BUSINESS OF GOVERNANCE REPORTS

[Yakub02]

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.

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 Corporate 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 matters which are reserved for the board and those delegated to management;  details of the process for making board appointments and the induction and training board members.

 

[Yakub02]

Statement of compliance The annual report should contain a statement from the board with regards to the company’s degree of compliance with the provisions of this code.

In particular it should provide:  assurances that effective internal audit function exists and that risk management control and compliance systems are operating efficiently and effectively in all respects;

 justification where the board does not accept the audit committee’s recommendation on the appointment, reappointment or removal of an existing external auditor; explaining the recommendation and the reason for the board decision;

 statement on sustainability initiatives;

 related party transactions;  the nature of the related party relationships and transactions as well as information about the transactions necessary to understand the potential effect of the relationship on the financial statements.

 

[Yakub02]

Accounting and risk management issues

The board of every public company should ensure that the company’s annual report makes sufficient disclosure on accounting and risk management issues. In particular, the following matters must be disclosed:

 the statement of the directors’ responsibilities in connection with the preparation of financial statements;

 details of accounting policies utilised and reasons for changes in accounting policies;

 where the accounting policies applied do not conform to standard practice, the external auditor should express an opinion on whether they agreed with the departure and the reasons for such departure;

 a statement from the directors that the business is a going concern;

 executive directors remuneration and share options;  non-executive directors fees and allowances and share options if any;

 

[Yakub02]

risk management indicating the board’s responsibility for the total process as well as its opinion on the effectiveness of the risk management procedures.

The chairman of the board is a non-executive director and as such should not be involved in the day-today operations of the company.

The chairman’s primary responsibility is to ensure effective operation of the board and that it works towards achieving the company’s strategic objectives.

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 organization.

 

[Yakub02]

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 management processes;

 comments on corporate responsibility, sustainability and communities;

 commentary on markets and the environment; and  an outlook statement.

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.

 

[Yakub02]

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.