BUSINESS GOVERNANCE REPORTS

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Requirements for disclosures about corporate governance Institutional investors need information about corporate governance in order to make better investment decisions.

Such information is provided in corporate governance statements as part of the annual report. Corporate governance statements by listed companies are often quite long. Typically, they fill five or six pages in the annual report and accounts.

The specific content of a corporate governance statement may vary from jurisdiction to jurisdiction, although modern corporate governance reports often rest on similar foundations and require similar disclosures. 2.2 Requirements in Nigeria Nigeria has a modern and comprehensive corporate governance code.

The Financial Reporting Council of Nigeria has unified the various sectoral corporate governance codes into one, the Nigerian Code of Corporrate Governance 2018.

The Securities and Exchange Commission (SEC) requires that the annual reports of all quoted companies should include a corporate governance statement.

The corporate governance report should convey clear information on the strength of the company’s governance structures, policies and practices to stakeholders. General requirements


The report should include the following:  details of the composition of board of directors stating the names of chairmen, CEO and non-executive directors;

 the roles and responsibilities of the board setting out reserved for the board and those delegated to management;

 details of the process for making board appointments and the induction and training of board members.

 

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The Securities and Exchange Commission (SEC) require that the annual report includes a chairman’s statement which provides a balanced and readable summary of the company’s performance for the period under review and future prospects and should reflect the collective view of the board.

Typically, the report will be one or two pages addressed to the clients, shareholders, members or others with an interest in the organisation.

There is no mandatory content but typically the report might contain the following:

 comments on the results;  an overview of trading and the business including management, succession planning, diversity and values;

 a governance overview including the impact of governance and risk

 

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Requirements in the EuropeanUnion In the European Union and in other countries, the principle of ‘comply or explain’ is applied.

Major companies are required to comply with a recognised code of corporate governance, or explain their non-compliance.

Major companies are required to prepare a corporate governance statement each year. This is included in their annual report and accounts. In the UK for example, the Listing Rules of the London Stock Exchange require a statement in the annual report and accounts (of listed companies) relating to compliance with the UK Corporate Governance Code. In 2018, the Nigerian Financial Reporting Council issued the Corporate Governance Code for listed and non-listed firms in Nigeria, with commencement date of January, 2019.

This Code has six key governance pillars, containing 28 principles with recommended practices for their implementation, which are required to result in four expected outcomes.

These are: enhancement of business integrity; rebuild public trust and confidence; facilitation of trade and investment; and drive business sustainability.

 

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‘Management commentary’ is additional information about an entity that complements the information provided in the financial statements of an entity. Two important features of management commentary are that:

 it is provided by management, and expresses the view of the management of the entity;

 it is a commentary; therefore much of it is in a narrative form. The Canadian Accounting Standards Board has defined management commentary as follows

Definition Management commentary: A narrative explanation, through the eyes of management, of how your company performed during the period covered by the financial statements and of your company’s financial condition and future prospects.

The IASB agrees with most of this definition, but believes that management commentary should include quantitative information as well as narrative; therefore to call it a ‘narrative’ explanation is misleading.