other continents such as Europe, America, Asia and Africa (Abey, 2005). In Nigeria, Securities and Exchange Commission (SEC) set up the Peterside committee on corporate governance for publicly owned companies in 2003. This committee submitted what we have today as code of Corporate Governance in Nigeria. There arose the need to amplify the Report of the Peterside Committee on Corporate Governance to address the peculiarities of the financial sector; Bankers’ committee set up the sub-committee on Corporate Governance in 2003 to make recommendations and propose a draft code for adoption by financial institution. Consequent upon consolidation of the banking industry in Nigeria, Central Bank of Nigeria developed a new draft code to compliment the earlier ones and enhance their effectiveness. The new code released in April 2006 is named code of Corporate Governance for Banks in Nigeria Post consolidation (CBN Report, 2006).

According to the report of Peterside (2003) committee the practice of corporate governance was recommended specially for publicly quoted companies and all other companies with multiple stakeholders registered in Nigeria. By the virtue of bank having multiple stakeholders namely depositors, investors, government and creditors, they are obliged to abide by the principles of the code not withstanding the fact that a bank may be private or public. Enthronement of corporate governance is also necessary in the financial industry because of their role in the mobilization of funds, the allocations of credit to the needy sector of the economy, the payment and settlement system, and the implementation of monetary policies (Code of Corporate Governance for Banks in Nigeria Post Consolidation). Carse (2000) agreed with the above by insisting that banks look after people’s money and as such need strict monitoring when you corporate bank with other companies you will see that banks expose to special type of risks namely credit risks, and as such the Board should manage these risks. Also the fact that failure of a bank affects not only its own stakeholders but may have a systemic impact on the stability of other banks is another reason why banks should emphasize corporate governance.

In other jurisdictions, little or no emphasis is laid in the financial institution, while in Nigeria; special emphasis is laid on financial institutions. The emphasis on Nigerian banks may be attributed to high level of failure and distresses that characterized the sector since the early years of banking in Nigeria.

A survey carried out by Security and Exchange Commission (SEC) reported in a publication in April 2003, showed that corporate governance was at the rudimentary stage, as only about 40% of quoted companies, including banks had recognized codes of corporate governance in place (CBN: 2006).

This implies that some corporate bodies including banks have not appreciated the role of the code needs to play in the management of these corporations. Issues such as ownership structures, which do not agree with Best practices of Corporate Governance, are still in practice among Nigerian companies. The just concluded reform in the bank industry has tackled the issue of whole or substantial ownership of bank by one person. Other challenges the code need to combat with in the post consolidation period as identified by (Okagbue and Aliko: 2005) are weak corporate governance practices which was inherent in the financial institutions and they include inaccurate reporting, gross insider abuses which results in huge non-performing loans, high turnover in the Board and Management staff; and late or non-publication of annual reports, weak internal controls, fraudulent and self-serving practices among members in the Board and Management staff, over-bearing influence of Chairman or MD/CEO. Disagreement between Board and Management, technical incompetence and poor risk management are some of issues that culminate weak Corporate Governance practice. In the post consolidation period of banks, stakeholders are more likely to demand stricter corporate governance because of the ownership structure of these banks.

Shareholders are the owner of the firm and although their primary concern is value maximization for their investments. They have a critical responsibility to ensure that an appropriate governance structure is put in place in the organization. The roles of shareholders in governance include:

  • Election of board of director,
  • Delegation of authority as owners to elected directors;
  • Appointment of auditors to give an independent report on financial performance to the shareholders.

These activities are typically performed by shareholders in general meeting. Statutorily general meetings of shareholders are required at least once every year (Annual General Meetings). Shareholders may convene Extra-Ordinary General Meetings to respond to/resolve issues that required attention of the owners in between AGM.

The shareholders appoint and delegate responsibility and authority to a board of directors to act on their behalf within defined governance arrangements. The board of directors assumes delegated authority and gives account of their stewardship at least once every year to shareholders. In AGM shareholders power is proportional to number of shares held in the company and or voting power. As such, institutional shareholders and other large investors possess significant power and can exert a fair amount or influence on the organization through the board of directors.

The Board of Directors are agents or representatives elected by shareholders to govern the company in their stead. The overall responsibilities of the board include:

  • Defining strategic aims of the organization,
  • Providing leadership to achieve defined goals and objectives,
  • Appointment and supervision of management of the organization.
  • Receiving information from management about the organization and organizational performance and responding appropriately,
  • Rewarding and imposing sanctions on management based on performance.
  • Ensuring corporate compliance with regulation as well as reporting, ethical and accounting standards;
  • Reporting to shareholders on their stewardship.

Actions of the board of directors are subject to laws, regulations and the shareholders of the company in general meeting.

Managers are responsible for day-to-day running of the organization. They are appointed by the board of directors to participate in direction and policy setting, and in articulating and managing the strategic direction of the organization. The executive management team of the organization typically consists of a managing director/chief executive officer and direct reports. This first level of managers provides input to and assist in the effective decision-making.


2.2.1 History

        The history of bank distress syndrome and eventual collapse date back as early as 1930 when the first indigenous bank named Industrial and Commercial Bank died one year after it was set up in 1929 (Uche, 2001). This was followed by another bank called Nigerian Merchant Bank that was established in 1931 and collapsed in 1936.  This bank only managed to exist for five years before it failed. The rate of emergence and exit of banks in the pre-colonial days was too frequent. Another incidence of bank failure was in 1946 when Nigerian Penny Bank folded up. Could the cause of the debacles be attributed to the economic downturn or the likes? The answer may not be in the affirmative since banks set up by the colonial master even before the emergence of the first indigenous bank survived the bad times. A flash back on the evolution of banking in Nigeria is a true evidence.

The evolution of banks in Nigeria actually started in 1892 when African Bank Cooperation opened a branch in Lagos (Uche, 2001). This was followed in 1894 with the establishment of the British Bank of West Africa (which later metamorphosed to First Bank of Nigeria Plc) and then Barclays Bank Ltd (now Union Bank of Nigeria Plc), which became operational in 1917. These banks which were established by the colonial foreigners in the pre-independence period survived up till this day; whereas the indigenously established banks collapsed as soon as they were established. Consequent to these series of failures, the British government in 1948 empowered Mr. G. D. Patron of investigate the causes of banks failures in Nigeria (Uche, 2001). Its findings and recommendations formed the basis of Banking Ordinance of 1952, which was the first banking legislation in Nigerian Bank failure continued even after the institution of the first Banking Regulation; in 1954 alone 16 banks failure (Uche, 2001).

During the regime of Ibrahim Babaginda, Banking in Nigeria developed a hydra-headed problem due to the clamp down on his government by International Monetary Fund (IMF) to adopt Structural Adjustment Programme (SAP). The programme embraced bank deregulation as one of its agenda and this resulted into proliferation of banks. Banks established under this programme was characterized by weak structure and poor governance. The primary aim of establishing banks deviated grossly, as incompetent family members and groups moved into the business. The high level of proliferation was hinted in (Uche), where he stated that “between 1985 and 1992, the number of licensed commercial and merchant banks in the country increased from 40 to 120; and most of these banks were no more than bureau de change. The unmanaged proliferation led to the eventual collapse of so many banks. The list of some of the dead banks includes, ABC Merchant Bank, Alpha Merchant Bank, Amicable Bank, Continental Merchant Bank, ICON Ltd (Merchant Banker) and Kapital Bank. Others are the Nigeria merchant Bank, Pan African Bank, Royal Merchant Bank and Rims Merchant Bank, Abacus Merchant bank, North-South Bank, Central Merchant Bank, Prime Merchant Bank, Allied Bank, Credit Bank, Premier Commercial Bank, Progress Bank, Highland Bank and Lobi Bank (Ogunleye, 2005).

The Systemic failure in the industry is not a thing of the past. In the recent times as evidenced in Soludo (2005), it was revealed that prior to consolidation process that eleven banks were dead literally. This is not a far-fetched claim as the truth unfolded itself in the just concluded consolidation exercise where 14 banks were not able to meet up with the capital requirement. The reason for not meeting up with the reform requirement was that there was a total loss of confidence on these banks, both by their fellow banks who were in the position to acquire them and the investors who would have bought into these banks. These banks are today facing liquidation. In the recent arrangement, Ecobank Plc has bought the assets and taken over the liabilities of All State Trust Bank Plc. In the bid to maintain a high level of decorum in the industry, CBN has announced its bank post-consolidation reform agendas as “the introduction of commercial court, electronic system payment reform, currency reform and institutionalization of microfinance” (The Guardian, 2006). The effect of this agenda is that it will boost the practice of good governance in the Nigerian banks. Also zero tolerance policy of the CBN is another recipe to ensure the enthronement of sound corporate governance.

Before the consolidation exercise, there was an urgent need to renew the face of banks in Nigeria. The need was imperative, as the recurrence of bank collapse had had some ugly effects on the confidence of stakeholders in the industry. Furthermore, in Unegbu (2004) it was noted that inflow of foreign private investments experienced a halt, as no foreign investor will take the risk of investing in an unstable and volatile economy.

What then are the causes of this widespread debacle in the banking industry?

  • Causes

        The effects of bank failures on the economy have become so enormous that the interests of the stakeholders have been attracted toward discovering the causes of the frequent failures. In Unegbu (2004), weak corporate governance was identified as the major crisis in Nigerian banks. Weak corporate governance was evidenced in the way banks were ran and controlled by the owners, who controlled both the management and the board. Poor governance allowed connected lending, poor risk management, incompetence, poor succession plans and misreporting to soar. This list is long, but this thesis will aptly summaries them under the following headings.

  • Ownership

        Going back to the early indigenous banks on the circumstances that surrounded their establishment, it has been identified that there is something wrong with their ownership structures. The ownership of many these banks were centered around one individual. Aniemena (2005) asserted that “one of the main reasons for the new shareholding requirement is to remove the syndrome of one man ownership of banks in Nigeria which is traced to have caused collapse of too many banks due to non adherence to the tenets of best practices by such owners”. He also hinted that the available statistics indicated that 33 out of the 89 banks in the country are wholly or substantially owned by one person or a family, 43 have multiple ownership while 13 have no clearly identifiable form of ownership. The deduction is that the higher percentages of banks in Nigeria have absolute ownership. Default ownership of banks in Nigeria is also evidenced in the leadership of many banks were it has been vested in an individual who combines the office of Chairman and Chief Executive Officer with domineering tendency. Many other malpractices that are common in the bank are built around over domineering by the owners of the bank. Such malpractices may include but not limited to persistent violation of banking regulations, non-compliance with existing internal control, mismanagement, insider abuse and poor credit management. Another negative effect of the combination of ownership and management is that knowledge base for the operation of the banks is highly narrowed. This is because business ideas that drive these banks are restricted to only one individual or is centred on the owner of the bank. This does not give room for injection of fresh ideas. The new Code of Corporate Governance in Nigeria has addressed non-restrictive equity holding in banks.

  • Misreporting

Let us briefly loot at misreporting across the border. Structural inadequacies in Enron corporate enabled Kenneth Lay (CEO and Chairman of Enron Energy Trading Company) to manipulate, conceal and misreport facts about the true financial conditions of the corporation. Unwieldy power of Ken Lay enabled him to have an unrestrained control over the number one American Energy Trading Company. Very outstanding in his case was his ability to hide losses that amounted o hundreds of millions of dollars by fraudulently manipulating Enron’s business segment reporting. He adopted structural transactions (prepaying and the hedging arrangements called Raptors) to misstate its financial result (www.swlearningcom/blawanderson.html).

Also in 2004, SEC in America announced cases of misreporting in Royal Dutch Shell who overstated it oils reserve and US Food Services who overstated its revenue by $800 million (

Misreporting within and across the border has devastated many corporations. It is a global phenomenon. The technicalities involved in the misreporting are so craft that the apex bank has not been able to fully combat it with its legislation. To this effect, it has adopted some regulatory and moral suasion approached in the past. The moral suasion approach can be elicited on the face of October 2005 CBN Bulletin, wherein it appealed to all stakeholders to “keep adequate record of their performance in order to assist in effective monetary policy implementation” (The Tide News, 2005).  It should be noted that the effectiveness of monetary policy largely depends on the quality, adequacy and timeliness of statistical information available to it. Misreporting on the contrary leads to wrong decisions and undesirable outcomes.

Uche (2001) opined that misreporting was a common and devastating factor that caused the failure of many banks in Nigeria. The Director-General of Nigeria Securities and Exchange Commission (SEC), in Al-Faki (2006) equally concurred with the above statement by saying that “minimal disclosure in accounts of company indicates lack of transparency and probity, integrity and accountability; and they are the major abuses that are prevalent in Nigerian banks. Another variant of misreporting very popular among the Nigerian banks is the preparation of three different financial accounts by banks for themselves (internal use), regulatory authorities and shareholders (Adejokun, 2005).     In the post-consolidation banking reforms, Soludo announced that the apex bank will employ strict supervision and zero tolerance approaches in its statutory functions (The Guardian, 2006). What this translates into is that, there will not be ‘business as usual’ for banks i.e. every violation of CBN regulations including misreporting will be appropriately penalized.

  • Insider Abuses      

        In Uche (2001) and Obinna (2005), it was emphasized that incidences of distress experienced by most banks in Nigeria have been attributed to insider fraud. Research has shown that most of the banks that went under were found to have been engaged in reckless granting of credit facilities to their directors without adequate collateral and when the loans went bad, there were nothing to fall back on. The absence or the relaxation of risk management policies in lending to directors and their friends is one of the factors that have fuelled the mammoth insiders credits. Connected lending manifested also in the extension of credit facilities to members of the group without adequate collateral. These funds sometimes are used recklessly to fund very risky businesses. Other lending issues are excessive funding, currency mismatch and undue political influence in the lending decisions.

According to report of CBN and NDIC in Obinna (2005), it was stated that about 80% of distressed bank’s non-performing loans were insider related loans of banks’ directors and their friends. As at December 2002, the insider non-performing loans amount to N29.4 billion. This is in spite of the provision of section 18 (1) Banks and Other Financial Institutions Acts (BOFIA) of 1999 that stipulates that banks must have adequate security on loans.

  • Frauds

        Incidence of fraud in the banks is a reflection of fraud in the wider Nigerian society. Just as fraud destroyed the image of Nigeria so did fraud in the banking industry. It has undermines the safety, soundness and stability the banking industry is known for. Common fraudulent practices that are perpetrated are fraudulent withdrawals, suppression of entries, armed robbery attacks (sometimes with insider-collaboration), clearing fraud (fraudulent handling of financial instrument) etc. The prevalence of fraud in the industry portrays a serious weakness in the bank’s internal control system. This translates to very weak corporate governance in the financial institutions. Uche (2001) noted that the level of fraud in bank as reported by NDIC has been on the rise; in 1990 it was N804m while it rose to N3, 199m in 1998. From this statistics, within eight years the increase in the level of fraud has risen by 398% in spite of the promulgation of the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Decree of 2004 (Failed Banks Decree).

Heavy reliance on technology for service delivery has a lot challenges to the financial institutions because chances are high that fraud will also be technologically driven as well. This is a lot of risk for the industry because fraud will escalate. Data from the financial Institutions Training Centre (FITC) as in Umunna (2005) shows that the volume of fraud in banks rose by 48%; from 222 cases in the first quarter of 2005 to 329 cases in the second quarter. This is an indication that a lot of work needs to be done in tackling fraud especially in the post-consolidation era; the failure of which will impact negatively on the business integrity in the industry.

  • Regulations

        In Nigeria the banking industry is the most regulated of all the sectors of the economy. There are many institutions that exercise various statutory powers and functions over the establishment, operation and winding-up of banks in order to infuse sanity in the system. Each of the regulatory authorities is concerned with the maintenance of highest ethical standards in banks. These regulatory authorities are Central Bank of Nigeria (CBN) and Nigerian Deposit Insurance Commission (NDIC).

Albeit the regulations by the apex institutions a number of regulations have been rolled out ever since the emergence of indigenous banks to arrest the distress that is prevalent in the industry. The embarrassing collapse of early indigenous banks attracted the interest of British Government in 1948 to point a commission headed by Mr. G. D. Paton, to investigate the causes of bank failure in Nigeria. The commission also was to recommend policy and operational guideline for the prevention of further deterioration of the banking industry. The commission’s findings and recommendations formed the basis of Banking Ordinance of 1952, which was the first banking legislation in the country. The ordinance set out to regulate and control the business of banking in Nigeria by imposing conditions for establishment and making provisions for sound banking practice. This first ordinance could be said to be precursor of the principle of corporate governance of banks in Nigeria.

Other regulations that targeted the restructuring of the industry are Banks and Other Financial Institution Acts of 1990 (BOFIA), Failed Bank Act of 2004,prudential guidelines for Deposit Money Bank for Nigeria of 2010 and Code of Corporate Governance for Banks in Nigeria. All these regulations are to checkmate the incidences of sharp practices and the resultant crash.


  • Conflict of interest between Board and Management giving rise to Board squabbles.
  • Ineffective Board oversight functions
  • Inability to plan and respond to changing business circumstances.
  • Ineffective management information system
  • Technical incompetence, poor leadership and administrative ability
  • Ignorance of and non-compliance with rules, laws and regulations guiding banking business.
  • Non-compliance with land-down internal controls and operation procedures.
  • Weak internal controls.
  • Overbearing influence of chairman or MD/CEO, especially in fairly-controlled banks.
  • Fraudulent and self-servicing practices among members of the board, management and staff.
  • Poor risk management practices resulting in large quantum of non-performing credits including insider-related credits.
  • Abuses in lending, including lending in excess of single obligor limit.
  • Sit-fight Directors-even where such directors fail to make meaningful contributions to the growth and development of the bank.


        Since corporate governance is a contemporary and global issue there is need for the Nigerian code to imbibe the basic principles with a view to harmonizing the Nigerian code with the international best practices. The principles are the same but the practices vary with jurisdictions.

Organization for Economic Cooperation and development (OECD) in May 1999 came up with what it called the principles of Corporate Governance. As in Unegbu (2004), OECD recommended five core principles which, covered five main areas, and they include:

  1. Protection of the rights of the shareholders;
  2. Equitable treatment of shareholders:

The corporate governance framework should ensure equitable treatment of all shareholders including minority and foreign shareholders. All shareholders should have opportunity to obtain effective redress for violation of their rights.

  • The role of stakeholders in corporate governance: The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active cooperation between corporation and stakeholders in creating wealth, jobs and sustainability of financially sound enterprise.
  1. Disclosure and transparency: The corporate governance framework should ensure that timely and accurate disclosure is made on all material substance regarding the corporation, including the financial situation, performance, ownership and governance of the company.
  2. The responsibilities of the Board: The corporate governance framework should ensure the strategic guidance of the company, effective monitoring of management by the board, and the board’s accountability to the company and the shareholders of ownership structures, for example those that are family-owned or part of a wider non-financial group, and to those that are non-listed (including, for example, cooperative banking organizations).

According to Bank of International Settlement (2010) publication titled principles for enhancing corporate governance, Sound Corporate Governance Principles are:

Principle 1:

The board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, risk strategy, corporate governance and corporate values. The board is also responsible for providing oversight senior management.        


Principle 2

          Board members should be and remain qualified, including through training, for their positions. They should have a clear understanding of their role in corporate governance and be able to exercise sound and objective judgment about the affairs of the bank


Principle 3

          The board should define appropriate governance practice for its own work and have in place the means of ensure such practices are followed and periodically reviewed for improvement.  


Principle 4

          In a group structure, the board of the parent company has the overall responsibility for adequate corporate governance across the group and ensuring that there are governance policies and mechanisms appropriate to the structure, business and risks of the group and its entities.


Principle 5

          Under the direction of the board, senior management should ensure that the bank’s activities are consistent with the business strategy, risk tolerance/appetite and policies approved by the board.


Principle 6

          Banks should have an independent risk management function (including a chief risk officer or equivalent) with sufficient authority, stature, independence, resources and access to the board.


Principle 7

        Risk should be identified and monitored on an ongoing firm-wide and individual entity basis, and the sophistication of the bank’s risk management and internal control infrastructures should keep pace with any changes to the bank’s risk profiles (including its growth), and to the external risk landscape.


Principle 8

Effective risk management requires robust internal communication within the bank about risk, both across the organization and through reporting to the board and senior management. 

Principle 9

          The board and senior management should effectively utilize the work conducted by internal audit functions, external auditors and internal control functions.


Principle 10  

        The board should actively oversee the compensation system’s design and operation, and should monitor and review the compensation system to ensure that it operates as intended.


Principle 11 

          An employee’s compensation should be effectively aligned with prudent risk taking: compensation should be adjusted for all types of risk; compensation outcomes should be symmetric with risk outcomes; compensation payout schedules should be sensitive to the time horizon of risks; and the mix of cash, equity and other forms of compensation should be consistent with risk alignment.


Principle 12  

        The board and senior management should know and understand the bank’s operational structure and the risks that it posses (i.e. “know-your-structure”).


Principle 13

        Where a bank operates through special-purpose or related structures or in jurisdictions that impede transparency or do not meet international banking standards, its board and senior management should understand the purpose, structure and unique risks of these operations. They should also seek to mitigate the risks identified (i.e. “understand-your-structure”).


Principle 14

          The governance of the bank should be adequately transparent to its shareholders, depositors, other relevant stakeholders and market participants.



2.5.1 Board of Directors

        The practice of good corporate governance rests on the level of competence and integrity that is prevalent in the board. That the board is the driver of the goals of sound governance does not imply that they are police who may in turn stifle the entrepreneurial drive of the management. Before proceeding with the analysis of the provisions of the duties of the board, a brief look at the qualities a board should possess will be a better springboard.  Millstein in Unegbu (2004) highlighted that a board should have an Independent and Active Oversight over the management; should be contestable and have good Agenda and Strategy.  An independent minded and active board of directors plays a major role in positioning corporate to complete effectively, by selecting monitoring and motivating and management. When boards of directors become active and align themselves more closely with shareholders’ interest, management will be induced to increase residual earnings. The level of independence of the board is a function of the make-up of the board. Where the board is constituted mainly by non-management directors, has an independent leadership, and has a defined selection process then that board may likely be independent. In the light of the above mentioned criteria, the provisions of the Code of Corporate Governance on board responsibilities will be examined. The independence of the board cannot be overemphasized. Unegbu (2004) is of the opinion that a test of board’s independence is whether it is free to fire the Chief Executive Officer. Another index for board’s independence is that the board is sufficiently independent of management, not interested in their personal well-being, less likely to tolerate managerial strategies that are static, and are more likely to replace under-performance managers especially in enterprise with controlling shareholders. As mentioned above, another factor necessary for keeping management focused on performance is contestability – the mechanism that empowers those better suited to a task to take over the task from those less capable. Simply, if the management does not perform, the board should remove it. In fact the threat of takeover or step down should always spur management to perform.

A performing and focused board should be able to craft Strategy and Agenda for the business enterprise. To give meaning to the board’s participation in the crafting of strategies, the board must thoroughly understand its company’s core businesses, how they interrelate as well as how they are run. In order to craft an independent strategy, the board has to set its own agenda and not to always rely on the matters raised by the management.

Albert independence and board performance as another importance aspect of the board that should be brought to light are the composition, remuneration and performance appraisal of the board.


        It is clearly stated in Peterside’s Report that the position of the Chairman of the Board and the CEO should be separated as to ensure complete independence of the board. It is thus stated in code of Corporate Governance (Peterside 2003) that’

The head of the board, that is Chairman be clearly separated from that of the Head of Management i.e. MD/CEO, such that no one individual or related party has unfettered powers of decision making by occupying two positions at the same time.

The Code of Corporate Governance in Nigeria as recommended by Peterside Committee provided for an exception in part A (2c),

In exceptional circumstances where the position of the Chairman and Chief Executive Officer are combined in one individual, there should be strong non-executive independent director as vice chairman of the board.

As to the board capacity, Peterside provided that “the Board should comprise of a mix of Executive and non-executive director as not to exceed 15 persons or less than 5 persons in total”. As regards the appropriate mix of executive and non-executive, the Code remained silent.

The Banker’s Committee suggested a board structure where non- executive directors should be in the majority. In Section 2.1 it submitted that;

The board should include non-executive directors of sufficient caliber and number for their view to carry significant weight in the Board’s decisions. Non-executive directors should comprise a majority of the members of the board. The Committee recommended in S. 22 that not less than 20% of the board should be independent directors. This is in its view is to establish an independent board that will oversee the activities of the management.

The most recent Codes of Corporate Governance for banks in the post-consolidation recommended a maximum board size of 20 directors, with the number of non-executive directors exceeding the number of executive directors. The code recommended that at least two non-executive board members should be independent that at least two non-executive board members should be independent directors appointed by the bank on merit. Its definition of independent director is a director that does not represent any particular shareholder interest and hold no special business interest with the bank. The code cancelled the idea of one person occupying the officer of the CEO and Chairman at the same time. Furthermore, the code cancelled the idea that members of the extended family should occupy the position of chairman and that of the CEO of a bank at the same time.

King II (2002) enjoined “South Africa companies to have a unitary board structure. This should comprise executive and non-executive directors, preferably with a majority of non-executive  directors, of whom a sufficient number should be independent of management in order to ensure the protection of minority shareholders’ interest” on the functions of the CEO and chairman of the board, King II prescribed that the board must retain full and effective control over the company and be responsible for monitoring management in respect of implementation of board plans and strategies. The chairperson is to be responsible for the effective functioning of the board and the chief executive officer is responsible for the running of the company’s business. There should be a clear distinction between these roles. On the size of the board, it recommended optimal board size of 15-20 members, thus requiring that the independent directors should be in majority.

Hong Kong Monetary Authority recommended a minimum number of three independent non-executive directors to be on the board to ensure that there is sufficient pool of independent directors to sit on various committee of the board and to cover absences (Carse, 2000).


Equity Ownership 

The New Code abolished the practice of free, non-restrictive equity holding by individuals and their family members as well as government. Prior to consolidation, it has been a common practice for an individual or government to own a substantial equity of a bank; thus reducing banking business to a personal business that is beclouded with monopoly of ideas. CBN in its New Code limited direct and indirect equity holding in banks to 10% by the end of 2007 while the equity holding of above 10% by any investor is subject to CBN’s prior approval. This thesis sees this exemption clause as a loophole which should be properly managed. To avoid the administration bottleneck, the criteria for the exemptions should be clearly and objectively spelt out; otherwise there may be a bottleneck in the administration process.



        Banker’s Committee Report on Corporate Governance provided that “there should be a formal and transparent procedure for the appointment of new directors to the board”. The report prescribed that Nomination Committee (having non-executive directors in majority and same as chairman) should recommend to the board on all new board appointment. The directors so appointed by the Committee should be subject to election by shareholders at the first opportunity after their appointment, and to re-election thereafter as prescribed by CAMA 1990. CBN Code of Corporate Governance (2006) maintained that existing CBN guidelines on appointment to the board of financial institutions should to be observed. The code also provided that regulatory authority has the power to improve sanctions or remove erring director from the board if he fails to adhere strictly to the existing code of conduct for bank directors. Still on appointment or removal of director the code provided that in order to inject fresh ideas in the board; non executive director should not remain on the board continuously for more than 3 times of 4 years each e.g. 12 years while CEO should hold office for the maximum of 10 years according to the latest CBN prudential guidelines on banks. Finally, it recommended that banks should have a clear succession plan for their top executives. The code also forbids the practice of board chairman serving simultaneously as chairman and member of any of the board committees. This is to grant the Committee the necessary independence.

On the appointment of the non-executive director the Peterside Committee recommended that non-executive directors should be “appointed for a specified period and that re-appointment should be dependant on performance”. It should be “a matter for the entire board and a defined formal selection process should be utilized”.

On the appointment of Company Secretary, the Peterside Committee specifically submitted that company secretary should be appointed or removed by the board. The duties reposed on the office are to ensure that the board procedures are followed and that applicable rules and regulations are complied with.  In King Report, it was provided that the “board as a whole within its power selects and appoints directors including the CEO and the executive directors on the recommendation of the Remuneration Committee. The appointment is to be confirmed by the shareholders at the General meeting before it becomes effective. The appointment is not arbitrary, the directors to be appointed are to pass ‘a fit and proper’ test as required by JSE Securities. Re-election of the directors is subject to appraisal and performance of individual director.



Peterside Committee Report provided that the board should meet regularly, and not less than once in a quarter with sufficient notices and have a formal schedule of matters specifically reserved for its decision. The meeting provision is not limited to the board meeting; it also included the meeting of the directors and the shareholders. On that note, Peterside Committee Report stated that enough time should be given to shareholders to enable them contribute effectively during the General Meeting. Banker’s Committee report insisted that the board should meet at least once every quarter and the board should have formal schedule of matters. ABSA Bank of South Africa reported that meetings were held regularly and it is IT driven. In ABSA Bank teleconferencing facilities were made available for directors that are not able to attend the meeting physically. On board activities reporting, the King’s Report requires that “the composition of the committees (especially the remuneration, audit and nomination committees) should be detailed in the annual report, together with information containing a description of the committees’ responsibility, the number of meetings held and any other information that may be of relevance to shareholders”.



This is the formal assessment of the effectiveness of the board as a whole and the contribution by each individual director (including chairman) to the effectiveness of the board.

Banker’s Committee specified that issues to be evaluated are attendance at meetings, contribution to discussion at board meetings, business referrals and public standing of the director and the beneficial effect of this to the business of the institution. In addition to the provisions of Banking Committee, the New Code for banks provided that the boar review be carried out by an outside consultant; also that review report should be presented at the General Meeting and a copy sent to CBN.



        Peterside Committee Report prescribed that the Remuneration Committee should fix the remuneration of the Executive director. The Committee is to be wholly or mainly made up of non-executive directors. On the board disclosure requirements, the Code insisted that the directors’ remunerations and other highest paid directors should be disclosed and that relevant information about stock options, pension contribution and future service contract should be properly disclosed. These disclosure requirements are not incorporated in the new Code of Corporate Governance for Nigerian Bank in the post consolidation period; but on the premises that “the new code (Code designed for banks in the post consolidation) was developed to compliment the earlier ones and enhance their effectiveness for the Nigerian banking industry”, it may be assumed that the provision is still effective. If the new code has rendered the provision redundant then it is should be reviewed to incorporate that. Banker’s Committee Report proposed agreed with the provisions of Peterside Committee on the board composition but included that the Board should recommend to the General Meeting the remuneration of non-executive directors, including members of the Remuneration Committee. CBN Code of Corporate Governance is more specific as to what makes up the non-executive remuneration as directors’ fees and reimbursable travel and hotel allowances. Having identified poor corporate governance as one the causes of corporate failures, some new provisions in the CBN Code of corporate governance worth commendation. The provision that “any direct whose facility or that of his/her related interest remains non-performing for more than one year should cease to be on the board of the bank and could be blacklisted from sitting on the board of any other bank” will definitely curtail the insider credit to a reasonable extent. The penalty of the directors loosing their position will dissuade them from amassing credit, which they may not wish o make good.  Also the provision that there should be annual Board review/appraisal covering all aspects of the Board’s structure and composition, responsibilities, processes and relationship, as well as individual member’s competencies and respective roles in the Board’s performance should be upheld.  This no doubt will enhance the performance of the board. Not only that the board should be reviewed, but also, it should be done by an outside consultant so as to ensure a quantum of independence. It is a good idea for the review report to be presented at the Shareholders and to CBN as well. Presentation to the shareholders and CBN directly will go a long way to shore up level of independence of the consultant and quality of the report to be presented. Another good side of it is that it will make directors to be awake to their responsibilities. The problem with laws in Nigeria has been that of implementation and not the appropriateness of the legislation. On that note, in the course of implementation, problem may arise on what the definition of the basis for the assessment of the board. Consequentially, it may breed subjectivity in judgment. This thesis is recommending that clear, definite and objective parameters be established for the measurement of the board’s performance.

To boost implementation, the New CBN Code provided that “Banks’ Chief Compliance Officers (CCO) should, in addition to monitoring compliance with money laundering requirements should also monitor the implementation of the corporate governance code”. Creation of liability makes the responsible individual to sit up and face the challenges of his responsibilities. Just as accounts are audited and reported, so will corporate governance be reported in the Annual Reports by the Chief Compliance Officer (CCO) and CEO. This is a way casting liability on Chief Compliance Officer and Chief Executive Officer and thereby making them to carry out their work more diligently and responsibly. Monitoring the implementation of Corporate Governance is an onerous responsibility; and as such in appointing the CCO, care should be exercised to ensure that the officer is a man of skills, knowledge, experience, diligence and integrity.

On the relevance of the ‘whistle blowing’ procedures that will encourage all stakeholders (staff, customers, suppliers, investors etc) to report any unethical activity/breach of the corporate governance code using, among others, a special email or hotline to both the bank and the CBN”. Reliance on the alarms raised by whistle blowers should b with highest level of caution and dexterity so as to sniff out false alarms, which may be an instrument in demarketing competitors. As a matter of fact, on the issue of demarketing CBN in its circular titled, The unethical and unprofessional practice of demarketing colleagues/other Banks in the industry by spreading false rumours (2006). CBN further warned in the circular that, “any bank officer(s) involved in the exercise will be dismissed and blacklisted for unethical and unprofessional behaviour; and The Banks’ MD/CEO will be issued with a letter of warning by the Governor of the CBN and the letter will be made public, while a re-occurrence could also lead to such CEOs receiving a stiffer sanction” The weight of the penalty demonstrates the seriousness of CBN on the issue of demarketing or raising false alarm. Let us analyze the position of the Bank Secretaries as the holder of the corporate entity and custodian of the legal personality of the bank in the enforcement of the operation. There is a sharp contradiction in the provisions of CAMA and Peterside’s Code as it concerns the appointment and the removal of the Company Secretary. More so, Codes of Corporate Governance of Banker’s Committee and the New Code did not say a word about the position of bank secretary. Peterside put it as follows, silent;

All directors should have access to the advice and services of the company secretary, who is appointed by the board and who is responsible to the board for ensuring that board procedures are followed and that applicable roles and regulations are complied with. The removal of the company secretary should be a matter for the board. From the above, the relationship that exists between him and the Board is master servant relationship. Consequently, he is certainly not in position to give unhindered interpretation of the law. The provisions of section 293-298 of the Companies and Allied Maters Act, 1990 is titled Secretaries. The sections provided basic requirements for the position of secretary and further made a distinction on who is qualified to be appointed the secretary of private and public companies. Section 296 provided for the appointment and removal of the Secretary, which vary with the way and manner for both private and publicly owned companies. For public companies, section 293 (3) made the removal the matter for the General Meetings of the company. Furthermore a Secretary who refused to resign on the advice of the board may only be removed on cases of fraud or serious misconduct and even on this; the matter should be tabled before a General Meeting of the company. If the matter is not that of serious misconduct or fraud he cannot be removed without the approval of the General Meeting but may only be suspended. Many banks in Nigeria today are publicly owned and all have multiple stakeholders (Peterside’s Report). On that note, the provision in the Code granting power of appointment and removal to the board is a contradiction of what we have in CAMA and ought to have been reflected in the new Code for banks. Finally, for banks’ Secretaries to execute their duties as the custodian of legal personality of the bank in the enforcement of legal requirements of the operation of the bank, they should be granted some sought of independence. This independence will come when the removal of the secretaries is made the matter for the General Meeting and not of the board. This thesis is submitting that amendment be made in that regards. Aniemena (2005) argued that the role of shadow director is still crucial on the ground that the law uses it to lift the corporate veil to see who is pulling the strings, in order to input liability or impose duties and obligations on the appropriate quarter. But, this thesis is emphatically toeing the line of thought of the provisions in the CBN code of corporate governance, by insisting that the provision for shadow directors are not longer fashionable. To accommodate the shadow director implies that those on the board are not independent and competent enough to make good decisions for the organization. The reliance on the shadow directors may tend to shift liabilities off the shoulders of the directors thus making them to be passive and less responsible. Corporate Governance is a global phenomenon with internationally accepted standards and practices. Since the Code is in its fledgling stage it will be appropriate to align our Code with the international best practices, thus bearing in mind the peculiarity of our case in Nigeria. To this end a comparative analysis of the Nigeria Code, South African and Malaysian Codes will carried so as to determine the level of transparency and confidence we are talking about in Nigeria. In practical terms, they agreed in many respect but vary greatly on the level of disclosure in the annual reports on vital issues connecting the directors. King II requires disclosure of the following;

  1. Disclosure of the capacity of the directors of the board in the annual reports and it should be categorized as follows: Executive Director, Non-executive director and Independent non-executive director. Reports such as this will always assist the stakeholders to develop their individual opinion and confidence on the structure of the board and management.
  2. King II requires a statement of Remuneration philosophy to be published in the annual report and it must support the firm’s remuneration policy. In addition to the remuneration philosophy, banks are required to disclose the remuneration of directors on individual basis in the Annual Report. This report should include executive directors fixed remunerations, bonuses; share options grants, fringe benefits, and service contracts.
  3. Furthermore, performance of individual director (including their attendance to the meetings) is expected to be disclosed in the annual reports.
  4. In King II, it was recommended that all board committee be chair by an Independent Director. This is shore up the level of independence of the committee.
  5. King II recommended that the composition of the committee (especially the remuneration, audit and nomination committees) be detailed in the annual report, together with information containing a description of the committees’ responsibilities, the number of meetings held and any other information that may be of relevance to shareholders.

Disclosures such as this will make the directors to be fitted properly into the right committee.


2.5.2 Internal and External Auditing

        In Aguolu (2002:309), he defined Internal auditing as an independent appraisal of the functions and quality of performance of an organization by a specially assigned staff a part of the internal control system. An employee of an organization who reports to the management carries out this audit.  External auditing is also an independent examination of the financial statements of an organization by an auditor who is appointed by the shareholders. Though he may perform the same procedure with the internal auditor, but he is responsible to the shareholders who appointed him (Aguolu, 2002). External auditors should observe the highest level of business and professional ethics and, in particular, their independence should not be impaired in any way. They should be objective and consciously aware of their accountability to the shareholders.


Peterside’s Report and Banker’s committee said nothing about position of internal and external auditors in their codes. Whence they are silent, it is assumed that the provisions of CAMA rules. But in the recent released Code of Corporate Governance by CBN it maintained that internal auditors should have integrity, independence and competence. The Code stipulated that the Head of Internal Audit should not be below the rank of AGM and should be a member of a relevant professional body. This is to ensure that efficiency and competence is brought to bear on the internal audit department. Internal audit department reports to the Board Audit Committee and forwards a copy to chief executive officer and the chairman of the board. CBN Code of corporate governance also made some outstanding provisions on the roles of an external audit. It re-iterated that external auditors should maintain arms-length relationship with the banks they audit and that the appointment of External Auditors will continue to be approved by the CBN. Still on the appointment, a radical provision has been made to dilute the monopoly enjoyed by some audit firms in the audit of banks. It is the tenure restriction of auditors in a given bank to a maximum period of ten years after which the audit firm shall not be reappointed in the bank until after a period of another ten years. This provision will go a long way to reduce the level of monopoly that exists in the industry, and shore up auditors independence. In order to eliminate the conflict of interest in the course of his duties external auditor is restricted from providing the following services to their clients;

  • Bookkeeping or other services related to the accounting records or financial statements of the audit client;
  • Appraisal or valuation services, fairness opinion or contribution-in-kind reports.
  • Actuarial services;
  • Internal audit outsourcing services;
  • Management or human resource functions including broker or dealer, investment banking services and legal or expert services unrelated to the audit contract.

As a tool for controlling the practices of external auditor in the industry; the Code stipulated that Quality Assurance Auditing should be engaged whenever the CBN suspects a cover-up by auditors, and where cover ups are proved, erring firms would be blacklisted from being auditors of banks and other financial institutions for a length of time to be determined by the CBN. Also the code laid down that audit firm would not provide audit services to a bank if one of bank’s top officials (Directors, CFO, and CAO etc) was employed by the firm and worked on the bank’s audit during the previous year. This ensures that external auditors are completely independent in their audit function. 


        If banks and regulatory authorities are to learn from the collapse of indigenous banks and Enron Energy Corporation, they must look more closely at the relationship between auditors, managers and the audit committee of these firms. Accountants and auditors of these firms are known to have compromised their responsibility and integrity for pay cheques. There were a lot of accounts misreporting in these firms. Lorsch (2002) observed that accountants sell creative accounting to their client, just as they sell tax services and consulting. This breeds unethical competition and encourages cheap audit services among the auditors, all in the name of maximizing profit for themselves. Losch (2002) also made a more radical suggestion that appears to be workable and practicable in the Nigerian case. He suggested a legislation to create an independent Self-Regulatory Organization (SRO) to oversee the accounting firms. This self-regulatory organization will fairly involve the government in its affairs. The SRO will have the rule-making, supervisory and disciplinary powers similar to those of Securities and Exchange Commission (SEC). The SRO will be to auditors what SEC is to Nigerian Stock Exchange. This suggestion will be a good and workable solution to the monitoring the performance of the auditors. But in Nigeria, involving government may bastardize the idea because politicians are likely to use SRO as a political tool. It is the opinion of this thesis that such powers will be bequeathed with professional accounting body in Nigeria. Presently, a tribunal exists in the Institute of Chartered Accountants of Nigeria (ICAN) who investigates and tries cases of unethical practices of its members. As an improvement on what is on ground, the existing tribunal should be authorized to regulate the activities of all auditors under various professional memberships.


2.5.3   Risk Management 

        King II defined Risk Management as the identification and evaluation of actual and potential areas of risk as they pertain to a company, following by a procedure of termination, transfer, acceptance (tolerance) or mitigation of each risk. Risk management is therefore a process that utilizes internal controls as a measure to mitigate and control risk.

All sorts of risks are inherent in the banking practices today due to rapid changes brought about by globalization, deregulation and technological advances. Sound corporate practice cannot be said to be in practice if banks do not properly manage their risks. Carse (2000) identified different kinds of risk in the banking industry as credit, interest rate, market, liquidity, operational, reputation, legal and strategic risks. In addition to the above mentioned King II cited other risk which management should always assess as human resources risks, technical risks and compliance risks.

On the risk management, CBN Code mandated banks to institute a risk management framework, which include risk management unit that will assert the effectiveness of risks management and internal control. As a matter of policy, “the board is responsible for setting risk tolerance and related strategies and policies. It is also the board’s responsibility to review the effectiveness of these policies on a regular basis and in a manner in which its objectives are clearly defined for the benefit of management to guide them in carrying out their responsibilities”. Ultimately, the new Code stated that the board should disclose/report how the company has dealt with risk and control in its annual report.

Similarly, the Code also provided for the formation of Board Credit Committee and that neither the Chairman of the Board nor the MD is legitimate to be the chairman. The member of Board Credit Committee should be composed of members knowledgeable in credit analysis.


        There is something wrong with the risk management reports of banks, which are disclosed in the financial. The report is usually too brief to inform stakeholders the extent of risk management in banks. Also, other relevant information like the members of the committee in charge of Risks and the terms of reference is not disclosed to users of financial information. In King II, the disclosure is mandatory. This thesis is of the opinion that full disclosure of risk management information is very essential as well as the disclosure of compositions of the Committee. The competence of members of the Risk Management Committee could improve the image banks and as such, the Board will prefer fronting their best brain for risk management.

Furthermore, this thesis is recommended the disclosure of risk ratings of banks in the financial reports. Risk rating being an informed opinion on the quantum of risks depositors will bear when it deposits his money with a bank (Eyiyien, 2002). The rating is usually done using CAMEL test and other parameters. Today, banks have invested so much on IT infrastructures just to enjoy that benefits that accrue from IT driven services. This culminates to what we know as e-banking today. The board of the banks will need to consider and put into effect policies that will minimize the incidences of risk inherent in e-banking. Unegbu (2004) stated that “the environment of operations should be an important factor as e-banking systems may expose banks not only to transaction, strategic, reputation and compliance risks, but to other risks as well like credit risk for banks that grant lending services online”. Proper management of these risks will usher in a sound corporate governance practices. Details of some these risks will be discussed under the ‘challenges of corporate governance in the post consolidation era’. 

2.5.4   Disclosure and Transparency

        As was stated earlier, ‘Disclosure and Transparency’ is one of the principles of Code of Corporate Governance recognized by OECD. Furthermore, CBN Code refers to them as “the core attributes of sound corporate governance practices that are essential to installing stakeholder confidence”. They are the attributes that ensure timely and accurate disclosure of all material matters regarding the corporation (including the financial situation, performance, ownership and governance of the company). Why should the board be transparent? They should be transparent because they are accountable to multiple stakeholders, namely shareholders, investors, employee, trade unions, tax authorities, suppliers and other public authorities (Unegbu, 2004). These stakeholders have various interests, which have to be balanced by the board of directors. These interests may be in conflict and at variance with one another. Even though these stakeholders have no ownership interest in the company, the member of the boards of directors representing the owners is accountable to the various stakeholders for their actions. Disclosure and accountability are properly integrated that you cannot have one without the other. Barly A. in Unegbu (2004) emphasized the importance of disclosure by saying that it is at the heart of accountability. The new CBN Code of Corporate Governance outlined some of these disclosure and transparent measures:

  1. Where board directors and companies/entities/persons related to them are engaged as services providers or suppliers to the bank, full disclosure of such interests should be made to the CBN.
  2. Chief Executive Officers and Chief Finance Officers of banks should continue to certify in each statutory return submitted to the CBN that they (the signing officers) have reviewed the reports, and that based on their knowledge;
  • The report does not contain any untrue statement of a material fact.
  • The financial statements and other financial information in the report, fairly represent, in all material respects the financial condition and results of operations of the bank as of, and for the periods presented in the report.
  1. Any director whose facility or that of his/her related interest remain non-performing for more than one year should cease to be on the board of the bank and could be blacklisted from sitting on the board of any other bank.
  2. Banks should also establish ‘whistle blowing’ procedures that encourage (including by assurance of confidentiality) all stakeholders (staff, customers, suppliers, applicants etc) to report any unethical activity/breach of the corporate governance code using, among others, a special email or hotline to both the bank and the CBN.
  3. The CCO shall make monthly returns to the CBN on all whistle blowing reports and corporate governance related breaches.
  4. The CCO together with the CEO of each bank should certify each year to the CBN that they are not aware of any other violation of the Corporate Governance Code.
  5. The corporate governance compliance status report should be included in the audited financial statements.




        The shareholders’ role in ensuring good corporate governance cannot be overemphasized. Shareholders statutorily are equity holders how have entrusted their wealth and investment in the hands of the management who manages and make returns to them. Because management crafts strategic business idea and maximize return for the stakeholders, so many shareholders have decided to go to sleep thus abandoning their investments in the hands of the board and management. CBN Code of Corporate Governance identified this class of shareholders as passive shareholders. In spite of the provisions of the CAMA, Code of corporate governance, many shareholders have always neglected their rights and responsibilities. As a result of their non-responsiveness, corporate governance practice in the recognize these type of investors exist and should be able to sieve out short term interest of hedge investors in accepting the proposals of shareholders.



The CBN Codes of Corporate Governance suggested that shareholders needed to be responsive, responsible and enlightened. To this end, the Code reposed on them more duties towards the enthronement of corporate governance. One of such provision is the appointment of ordinary shareholders to be members of the Board Audit Committee. The Code went ahead of recommend that one of the shareholders in the Audit Committee to be the chairman of the committee. This is a way of making them very active in monitoring the performance and activities of the management.

Another enabling provision is the requirement for the review or appraisal covering all aspects of the board’s structure and composition, responsibilities, possesses and relationship as well as individual member’s competencies and respective roles in board performance by an outside consultant. The appraisal report is required to be presented to the shareholders in the AGM. Such a vital report will enable the shareholders to cast their vote’s right in electing the board members.

Other rights given to shareholders by CAMA so as to make them more alert and active in following up the activities of the management include right to information, right to elect company’s director and external auditors, and right to dividend.



        Statutorily, directors and external auditors are at the service to the shareholders and should remain accountable to them. Therefore, shareholders have right to information and to decision-making. Incidentally, many shareholders are not aware that the law requires the directors and external auditors to be accountable to them. The moment shareholders realize these rights and are willing to exercise them, management will sit up knowing fully well that they are under closer scrutiny.

They are supposed to render the account to them at the General Meeting. It then becomes imperative that shareholders should be present at the General meetings of the company so as exercise their rights of election and right to receive reports from all groups that are supposed to report to them. General Meeting also is supposed to be an interactive session between the shareholders and all the groups that are accountable to them. This thesis is of the opinion that shareholders’ activism should be encouraged so as to enable them to responsive to the performance of the management.

This thesis will round up this section by citing the simple model in corporate governance that typifies the place of shareholders in the enthronement of corporate governance as contained in Sullivan (2001);

Shareholders elect the shareholders to represent them. Directors vote on key maters and adopt the majority decision. Decisions are made in a transparent manner so that shareholders and other can hold directors accountable. The company adopts accounting standards to generate the information necessary for directors, investors and other stakeholders to make decisions.


In the enforcement of corporate governance in Nigeria banks, this thesis will recommend two approaches namely Self-induced and Statutory Approaches. While discussing regulation, reference will be made to compliance to the forms and substance of corporate governance (ABSA, 2004) Forms of corporate governance is synonymous with the letter of the law while the substance of corporate governance is similar to the spirit of the law. When corporate governance is self-induced or internally motivated the board lays greater emphasis on ensuring compliance with the substance of governance. At any time the substance of governance is complied with, then the form is complied with as well, but not vice versa. This preface will usher this thesis to the discussion of self-induced, statutory regulations and the role of the regulatory authorities in the institutionalization of corporate governance.


Self-Induced Regulation   

This is a bid to maintain the substance of corporate governance by the board that by its composition, decisions, strategies, policies and operations ensure that the banks are properly managed and, adequate information and return renditions made to the stakeholders. The board makes a policy that abides with the Code, not necessarily because the law requires them to do so but because it deems it fair and just to do that. In the period of post consolidation for banks in Nigeria, it is very unlikely that banks will enthrone the rule of corporate governance if the statutory regulations are not augmented by the self-induced regulation. Afolabi (2006) on self regulation says, “Self regulation and self discipline are likely to be more effective than regulation by government agencies because it is based on self conviction” Nevertheless, self regulation does not and should not eliminate the regulatory controls and supervisions of the regulatory authorities.

On the advantage of self-regulation, Chizea (2006) noted “that when good governance becomes the order of the day amongst banks, the job of banking supervision is made very easy”. This still emphasizes the need for harmonizing the externally induced regulation with the self induced regulation. Finally, self-regulation requires probity, transparency and accountability.


Statutory Regulation        

Much greater challenges of breaking Nigeria away from the list of countries notorious for prevalence of weak corporate governance and poor controls lies heavily on the shoulder of the regulatory authorities. Marshalling out relevant facilities – legislation and cohesive apparatuses, can surmount these challenges. Over the years in the banking industry, a lot have been done in area of statutory regulations from 1952 till date. As early as the pre-independence period, the first banking regulation was introduced to arrest the embarrassing crises in the industry. This regulation marked the first Banking Ordinance. Since then, it has passed through series of amendments and modifications, and it has metamorphosed to what we have today as Bank and Other Financial Institution Act (BOFIA) 1999 as amended. Others are Failed Banks Act of 1994, Company and Allied Matters Decree 1999 as amended, NDIC Act, Prudential Guideline of CBN, CBN Circulars and the Code of Corporate Governance in Nigeria for Banks in the Post-Consolidation regime. So many sections of these laws provided for ethical practices in the industry, and the management of banks. Regrettably, these laws were not enforced and that is why there were so much dooms and impending dooms in the industry before Prof. Soludo (CBN Governor) pronounced his banking Reform agenda. The regulatory and government agencies have very vital role to play in ensuring that the companies in the country acquire better understanding of the need to extol good corporate governance in their business. Over the years a lot of government regulatory institutions have been instituted to monitor and control a segment of business in Nigeria. Many policies, rules and regulations, guideline and codes have been marshaled out by these government agencies. Some of them are Corporate Affairs Commission (CAC), the Nigerian Stock Exchange (NSE), the Securities and Exchange Commission (SEC), the Central Bank of Nigeria, National Deposit Insurance Commission (NDIC) etc.


Banking reform by way of consolidation is a tool for achieving coherent sound governance in the banking industry. Governance that is devoid of malpractices, misinformation, forgery, and weaknesses in the internal control, to mention but a few. Nevertheless, this purported solution has its attendant challenges which if not properly addressed may result into a situation worse that than it was before consolidation. It is a credit to the CBN for being apprehensive and proactive to these challenges.

In the New Code, the challenges of corporate governance are articulated as;

  1. Increased level of risk
  2. Technical incompetence of board and management
  3. Lack of harmonies relationships among directors
  4. Ineffective integration of entities.
  5. Poor integration and development of information technology system, accounting systems and records.
  6. Continued concealment
  7. Insider-related lending
  8. Resurgence of high level malpractices
  9. Inadequate management capacity.
  10. Rendition of false returns.
  11. Lack of Harmonious Relationship between Management and Staff.
  12. Ineffective board/statutory Audit Committee
  13. Inadequate operational and financial controls.
  14. Absence of a robust risk management system
  15. Disposal of surplus assets
  16. Transparency and adequate disclosure of information.



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